Procurement Service Provider Definition
What is a Procurement Service Provider?

What is a Procurement Service Provider? The State of Massachusetts has defined Procurement as "the process to obtain materials, supplies, contracts at the best price reasonably available through open and fair competition."

The use of Procurement Service Providers is rapidly increasing due to global market conditions and the need for businesses to maintain and reduce costs without eliminating resources. Many world-class organizations have already contracted with PSP's and estimates show that nearly half of U.S. companies are considering using PSP's in the next five years. Please read the information below to learn more abut Procurement Services Providers.

Procurement Services Provider

A Procurement Service Provider, or PSP, is a third party organization or consultant which is used to supplement internal procurement departments. PSP's have their own staffing which assist in a variety of tasks for their clients. These tasks include: strategic planning, implementing best practices, supplier rationalization, supplier collaboration, strategic sourcing and negotiation.

"Enterprises utilizing PSP's have been able to improve spending coverage, reduce costs for goods and services, employ industry best practices, leverage the latest procurement technologies, and streamline source-to-pay processes - all without taking on the risks and assets required to achieve such results."
        Aberdeen Group Research Abstract: You Will Outsource Procurement: Here's Why and How - October 16, 2002

Why use a Procurement Service Provider?

At most organizations, it is very expensive and difficult to maintain domain expertise in every category of spend. Using a PSP avoids the burdens of procurement infrastructure for non-strategic categories. A Procurement Service Provider can provide a rapid analysis of an organization's spend and implement changes, negotiate with suppliers, and use proven industry best practices. A good PSP will become an extension of the organization's existing procurement resources, in a non-obtrusive fashion.

In a recent article titled "Strategic Sourcing in the Mid-Market Benchmark: The Echo Boom in Supply Management", the Aberdeen Research Group wrote about potential new approaches of Mid-Market company's sourcing initiatives due to findings showing that they currently have mostly fragmented or limited sourcing efforts. Specifically, to remain competitive, Mid-Market companies should have "Increased reliance on third-party consultants to help define strategic sourcing process and train internal employees on commodity costing models, sourcing automation tactics, and category and supply market assessments."

Additional research shows:

"...research of enterprises that have outsourced management of specific procurement processes and/or specific categories of spending have been able to achieve material cost reductions that average between 10% and 25%. In some cases, material cost reductions topped 30%."
        Aberdeen Group Research Abstract: You Will Outsource Procurement: Here's Why and How - October 16, 2002

How do I use a Procurement Service Provider?

The answer is: it is up to you. Some organizations choose to completely outsource their procurement departments to a dedicated procurement company. However, this is not possible for most customers due to the complexity of their business and the goods/services that are purchased to support it.

Every organization is unique, and there is no single answer that works for any organization. Procurement Service Providers can be used in any of the following scenarios: replace your current procurement department, supplement your current resources in strategic or non-strategic product areas, provide electronic tools to make your procurement department more efficient, or simply as consultants for implementing best practices.

Keep in mind that you do not have to outsource your entire procurement network, it is usually best to select a target area, and gain top-level support within your organization before contracting with a Procurement Service Provider.

How Do I Decide Which Procurement Service Provider Is Right For Me?

There are a large variety of Procurement Service Providers in the market, and new companies are moving into the market every day. The choices and offerings from Procurement Service Providers can be overwhelming.

For tips on how to select the best Procurement Service Provider for your organization, Click Here: Selecting a Procurement Services Provider.

Find More Information on Selecting a Procurement Services Provider Here: Tips for Selecting a Contingency Based Strategic Sourcing Consultant

Click Here for a quick list of highly qualified Procurement Services Providers

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