Segmenting Your Services Procurement Spend – Contingent Workforce and Beyond

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Within procurement, it goes without saying that you can’t control what you can’t see. In modern supply chains, firms gain visibility into their spending and internal processes based on the process of segmenting spend and suppliers – and then influence each specific spending area with the appropriate management techniques and tools. This is true of both direct and indirect goods (and related services, of course).

Relatively speaking, technology and tools within the direct supply chain have a longer history (and runway) going back to manufacturing resource planning (MRP) systems, a predecessor to manufacturing-centric ERP capability. It is no surprise their penetration within in the direct spend area companies is higher than services. We’ve simply had better information for a longer period of time spanning direct spend than indirect.

Today, technology adoption for managing the contingent workforce (and broader services procurement suppliers) remains generally weak. Our recent survey data suggests 31% of respondents report using an ERP or e-procurement application/suite that has been adapted to support contingent labor compared with 27% that have built “homegrown” solutions. Eighteen percent use their MSP’s proprietary vendor management system (VMS), and 16% rely on other services procurement technology applications. Only 20% (of respondents) use an unbundled vendor management system (VMS).

But regardless of whether a firm uses specialized technology for managing contingent workers, a single approach is not sufficient; how one builds visibility and manages, for example, the buying of aluminum for forged or fabricated components (and the value added steps in creating parts or finished products) requires a different approach than building visibility into and effectively managing energy costs. For this reason, many good procurement practices begin with spend segmentation. And so should services procurement spend segmentation as well.

We encourage you to download our full report on the topic before it becomes PRO subscriber-only content. Applying Supply Chain Rigor to Contingent Workforce Management is available for limited period of time, via the previous link, in the Spend Matters research library. We also encourage subscribers and the broader services procurement ecosystem to reach out to our team to discuss the findings and how procurement organizations can adapt supply chain best practices to services procurement. This post is based on content from the broader study and paper.

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