In the shared video, Miller has explained procurement and outsourcing with few examples. Below are the few points which are discussed in the video:
Outsourcing is a process where an organization assign or delegate some organization’s activities to outside company by seeking benefits or fulfill some business need. Initially, manufacturing used to outsource, nowadays product design and innovation get outsourced. Benefits can get in terms of cost savings, competitive advantage, focus on core business etc. Likewise, outsourcing provides many advantages to organizations, whereas it can bring dependency issues. It can be competitive knowledge sharing to competitors. Therefore, in outsourcing secondary activities of business outsourced to other companies.
In general, there are two main reasons to outsourcing; dependency on capacity (Knowledge and Skills) and dependency on knowledge. Based on the product is modular or integral, outsourcing decision may differ. There are few parameters that need to consider while outsourcing, those are customer importance, component clock speed, competitive position, capable suppliers and architecture.
Procurement is the process of finding and acquiring the goods, services or works from the external organizations. Procurement decision should be made considering few parameters like types of products the firm is purchasing, level of risks and uncertainty involved.
Kraljic’s Supply Matrix:
This matrix works on two dimensions; one is profit impact and another is supply risk. Using these two dimensions, firm can decide where they land while procuring any service or product.
In a procurement process, getting suitable suppliers to business is challenging. Suppliers price negotiation depends on demand and supply gap. If the demand of procurement thing is high and supply is less, then suppliers offers high prices and vice versa. E-market provides a platform where may suppliers easily accessible and firm can find suitable suppliers easily. Advantages of e-market are; flexible revenue model and open market. There are two ways e-market service is accessible; one is licensing fees and second is subscription fee. Install.com for food service industry and Pefa.com for a fresh fish market are two examples of e-market.