Increasing the Value of Procurement Management & Services Spend
Procurement management leaders are under more pressure than ever to balance business demands that often conflict with each other, like controlling costs while expanding value. Here are a few expectations to consider.
Common Expectations of Procurement Leaders
Cost Control: Traditional perceptions of this function as cost-control gatekeepers remain common among business stakeholders.
Expanded Value: Companies look to these leaders to deliver expanded and demonstrable areas of new value to the company.
Flexibility: The “next normal” that exists in the post-pandemic workforce has created an increased emphasis on flexibility, cost, value and performance for every resource that contributes to the business.
In the race to evolve the procurement value proposition, one unmet need deserves attention: management of total third-party labour, including statement of work (SOW)-based engagements and outsourced services.
As of July 2022, the procurement-as-a-service market was projected to grow from $3.06 billion (£2,771 milliard) in 2020 to $4.74 billion (£4,2 milliard) by 2027. The global technology and business process services industry, estimated to be worth up to $900 billion (£7,976 milliard) to $1 trillion (886 milliard) per year as of 2021, is expected to grow at an annual rate of about 5% over the next five years.
By bringing this large portion of corporate spend under a strategic framework, procurement can influence many aspects of company performance, from reducing management burdens to raising services impact, boosting data-driven intelligence and managing risk.
The opportunity is large, but there are solutions. The following is a closer look at how purchasing and supply chain management can meet challenges and seize opportunities to deliver greater impact and value for their organisation.
- Reduce the contractor management burden
- Boost services spend management impact through a better contract
- Unlock data for better engagement decisions
- Mitigate compliance and cost risks
4 Ways to Increase Value of Procurement Services
1. Reduce the contractor management burden
Contingent labour management provides great lessons regarding services spend. In particular, many companies utilise a managed services provider (MSP) solution to optimise their contingent workforce.
In cases where hiring managers previously would leverage different talent suppliers for their own needs, an MSP programme provides a unified strategy to replace that siloed approach. Under a single MSP programme, companies achieve consistency in price, performance and risk mitigation across the enterprise, while significantly increasing the level of visibility.
Companies can reap the same benefits in similarly managing services through a services procurement partner. Like the MSP, such a partner can fill the management need, applying expertise and technology to deliver consistent results and free stakeholders from much of the work associated with engaging on SOW.
Consider the positive impact that brings. Companies benefit from an informed approach to the most appropriate route to market, along with price parameters and a broad view to supplier capabilities.
For example, managers or won’t have to chase down compliance and savings on a $75,000 (£65,975) SOW with a single supplier when capacity is stretched and savings expectations are high. The partner takes the burden from the organisation and provides a reliable result across the services provider spectrum.
2. Boost services spend management impact through a better contract
While several factors contribute to an effective services contract strategy, and measuring all factors is essential for achieving and demonstrating value to the business, companies must focus on the traditional goals concerning the right quality, quantity and price in the right place at the right time.
For easily benchmarked and measured materials or goods (e.g., office supplies, computer equipment), these parameters can guide decisions that lead to a tangible positive performance outcome. But how does an organisation gauge whether a strategic consulting project is of the right quality?
A services partner can help tackle the often difficult question around measuring quality in four key ways:
First, it brings all services into one programme, which provides consistent benchmarks for delivery and quality across all engagements.
Second, it applies market expertise drawn from experience in managing services to set the right goals, accommodate any variations for specific conditions and establish performance parameters, with no guesswork.
3. Unlock data for better engagement decisions
Advanced data and analytics capabilities let purchasing decision makers look beyond the fundamentals of the bid-and-buy process for a deeper understanding of which services best support the desired outcome. Consider the possibilities:
What if there was information to know which suppliers are best suited to the type of engagement needed and how they have performed on similar work in the past?
What if business leaders could construct a predictive “should cost” from a combination of market data, labour rates and spend on similar services in the past?
The good news is many organisations can do these things with data they already have but unlocking that data and its potential is difficult because many systems and spend reports do not have enough detail to interpret the unstructured data within contracts, SOWs and proposals. Most organisations also lack the skills and capacity to structure that information, analyse it and then use it to enable better buying decisions in the future.
Thanks to recent innovations, decision-makers can better capture data, use artificial intelligence (AI) to navigate unstructured information and make educated decisions that engage the best services to achieve desired outcomes.
SOWs can be very complex, and older procure-to-pay (P2P) systems generally track fewer than a dozen data points. Modern AI platforms can often extract up to 200 data points. The right services partner leverages technology and data science expertise to bring those data points to life and inform better decisions and category strategies.
4. Mitigate compliance and cost risks
Unmanaged services contracts are not only inefficient, they can also bring unwanted risk. That risk can come in two forms:
Misclassification: If an engaged supplier is not fully vetted, that provider’s workers may fall under the definition of independent contractors. This misclassification of workers can lead to a wide range of issues, from increased tax obligations to benefits, liability and a host of other challenges with significant cost and delivery implications.
Cost control: Left without enterprise-level management, many contracts continue beyond their original time or scope through low-level extensions that fall below thresholds for procurement involvement. Smaller-scale expenditures over time can easily exceed the original budget, with work that is confined to a certain department or function that could otherwise deliver more value if scaled to serve a larger part of the organisation.
These issues of cost and worker classification can overlap. For example, an SOW may be used to engage a contractor that is better acquired through a staffing supplier in the MSP programme. As a result, the company is exposed to compliance risk and likely experiences rate inflation simply because it is based on an SOW. Such misclassification can contain significant savings if uncovered and routed to a more appropriate engagement structure and associated pricing mechanism.
Together, risks related to compliance and costs require long-term attention at the corporate level. Through its unique position as a third-party resource dedicated to monitoring and managing contractor engagement, the services partner addresses both risk challenges.
Organisations can identify and address potential long-term cost overruns quickly through its services partner, and it can demonstrate that processes are in place to address the specific regulatory demands of engagement.
Moving Forward: Procurement’s Growing Role as a Business Advisor
Over the past decade, procurement has made great strides in evolving its role from one of cost-controller to strategic business enabler, asking the right questions and directly connecting challenges with the resources best fit to solve them. At the same time, many stakeholders maintain outdated views, and more need to be reached to buy into the value of the function and its associated processes.
One report found that organisations felt procurement was being held back by a narrow focus on cost savings and a lack of influence. It further cites that in the eyes of many stakeholders, the function is seen as a blocker.
To overcome these perceptions, a services strategy that leverages a capable partner with dedicated expertise, data and technology represents a valuable change to legacy processes and demonstrates value through smarter contract decisions.
Through a strategic approach to engaging services and managing contracts, procurement can accomplish goals related to smart, fiscally responsible and risk-averse decision-making. The results are improved buying decisions and high user satisfaction which translate into a growing recognition of as a valued business advisor.