Indirect services – a challenge and opportunity for procurement

We’ve got one more research paper to publish before Christmas. It’s been a while in the making, but the topic is one of continuing and growing importance to the procurement community. The Paper is titled – Managing Indirect Services – Procurement’s Greatest Opportunity?

In most organisations, indirect services have been the growth area for procurement in the last ten years or so. That’s partly because organisations are spending more of their total third party expenditure on services rather than goods. At its simplest, it means buying cleaning services rather than buying goods such as vacuum cleaners, mops and soap to do the work with in-house staff!

And in other cases, services that barely existed or were much lower profile 20 years ago are now major spend categories; consulting, legal and similar professional services for instance. The evidence suggests that now the average indirect spend for a major company is around 50% of total third party spend, although obviously this varies hugely by organisation (and indeed definitions are not always clear). .

So most procurement functions have targeted a move into this field to gain influence over this significant spend (control would be great, but most of us will settle for influence!) But many have found making that move surprisingly difficult. The Cap Gemini CPO study earlier this year showed that less than half of procurement functions were influencing categories like contingent labour or legal services even now. Why is that?

Well, budget holders are often widely spread around the organisation, and are often loathe to give up their power and freedom when it comes to choosing their favourite suppliers.  These categories also often have very senior budget holders, dealing with senior counterparts in the supplying firms, so it’s not easy for a more junior procurement person to insert themselves into the process. And the supply markets are often not easy to define clearly; indeed, the services themselves are sometimes fairly intangible and hard to specify or monitor clearly.

It’s vital therefore that a procurement function trying to break into these categories or increase influence internally can demonstrate added value; and the prizes are substantial if you can get it right. But it is essential to use the right tools, techniques and processes, and that is one of the major themes of the Paper.

We’re going to feature it further next week, but if you feel like some interesting weekend reading, you can download it now (free on registration or login) here.

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