PURCHASING OUTSOURCING:

CLEAR VALUE OF COMMON OR TRANSACTION REPORT

Łukasz Marzantowicz MSc1

Abstract

The added value in outsourcing purchasing and technological support is not profit, but the

possibility of long-term cooperation based on partnership relational. Purchasing which is

highly a capital intensive area brings the ability to achieve cost savings and optimization

burdensome, sometimes very problematic process requiring not only knowledge but also the

right resources, adequate facilities and know-how. In this article the author takes up the

problem of the relations among the participants of outsourcing services. Was analyzed the

definition of purchasing outsourcing in practical terms and shows the range of outsourcing

services in a small Polish company. This article applies to purchasing outsourcing services

between companies. Made to present a case study relying on basis of desk research for which

the data were obtained directly from one of the those described companies. Data from the

described company WMG Service s.c. relate the years 2010 and 2012, which made it possible

to illustrate the progress resulting from the cooperation relations in the Polish purchasing

market. Subsequently, an author on the basis of these data is presenting and structuring

relationships and the kind of relationships that occur in this type of service. This article

attempts to find and grouping problems that appear on the lines of cooperation between the

recipient and the giver of purchasing service. The author proposes a division of problems at

different levels of cooperation, taking into account the classical division of the level of

cooperation at the operational, tactical and strategic level. Therefore, the article shows not

only relational problems but also systematizes them, as well as attempts to identify typical

outsourcing relationship. The author has also attempted to distinguish these relationships from

elements of a transaction which is often with the relationship mistaken. This article is based

on a real case study and based on the analysis of the available literature.

Keywords: purchasing outsourcing, outsourcing relationships, relationship or transaction,

benefits and problems in outsourcing relationships

1University of Szczecin, Faculty of Management and Economics Services, Department of Logistics, Cukrowa Street 8,

71-004 Szczecin, Poland, Corresponding author: Tel.: +48-91-44-43-200; fax: +48-91-44-43-116.

lukasz.marzantowicz@gmail.com, lukasz.marzantowicz@wzieu.pl

INTRODUCTION

"The common meeting is a beginning, keeping together is progress, working together is

success"

Henry Ford

One of the most common logistics services as well as one of the most defined and included in

the scope of optimization services is outsourcing. The concept of outsourcing is to perform

the logistics service for the external contractor applying the principles of a market transaction.

Defining logistic services should pay attention to the fact that today, amidst many of the

characteristics of logistics and operations subject to logistics companies, this is a term

encompassing much broader spectrum than treated identity transport service, freight

forwarding and warehousing (Dembińska-Cyran I. 2002). Material scope of these services is

therefore much broader. Consequently, today the outsourcing is called, not so much as

modern service but ore as intelligent optimization activity. Intelligent, because it is a tool with

great strength and precision. The proper use of this tool can play a decisive role in the global

restructuring of the organization, including all its components and costs of resources (Bravard

J.L., Morgan R. 2010). Purchasing as one of three main areas of logistics, is a set of processes

that do not always make it completely possible to outsource. Purchasing, treated in Poland

under the age of 90 as a necessary evil, even today it is one of the most temporal and cost-

intensive aspects of the company. There is thus fear for lack of control over such an important

factor in the efficiency which is the cost. This article attempts to provide outsourcing services

in the purchasing and technical support in companies with highly specialized activities. The

article presents the possibility of using outsourcing as part of the cooperation market and

reaping mutual benefits. Attempt was also made to determine the owner of the service from

the point of view of the company as a contractor.

1. OUTSOURCING IN THE PURCHASING

The increasing market pressure and competition forces companies to constant search

optimization solutions. Transfer services, some parts of the business or simply get rid of the

problem outside the area is part of the optimization and, in fact, defines the outsourcing. The

concept of outsourcing is based on the definition of the scope and the need to optimize each

specific process. First of all the changes taking place in the management, which in turn is

expected to bring an increase in response to changes and adapting the organization's own

possibilities to meet the challenges posed by the market environment (Mikołajczyk Z. 2002).

However, the main objective of the outsourcing services application to achieve the effect of

the company to focus on core business. Outsourcing is thus not only a tool associated with a

typical reduction of costs, but it is an instrument that gives a specific relationship in a fixed,

long-term cooperation between the partners. Outsourcing is a long-term partnership and

creates a new kind of business relationships in which winning at least two sides (Kupczyk A.,

Koralewska-Mróz H. 1998). It can be considered as strategic concept. Among the many types

the outsourcing included in the company's strategy is a kind of philosophy of optimization. In

response to the question of what to use outsourcing for, you should focus on to what he has to

fulfill. Allowing the development of key business activities, which is about the

competitiveness being and profitability allows you to make longer and partnerships with the

service. Focus on core business activities are effected in this case through assignment out that

which from an economic point of view is the universal area or so highly specialized that from

the perspective of transaction cost economics will simply bring benefits (Obłój K. 1999).

Outsourcing Institute2 identified the 10 most important reasons for the use of the service:

1) optimization of operating costs,

2) focus on the core business,

3) access to better production capacity,

4) the use of its own resources for other uses,

5) the faster benefits of restructuring,

6) obtaining resources from outside the organization,

7) to get rid of the problem with the function impossible to do,

8) ability to raise capital,

9) to reduce the risk and its division,

10) inflow of cash.

In the modern terms, outsourcing can be determined by narrowing the definition for the

shortest possible form, based on the fact that it is already part of the strategy, not

misunderstood and characterized by negative feedback from reconstructive activity. Negative

feedback are the result of improper relationship management with service provider, to the

detriment of the internal image of the company by a sense of danger such as maintaining jobs.

2 Survey of Current and Potential Outsourcing End-Users, TheOutsourcing Institute Membership, 1998

In the understanding of the need for outsourcing, this service can be defined as (Bravard J.L.,

Morgan R. 2010):

- the use of resources (including assets) and external skills with guaranteed level of

quality and value on a contractual basis,

- provide services that were previously made inside the company ( with the existing

option of posting their own employees),

- transformation or renewal of technologies (including processes) of-business not

only in the basic range.

This rolled up the merits of the approach to this type of service determines the direction of the

relationship in purchasing outsourcing processes. Purchasing outsourcing is this kind of

element which is removed from the organizational structures of the company. Element

hitherto consistent with the company’s organized logistic activities. There is therefore a result

of the diminution of the organizational structure of a particular division. However, is how it

will be organized logistics operations including purchasing processes depends on many

factors, not just those related to optimization or simply saving but equally on e.g. the number

of clients, location and company size (Bloomberg D.J., LeMay S., Hanna J.B. 2002).

Assuming that the purchasing is an exceptional cost-intensive area of logistics because

consuming 60 to 80 percent of the of organization’s revenues (Murphy P.R jr., Wood D.F.

2010), seems to be a right decision to outsource such services. Currently, the purchasing does

not look only through the prism of purchase transactions or as a necessary evil, but more

important is the relationship between the cells in the context of supply chain management,

processes and relationships between suppliers. Purchasing is a really susceptible area to a

radical change in the attitude of thinking about potential suppliers, not just about the materials

or products (Bendkowski J. Radziejowska G. 2011). Another factor contributing to the

decision to outsource the purchasing may be the fact that, until recently, the concept of

purchasing management was equated with the concept of supply management. Consequently,

the principal of such a service should be directed to the partnership working and long-term

approach in business relationships. The essence of manage the supply is the relational

approach to work with a limited number of contractors (Murphy P.R jr., Wood D.F. 2010). In

the purchasing management the part of the purchase, simply treated as a transaction, could

leads them opportunity-oriented approach for emergency work depending on your needs and

the desire to make a quick profit. However, between the contractor and the outsourcing client

there is a specific relationship because of the potential mutual benefits. So a better, more

effective relational approach is a reflection of the desire of achieving bilateral benefits in the

long term and is characterized by decidedly other attributes such as trust, commitment,

investment and benefit-sharing (Lambert D.M., Knemeyer A.M. 2009). Supply due to the

specific characteristics often turns, aside from the obvious aspect of the service, in the so-

called technical and technological support. The reason being is to establish long-term

cooperation and relationship-based business partner. In the purchasing one notes a many of

conditions to be fulfilled by a partner which should have adequate resources, the use of

technology, providing the desired quality, and know-how of modern purchasing processes. So

focus only on making profit in the short term does not determine the long-term non-financial

benefits, thus overriding feature decisive to join the partnership business in purchasing

outsourcing services, however, will a shared vision of the relationship having a direct impact

on the strategic objectives of both sides (Kopczyński T. 2010).

2. WMG SERVICE – SERVICE PROVIDER WITH A CLEAR VISION OF

COMMON VALUES

Company "WMG SERVICE" located in Szczecin in his work combines elements of

mechanical engineering, electronics, automation, robotics, offering its customers the latest

innovations in the field of trenchless technology to repair water and sewage networks. With

knowledge of the issues mechatronics and many years of experience in servicing equipment in

the field of trenchless repair WMG SERVICE has become an authorized dealer for IBG

HYDRO-TECH GMBH and SANIKOM D.O.O. specializing in the production lines and

materials for trenchless repair water and sewage networks. WMG Service S.C. was created

30.06.2011. The founders are two partners who have worked together in the INFRA S.A.

company providing services for the renovation of water and sewer networks, for which the

WMG SERWIS S.C. company today provides outsourcing supply and technology services.

The main areas to be in employment the company INFRA SA include primarily the

implementation of new high advancement technologies in the field of mechatronics as well as

the organization of distribution channels (logistics networks - supplies of parts to the

technology currently used by INFRA S.A.). WMG Service S.C. involved in the

implementation of technology in the field of trenchless repair, not only to the company for

whom provides services but also to companies in water and sewerage sector, pointing to the

recent technological developments in the field of renovation, repair, underground

infrastructure. WMG SERWIS in addition to the implementation of new technology is also

providing its service giving to potential clients full support in the implementation and usage

(Internal materials from WMG SERWICE S.C. 2012). "Most of the advanced technologies

requires the full support of the service to which we attach great importance" (Direct interview

with Lukasz Wisniewski - President WMG SERWIS S.C. 2012). Outsourcing been provided

by WMG SERVICE S. C. is a typical example of the permanent long-term cooperation’s

possibility in the field of full technological support and purchasing. The relationship resulting

from the collaboration of the two companies leads to the mutual benefit, not only in the form

of the generated profits, but also the benefits of mutually stimulating the development of

technical. In case of such a specialized business scope the specified area of supply has

become not only getting rid of the problem, but generated possible to fill a niche in the market

for similar services. The company WMG SERVICE S. C. fills in a specific way this gap.

"Undoubtedly support services and trade offer allows to fill gaps in the domestic market.

However, due to the hermeticity of sector and a very narrow specialization, the experience we

have gained in the years 2004 - 2011 is of paramount importance" (Direct interview with

Lukasz Wisniewski - President WMG SERWIS S.C. 2012). The main scope of activity in the

initial stage of the company were services strictly meant for companies where the owners

have been so far employed. Even today revenues that are generated in the company are

largely the result of the primary activities of the company. Today's income from these

activities is approximately 40% of total annual revenue, which is illustrated by Figure 1. It

must be assumed that this is an impressive result considering the high specialization of the

sector.

0 200000

400000 600000

800000

Przychód ogółem

Przychód z outsourcingu zaopatrzenia

800 000,00

300 000,00

Figure 1. Annual Revenue and income from WMG SERVICE outsourcing business in

2012.

Revenue that the company achieved, providing a full supply and service requires noted that

mutual benefits. Regular income from the provision of services at shown in the graph above

shows the undoubted benefit, the remainder is the result of the company's activities in the

sphere of trade and other outsourcing business for companies such as: (Direct interview with

Lukasz Wisniewski - President WMG SERWIS S.C. 2012)

- water and sewerage companies,

- residential community,

- housing associations,

- individual customers (cottages)

Outsourcing services are directed primarily to companies closely associated with the

specialization of the company WMG SERVICE. "In the rest of outsourcing, the most

important for us are the companies that deal with the renovation of the network. Mainly in the

provision of equipment and services." (Direct interview with Lukasz Wisniewski - President

WMG SERWIS S.C. 2012). The owner of such services are the two sides. Both the client and

the service provider, in this case through the proper management of their relationship, they are

focused on partnership relations. Achieving the benefits can be controlled by an appropriate

long-term cooperation. Besides the obvious profit mutual benefit are also:

- careful analysis of customer needs - depending on the nature of the technology of

the work, contracts awarded,

- selection of materials - knowledge of the materials necessary to carry out the work

depending on the technology,

- experience in sector - we know how, what equipment, what materials you can

perform the service associated with the renovation,

- high knowledge of the field of mechanical engineering.

A very important aspect for both parties are the benefits of savings. Optimisation of

purchasing and service is the basis for making decisions about the common, uniform towards

achieving the objective. Savings flow is directed to the provision of basic activities of

partners. "For companies with an executive nature are large savings due to the lack of having

to create a powerful commercial service department. Service and commercial activities

closely associated with the construction site. Our job is to maintain a large fleet of equipment

with a large cross technology available to work, and in case of failure of timely restoration of

equipment by repairing on site. Which involves high technology knowledge and the creation

of appropriate inventory management through the creation of advanced parts distribution

networks. In this sector, the cooperation involves the knowledge of producers and technology

of an international character. Most of the technologies with which we are dealing with is not

our home product. Solutions should be sought in the international arena." (Direct interview

with Lukasz Wisniewski - President WMG SERWIS S.C. 2012)

3. RELATIONSHIP OR TRANSACTION – THE PROBLEMS OF

OUTSOURCING

Relational problems in outsourcing services seem to be a natural thing, least because the

occurrence of min. two participants in the service. Among the many benefits, there are many

concerns, not only in terms of making use of these services, but also of the strategic

importance of such a service. The scope of the concerns and problems in business purchasing

outsourcing relationship is quite broad. This is related to technological progress, as well as the

internalization of the purchasing in company that is why today impact on the achievement of

the most important, from the point of view of the transaction purchase price as a major factor

in these processes of globalization (Ocicka B. 2012). Thus, the order outsourcing services in

the area of purchasing is a strategic decision for the company. Services market in Poland is

growing while maintaining upward trend in the use of such services in many sectors and in

many groups of business enterprises. As shown in the report on the study of outsourcing in

Polish companies as much as 93% of respondents said they use outsourcing to varying

degrees, indicating that more than 60% of companies admitted that the biggest benefit

because in the range of 0-10% are savings3. Outsourcing not only saves money, but it puts the

emphasis on partnerships, which in a sense forcing entrepreneurs take steps to systematize

and describe the business processes they intend to exclude from the structures of the

organization. Such requests can be seen in a study conducted by AY Lewin and V. Couto,

who pointed out that more attention or even to appreciate the strategic importance of

outsourcing services (Lewin A.Y., Couto V. 2007). Therefore, at establishing and maintaining

relationships is a prospective and long-term significance for the owners of the service.

National outsourcing services market’s research conducted by Randstad Payroll Solutions

clearly shows that the continued use of such services is confirmed by 46.4% of the companies

specifying at the same time the specific reasons. The benefits of outsourcing resets table 1.

3 Raport firmy SEENDICO Doradcy, Wyniki badania outsourcingu polskich firmach, www.seendico.com

19.04.2013.

Table 1.

Reasons for outsourcing

REASONS YES NO

restructuring and reorganization 10,30 89,7

access to additional resources 20,5 79,5

additional funding 24,3 75,7

transfer functions are difficult to manage 44,3 55,7

focus on core business 33,3 66,7

reduction in operating costs 56,4 43,6

lack or insufficient resources 15,4 84,6

the desire to ensure the continuity of the service 17,9 82,1 Source: Report of Randstad's Payroll Solutions, National Research Outsourcing

Market 2012, s 14

Table 1 identifies the main reasons for outsourcing, these are the kind of strategic reasons,

therefore, the problems in the relationship between the supplier and the recipient of those

services are crucial for the optimization of management processes. Thus, you can specify the

main areas for relational problems:

I. Relational strategic problems:

problems associated with the mission, vision and purpose of the client such

as the lack of agreement linked to development,

bilateral problems associated with controlled access to the know-how,

bilateral problems with the appropriate use of specialized resources and

personal property,

supplier’s problems of filling the output gap on the nearest market,

bilateral structural problems,

bilateral problems associated with the ability to make their business from a

partner.

II. Relational tactical problems:

different expectations with respect to the effects of the applied

subprocesses,

problems associated with concerns about maintaining a proper quality,

problems associated with unclear external image of a company,

problems associated with the negative interior image, such as the reduction

of the negative perception of the level of employment,

concerns about unreliability of suppliers,

problems associated with concerns about the conditions to ensure

continuity of service.

III. Relational operational problems:

problems with the flow of information,

waiting for a quick profit,

problems associated with qualifications - lack of knowledge and skills,

problems with financing of projects,

problems with the acquisition of property and personal resources,

problems with the availability of technical and technological,

problems associated with the possibility of increasing the cost,

psychological barriers.

Three groups of concerns and problems in a relational partnership approach among the

participants such cooperation is not exhaustive relational problem, but it shows that the

relationship between the partners, if only because the validity of the existing problems should

not be a typical transactional relationship. However, it should be noted that for the sake of the

transactional nature of the purchasing, dealing with an economic point of view, is the driver of

the relationship, but it is only one factor of many other equivalent.

CONCLUSIONS

The added value in outsourcing purchasing and technological support is not profit, but the

possibility of long-term cooperation based on partnership relational. Purchasing that are

highly capital-intensive area, however, brings the opportunity to achieve cost savings and

optimization cumbersome, sometimes very problematic process requiring not only the right

but also the appropriate knowledge base of resources and know-how. A necessary condition

for realization outsourcing services in this area is aware of the need to use opportunities

offered by specializing in a particular field of the company. Business Partnership in

outsourcing bringing despite the risk but also bringing a lot more profitable. Identify and

define specific relational problems is somehow a determinant to find a common vision for the

development and the path to mutual success. The perception of the purchasing as a necessary

evil is therefore unfounded, because the opportunity to direct the flow of forces on their own

core business is often the determining factor of the existence of the company. The purchasing

areaand technological support can therefore be the basis for transactional and relational

business, if the partners see the value in the perspective of a common path of development

through jointly manage of outsourcing service.

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