Services Procurement: A New Savings Horizon
What makes services procurement difficult? The study notes that the volume of suppliers that an organization must manage in services procurement is part of the challenge: "on average respondents dealt with 105 active suppliers, as opposed to 36 active suppliers for the purchasing of direct materials." But these numbers only tell part of the story. As the analysis also points out, most companies lack the right systems and processes to proactively manage services spend. I'd add to this observation that it's not just the more advanced procurement organizations that appear to have a better handle on their services procurement spend.
In my recent discussions with providers -- especially in the contingent labor and talent management arena -- there does not appear to be a common trend around whether typical customers have also invested significantly in PO-based procurement technology enablement and management. In fact many companies who are more advanced in the labor-portion of services procurement might be behind in traditional catalog and PO buying (this is often the case when HR is takes the lead in the contingent labor procurement and management area). Food for thought, I suppose. For me, this clearly points to the need for procurement to seize the initiative when it comes to services procurement automation, making it part of an integrated technology and process strategy that cuts across spending areas. On the technology side, who can you turn to for services procurement automation? Click Commerce, Fieldglass, IQNavigator and Peopleclick are just a handful of best of breed vendors, to name a few.
- Jason Busch
http://www.purchasingcourses.com/2008/04/services-...
A traditional PO would have a line for each rate for the resource needed. In this case, you'd need a line for hourly, OT, double OT, and shift differentials. Each line typically has a preset quantity...but the truth is that no one can accurately predict the usage of these different rates. As a result, most companies would just use a blanket PO for a total amount and allow the vendor to invoice against it. This approach causes the company to lose contract compliance, which is the #1 issue in services deals. In addition, closing the PO is complicated because services are always extended or ended early...but never end on time! So, managing changes to POs is easier.
There are three different types of situations we find ourselves in:
HR may want to manage the combination of employee recruiting, external recruiters, and temp labor.
Procurement/sourcing may want to manage temp labor and external recruiters.
A strategic sourcing team may want to manage services, but not want to invest in multiple systems and data repositories.
Depending on your paradigm, you pick the best vendor. Taleo is great for HR, FieldGlass is great for #2, and Ariba is great for #3.
I ran $400M-$600M of services procurement, and big package companies like Ariba can do it. It does not offer all the bells and whistles that Taleo or FieldGlass do. Ariba and its kin also do not frame the solution well for paradigms #1 and #2. Big software packages also requires lots of configuration (and some minor customizations) to handle the additional requirements typically voiced by Taleo and FieldGlass users. Finally, almost none of the available software cannot easily merge into complicated IT project planning and financial tools without compromises in these areas.
With all that said, the functionality a sourcing team gets from a big package is great because it handles all types of relationships and types of services. Administrative temp labor MSPs that provide data in bulk loads to validate pricing and collect data, IT contract labor vendors who need timecards approved, consulting services who need milestones, expenses, and hourly billing, security/janitorial services that need fixed pricing plus a la carte fees, outsourcing services that need transaction pricing, pass-through expenses, and penalties/incentives, shipping fees that need to be validated, etc.
Why pay for multiple systems, deal with multiple integration points, etc? More to the point, more and more deals are done with a combination of product/material, expenses, and labor. It doesn't make sense to process these in different procurement systems (direct, indirect, and services). I implemented a single system and my users (internal customers and vendors) can use a single system to buy/order/invoice/etc everything. The challenge is that it doesn't fit every unique process well, but that's not a bad situation...and there are workarounds.