Procurement as a Service (Part 2): Learning from Service Providers in Other Industries

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In Part 1 of this series on Procurement as a Service (PRaaS), we outlined numerous reasons why procurement organizations should consider adopting a service-oriented operating model. In this next installment, we'll explore how procurement organizations can improve their own service orientation by studying other industries and world-class services organizations.

Stay a Step Ahead of the BPOs by Engaging Them

In this digital age, there’s a quip that advises people to "stay ahead of the algorithm,” so that they are not automated out of a job. But there’s another corollary that says to stay a step ahead of (or at least close to) the BPO firms. Benchmarking is a tool that some large organizations use to see how well they deliver compared with third-party providers in order to “keep their saw sharp.”

Benchmark Against GBS Organizations

In a similar vein, procurement organizations can use benchmarking diagnostics from some of the major consultancies (contact us if you need guidance) to compare their service gaps relative to global business services (GBS) organizations delivering procurement services. It’s a good way to see the gaps around this whole service delivery operating model.

See Your Future: Stay in Touch with the BPOs — And Use Them Appropriately

Pardon the 'Caddyshack' reference, but BPO firms are engineering themselves to become highly industrialized and digitized service providers. For example, consider what Infosys is trying to do with its artificial intelligence-oriented Mana platform. By having its employees transfer their knowledge into a common platform, Infosys has built a collective intelligence that can more readily be deployed to future clients. More practically, procurement groups can work with a provider like GEP to buy some FTE-based capacity to start using its managed services, and then avail yourself to different services (including SaaS) from the provider as they become more comfortable and as results are delivered. They can also bring in the mega BPOs for something like tail spend management. But be careful who you let into the henhouse.

“Land and Expand”

Any good service provider trying to gain a new customer is familiar with this term (a more palatable version of “penetrate and radiate”). The approach is simple: get an entré into firm, pilot something, add some value and incrementally repeat. This is basically the same recipe for procurement trying to influence more spend and stakeholders. Rather than trying to push a new corporate-led supplier rationalization project down the throats of stubborn stakeholders who view procurement like this Dilbert cartoon, a much more effective approach is to align on a project of interest to the stakeholder. Deliver value to them and find more projects to do the same. Support their success and help them use procurement as key partner in that, regardless of spend category.

Shift from Category Management to Customer Management or “SAM”

Procurement organizations should never confuse customer management (or stakeholder management) for category management. The former is about making sure that a budget owner gets maximum value from supply markets and from procurement, regardless of spend category. It’s basically applying customer relationship management (CRM) to the [services] business of procurement. Many service providers use the term strategic account management (SAM). In fact, there is even an organization dedicated to strategic account managers, and it offers an entire playbook that explains how to sell to buyers — and how to circumvent old-school purchasing departments while engaging more progressive ones.

Be a Strong Services Buyer to Square Off Against Strong Services Sellers

Most procurement organizations do not manage strategic services suppliers with the same rigor that suppliers use to manage buyers. This is a category where strategic supplier management can really pay off. Procurement must help lead the management of strategic and critical third-party relationships, rather than allow those processes to be managed in silos through disconnected vendor management organizations or other means.

Being Good at Procurement Services Helps When You’re a Good Services Buyer

Services procurement is tricky. In fact, it’s really hard. Services is like a mega spend category that doesn't have its own category manager. Consider contingent labor. This mega category cuts across so many others, yet it’s often sub-optimized as an HR-centric category focused on tactical procurement of temporary labor. And as the category begins to include independent contractors and larger SOW-based services spend, more governance issues are coming to light.

As services spend becomes more formalized around output- and outcome-focused service-level agreements (SLAs), procurement adopt a similar approach to facilitate the consumption of procurement services. For example, some big pharmaceutical organizations embed third-party market intelligence services firms into their category management model so that category managers can quickly work with stakeholders to assess market intelligence requirements and provide realistic due dates about when those intelligence services will be able to deliver that intelligence.

General Lessons

There are many other lessons here from various industries surrounding:

  • Making the services easier to consume
  • Showing how other customers have gotten value from the services (i.e., case studies)
  • Delivering services in context of the customer’s process
  • Co-creating services with the customer to meet unique customer needs in exchange for letting the supplier resell it to others
  • Partnering with peer services firms to create broader and more effective services (e.g., procurement, IT, marketing and others collaborating around a center of excellence focused on market intelligence and analytics)

I hope that a services-oriented procurement model now seems broader and more strategic, as opposed to a tactical buying concierge model.

Up Next

In the third installment of this series, we will address the issue of digital, which has been the elephant in the room in this series. There is a lot of content out there on digital procurement, but we will address it in the context of business services and cloud-based services (e.g., the XaaS “stack” and service-oriented architectures focused on both technical architectures and business architectures).

If you want to chat about any of these topics, please feel free to comment below to reach out and talk with us. And as always, stay tuned!

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