Balancing the Sourcing and Lifecycle Management Equation For Non-Contingent Services Procurement

In my research this year, I've had the chance to meet and interview numerous practitioners focused on services procurement. Admittedly, this is not an area I knew much about a few years back, but I've focused a lot of my recent research energies on getting up to speed on the sourcing, process and technologies enabling both contingent and non-contingent services procurement success. In various discussions with practitioners, one observation I've been able to make is that when it comes to managing non-contingent services categories (e.g., strategy consulting, legal, systems implementation, tax, IT outsourcing, etc.), only a small minority of organizations seem to excel at both the sourcing and lifecycle management components of the area.

I recently penned a guest post on the Fieldglass blog on the subject, noting that: "few organizations seem to be doing both the sourcing and lifecycle management of SOW-based services well. Usually, those organizations that put a former category management / sourcing expert in-charge of SOW and / or broader services procurement efforts tend to excel at the negotiation and cost-driven vendor management side of the SOW spend equation. Those who have originally come at it from an HR standpoint -- but are now nearly always within procurement -- are most likely to understand the importance of vendor lifecycle management and the need for an underlying technology platform that goes beyond sourcing."

As a case in point, earlier this spring I sat down with a category lead for a diversified manufacturer who has had great success negotiating and bidding out management consulting, IT services and related SOW-based engagements, developing standard apples-to-apples comparison templates based on the type of project required. But the company was still largely managing the lifecycle of engagements manually, even after the sophisticated benchmarking and negotiation efforts. I've also met and interviewed many organizations on the other side of non-contingent services that have good success leveraging a VMS platform for SOW-based work, yet have not focused on the benchmarking and sourcing angle. It's the rare case to find organizations addressing both aspects of services procurement well.

Further commenting on this observation, I note in my Fieldglass post that "I don't think that it's fully possible for those with a sourcing-bias to fully grasp -- at least initially -- the challenge of managing the lifecycle of SOW work that starts after the negotiation with initial on-boarding and quickly progresses into managing, and then to milestone based objectives, ensuring vendor compliance to policy and contracts, etc. In a similar vein, those who tackle SOW work with an original HR bias aren't cognizant of the level of savings that can be realized through what I term services SKU rationalization (e.g., the buying of a certain type of systems implementation effort or a certain type of strategy engagement such as a pre-M&A market analysis, etc.) and creative vendor negotiation tactics including supplier rationalization, benchmarking, reverse auctions / optimization, etc."

Ultimately, I think that organizations that bring combined strategic sourcing, contingent / HR and functional skills (e.g., IT, legal) based on the category at hand to the SOW and MSA table are likely to get the best results of all, but this requires a level of coordination and collaboration that I don't think most organizations are willing to consider. The alternative, however, is to work with an MSP to handle many of the HR-driven components (for tactical advice in this regard, you can read a recent Spend Matters Compass publication on the subject: The Managed Services Connection -- The Evolving Role of MSPs in Services Procurement). Just as important, it's critical to work with the functional business stakeholders (i.e., the ultimate customers of the services provider) to define what they're after to create sourcing transparency while also implementing a system to onboard, monitor and develop suppliers. As for tools, a combination of leading sourcing (e.g., Ariba, BravoSolution, Emptoris, Iasta, etc.) and VMS (e.g., Beeline, Fieldglass, IQNavigator, Peopleclick Authoria, ProcureStaff Technologies, Provade, etc.) can play a critical role in bridging the negotiation and supplier lifecycle management gap as well.

Jason Busch

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