Services Procurement & SOW Management FAQs
Services procurement FAQs
SERVICES PROCUREMENT FREQUENTLY ASKED QUESTIONS
Do you have questions about Services Procurement? Read all frequently asked questions about Services Procurement here:
What is Services Procurement?
Organisations procure a variety of external “Services” to keep their day to day business alive. Also referred to as “Indirect” spend, these are items that do not directly add to the bottom line. These purchases are characterised by having multiple stakeholders and individuals are likely to perceive differing levels of value depending on the services that they consume themselves and their personal involvement in the buying process.
These are the typical areas of indirect spend:
- IT (Infrastructure, Hardware, Software, IT Consultancy Services)
- Market Data (Information or data supplied by Bloomberg, Reuters etc.)
- Business Operations (Card Platforms)
- HR (Recruitment Agencies, Employee Benefits, Training & Development)
- Professional Services (Legal, Insurance, Tax, Audit, Management Consultancies)
- Travel (Air, Rail, Hotels, Cabs, Car Rentals)
- Marketing (Creative, Digital, Print)
- Business Process/Information Technology Outsourcing (near shore, offshore)
- Facilities (Furniture, Catering, Utilities, Fleet, Property)
- Logistics (Storage, Mail)
In contrast “Direct” procurement is the act of acquiring raw materials and goods for production or onward resale. These purchases are generally done in large quantities and acquired from a pre-determined pool of suppliers at the best possible cost, quality and reliability.
The term “Services Procurement” refers to the collection of processes and interventions that identify and prioritise user requirements, identify potential sources of supply, negotiate and contract with selected service providers and then oversee the delivery of agreed outcomes. A number of these processes and interventions will vary depending on the specifics of the service being procured.
What are the key challenges of Services Procurement?
The changeability of needs, budgets and perceived value across an enterprise means that indirect business services are often procured in an inconsistent and fragmented way. In-house procurement professionals will try to exert as much oversight on this spend as possible and they will deploy an array of strategies, policies, tools and governance to achieve this – but it is not easy to get their arms around everything. Organisations without an in-house procurement function will typically see their approach driven by the most influential budget holders and service users.
In either circumstance there are two principle challenges to overcome. The first is being able to access historical spend in sufficient detail to identify where you could/should focus strategic attention. The second is to be sufficiently aware of future requirements so you can maximise any competitive and commercial buying leverage that your organisation may have.
What is a Statement of Work (SOW)?
An SOW is a document that details project/engagement specific activities, pricing, deliverables and timelines for a supplier providing services to their client. During the past few years the expression ‘SOW’ has evolved from its origins as a project management term to becoming a catch all descriptor for a particular type of spend.
The broadening of the term in this way has unfortunately muddied the waters somewhat within the staffing and workforce solutions industry BUT to keep things simple it should just be remembered that organisations do not buy an SOW, they buy the services covered by the SOW.
You will never find a single business owner for SOW spend within an organisation because as you can see above there are so many different types of services covered by this type of contracting mechanism. For the same reason you will never find a single procurement category owner for SOW spend.
Where should I choose to invest?
The most successful organisations will take a holistic view of their approach to Services Procurement. They will:
- Implement strategies, policies, tools and governance that are designed to achieve best value benefits and outcomes, rather than rooting their decision making on whatever might represent the lowest price.
- Consider all sources of supply and proactively encourage supplier innovation. The business services ecosystem is expanding at a rapid rate and encompasses independent contractors, niche consultancies, project management firms, digital service providers, business process outsourcing firms, mid-large consulting firms, system integrators and technology vendors. Today many organisations barely scratch the surface of their available supply options.
- Take a business centric view of their planned and future expenditure and consolidate requirements wherever it is practical to do so.
- Optimise the role and contribution of anyone who is involved in procurement activities across the enterprise.
- Fully leverage technology and automation.
Successful organisations will invest in a blend of expertise. They will ensure they have sufficient internal capability in those areas which are core to their enterprise and then supplement these resources whenever there is a situational need to do so. Where their needs are not core to the enterprise they may decide to outsource some (or all) of their Services procurement activities.