Services Procurement is Broken: Finding Fixes Beyond Contingent Workforce Management, E-procurement [PRO]

If you google the term “services procurement,” you’ll see an article from my colleague Andrew Karpie touching on the topic front and center. He talks about the need to transcend the traditional contingent labor-centric view of what is in fact a much larger scope dealing with the procurement of all services. Aggregate annual spend on complex services by U.S. organizations is on the order of $9 trillion to $10 trillion, while spend on temporary staffing is only on the order of $0.02 trillion. When looked at with a wider-angle lense, the scope of services spend is huge. But …

This is where I’m going to carry the discussion forward. The problem that I’ll address is, to put it bluntly, the management of services spend is shockingly poor.

There are many reasons for this. The first is organizational.

A spend category like direct materials is fairly straightforward in terms of organizational reporting ultimately into the supply chain organization (and/or business unit). The same can be said for lab supplies managed alongside R&D or data center equipment managed alongside IT. But services are trickier, not only in their inherent complexity and variability, but also because of their organizational governance. For example, if I’m looking to bring in some DevOps contractors to supplant my IT outsourcing provider’s capabilities, do I use an IT category team, a contingent labor Center of Excellence or perhaps an IT Vendor Management Office to have the ITO vendor provision the resources?

Beyond the organizational governance issue, the bigger problem is the fragmented nature of managing (not just procuring) services and the underlying systems to manage them — even just in source-to-pay. Case in point: There is not a single source-to-pay solutions provider in the market that offers deep support for all enterprise spend on a platform with a single code base and a unified data model.

And this is 20 years after e-procurement systems started being developed. Let that sink in.

But before a few of the S2P suite vendors get their knickers in a twist over this statement, keep in mind that what I’m including with the term “deep support” is being able to track services work to the contingent worker level that temporary labor solutions (aka “VMS” solutions) and those solutions supporting independent contractors. These contingent labor procurement platforms for their part are only touching a portion of the spend, and the expansion of many of them into SOW-based spend isn’t necessarily something that firms want to use for all their contract-based spend given that modern S2P suites can do a reasonably good job of setting up SOWs against MSAs, modeling basic rate-based service catalogs, and then matching them to the downstream invoice-to-pay processes. The trick, however, is how to go beyond the basics and handle the real life requirements of complex services categories.

This transformation will require a new way to understand/frame services and a new class of architecture and platforms to meet these needs — while also making some practical moves with existing tools (e.g., using modern CLM platforms as a critical core to modeling the commercial details/attributes of these services). It will also require procurement to align more tightly with IT and to leverage an emerging ecosystem of platform providers and approaches that can help rise above the functional silos that manage services spend in disjointed ways.

Extracting maximum commercial value from services can only be done at an end-to-end process level, and procurement has an opportunity to help optimize the sourcing, consumption, settlement and ongoing management of these increasingly digital and externalized services (and their providers). By more easily extending the capabilities of digitally savvy suppliers into internal value chains with internal stakeholders, but also ultimately out to external customers, procurement can proactively be part of broader enterprise digital transformation activities.

In this SpendMatters PRO analysis, we’ll dive into the challenges of segmenting external business services (e.g., understanding the interplay between digital-dominant and labor-dominant services) and how to look beyond the traditional contingent labor approaches (hint: Segmenting the market based on the presence of a statement-of-work is clearly not sufficient).

Later in this series, we’ll dive deeper into a new commercial framework for services and then map the resulting business requirements to technology requirements and associated vendor/solution types that transcend the source-to-pay market (e.g., enterprise CLM, ITSM, low-code platforms, etc.).

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