The Services Procurement Machine is Broken — Here’s Why You Should Trade it in for a New Approach

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Spend Matters welcomes this contributed content from Stefan Zorn, vice president of customer success at Globality

Channel the original Apple Macintosh ad. Remember the people staring into the screen before our hero destroyed it? They weren’t just nameless faces in some Orwellian dystopia.

They were procurement team members tasked with buying services. Category managers led astray by a misguided authoritarian philosophy. Call them part of the services procurement machine, if you will.

This machine still manages to churn out services for the businesses today, but its outputs are often generic, expensive solutions to problems that require the exact opposite to succeed. In the face of most modern business challenges, the services procurement machine is, in many ways, broken. Here are a few questions that can help identify a malfunction:

  • Are your stakeholders complaining that services procurement takes too long and does not provide the desired outcomes?
  • Is buying seen as risk containment rather than an opportunity to creatively tap outside energy and unique capability?
  • Is procurement forced to focus on unit costs (e.g., hourly or day rate) rather than outcomes and overall quality?
  • Is choosing a larger supplier seen as a risk mitigator?
  • Are milestones the only supplier performance KPI measured (rather than assessments of quality or innovation)?
  • Does procurement ask questions that suggest it has more than a perfunctory understanding of what the suppliers will actually do compared with that of the stakeholders who rely on their services?
  • Does procurement struggle to understand and define the scope of a project, relying instead on an outdated category strategy that is ill suited to managing services that were once purchased as goods (e.g., IT servers, printing)?

If you answered “yes” to more than a couple of these questions, then you have an opportunity to fix the services procurement machine in your company. And you should hurry, because what the machine is producing is hurting your business.

Engagements measured on cost and milestones alone fail to secure the best value for the business, as quality and innovation are often the first casualties to such an approach. What’s more, the structure of the machine has forced procurement to accept increased supplier rationalization and a narrow preference for larger services providers. Stuck working with big, “safe” firms, businesses have lost access to the high-performing talent and innovative solutions smaller firms can offer.

But let’s not get all touchy-feely here: no gently swung process automation hammer is going to shatter an old system. What’s needed to creating lasting improvement is a root cause analysis of why the machine broke in the first place.

When you dig below the surface, you’ll likely find a few key reasons for the breakdown, regardless of services category.

First, the process for identifying and choosing services suppliers is long and expensive. At best, the currently available tools are generic and don't take complex requirements of these categories into consideration.

Try purchasing creative services through a combination off-the-shelf procure-to-pay (P2P) and reverse auction sourcing solutions and you’ll quickly figure out why one size does not fit all for many services areas. At worst, this approach can damage relationships with the very suppliers you want to recruit. Plus, as the world shifts ever more rapidly to digital and more and more goods begin to be purchased as services, sourcing processes need to accelerate to keep businesses competitive, not get bogged down in broken processes that offer poor results.

Second, the machine's focus on cost and risk avoidance has led to increased supplier rationalization. This can be great for MRO, but the same strategy for safety supplies or lightbulbs is not necessarily the right one to tap specialized creative or strategic talent. The result is small and medium-sized suppliers that have the expertise and connections to drive greater success on a localized basis in a global world end up getting locked out of the process.

Finally, most sourcing and procurement teams have only a handful of resources that specialize in managing big services categories such as contingent labor, legal and IT consulting. But this is the best-case scenario. In practice, few organizations have the expertise needed to properly select providers of complex services, especially those that are specialized, such as small creative agencies in the marketing area. While stakeholders in the marketing department may have a sophisticated understanding of the requirements for launching a campaign in a specific geography or for an emerging digital medium (e.g., augmented reality) procurement often has too many categories to handle in addition to services to be an expert in any one area.

Once you’ve done a root cause analysis, it’s time to take out the hammer and shatter convention by trading in the old for something new. To learn how to do this, and to actually enable procurement to “win friends” in marketing and other areas through empathy and results, check back in the coming weeks as this series continues.

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