Is Services Spending That Much More Challenging Than Goods Procurement?


When you look at modern supply chains, they’re certainly complex, but they’re also run pretty darn rigorously in terms of direct materials spending. Cost breakdown understanding and benchmarking? Check. Inventory requirements? Check? Continuous improvement? Check.

Yet, when you look at services spending, there is also a lot of complexity:

  • Specifying requirements for people seems a bit more fuzzy than the form/fit/function specifications of widgets.
  • The scope of “services” is equally fuzzy. Services are not themselves part of a clean spend category – services are embedded throughout hundreds of other spend categories.
  • The definitions of “services” are also ambiguous. For example, consider “just” contingent labor. How do you define it? Is it temporary labor only? Does it include freelancers/independent contractors? How about ANY non-pay rolled labor? How about consulting firms? BPOs? MSPs?
  • Who manages the above when they crossover into multiple spend categories? What’s your definition of spend influence? Is the operating model clear between HR and procurement?
  • The “services chain” is multi-tier with potentially many markups along the way – yet, it’s not very transparent and can be quite risky.

So, I think the answer is yes, it is much more challenging, but not just because of the inherent complexity, but also because it is so hidden and diffuse.

Everyone needs services, and although everyone also needs office supplies. But, this is not an “indirect story” of spend diffusion. Services are just part of a supply chain of a different color – even if people don’t like calling it a supply chain (people aren’t widgets, right?). Yet this services supply chain seems to be managed at 2 Sigma – not 6 Sigma. And, in a services-based economy where companies no longer seem to want to hire full-time workers, the strategic management of contingent workers across this complex services chain seems pretty important, right?

Heck, how about just the strategic sourcing, or even decent tactical sourcing? Leaving strategic sourcing activities to contingent labor MSPs is not always a recipe for effectiveness, albeit somewhat efficient. In fact, companies are just trying to get the P2P part of services procurement in place.

This whole area seems to be a bit of mess, and the question that I have then is why can’t we take the best practices from the physical chain and apply them (or some variant of them) to the services supply chain? Doesn’t demand management still apply? “Make” vs. buy? Multi-tier management? Market benchmarking? You get the idea.

Unfortunately, I haven’t found any good studies that really quantify, or at least highlight, the problem in this way.

I won’t just complain about it. I’ve teamed up with The Institute for Supply Management (ISM) and also with the Society of Human Resources Management (SHRM) to run one of our short snap polls (this one takes about 9-12 minutes) to gauge the problem.

We simply assess how well a few supply chain approaches/practices are applied to contingent labor (broadly defined).

If you are a practitioner at a firm with more than 1,000 employees and someone who knows your supply chain well (or the contingent labor – or both!), we’d really appreciate your insight.

The link to the poll is here.

The study is open for two weeks, and then we’ll analyze the results and send them to the study participants (of course all responses are confidential and we won’t share your contact details with anyone).

First Voice

  1. alun@marketdojo:

    Within the world of eSourcing, we have often been asked the question “Can you eAuction Services?”. The conversation normally resolves around the ease of eSourcing widgets but services presents too many challenges. And given the points mentioned above you can understand their point of view. However, many clients have found that you can easily mitigate risks by spending more time on the SLA’s. These can be complex but once they are done they are there for the years to come. Also by using appropriate PQQ’s and obtaining pre bids (or even running an RQF first) you can prevent inappropriate suppliers coming in with ridiculous bids. Finally many clients are using weighted tenders more frequently to better judge the non quantifiable elements. By using these tactics we are seeing services becoming ever more popular in the world of eSourcing. We are very much looking forward to see how the assessment above pans out and what approaches are recommended.

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