Procurement

The Four Pillars Of Controlling Services Procurement Spend

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This is the first in a five part series on successfully procuring and managing outsourced services.

The past decade has seen an acceleration of services outsourcing as companies increasingly focus on their core competencies and business.  With globalization, market and regulatory pressures – as well as heightened competition – businesses have also sought greater flexibility and expertise offered by outsourced service providers and contract labor.  As a result, outsourcing budgets continue to represents a growing share of overall corporate spend.

But for those of us tasked with managing this spend, outsourced service provides a previously untapped opportunity to make an impact.  Many procurement organizations have already squeezed as much savings as possible from their direct goods and materials costs. Now they are turning their attentions the company’s complex services spend to drive the next wave of savings and business value.

However this can present a major challenge for spend managers. Procuring third-party services can be quite complex for any business, even when procured domestically. Adding a global element to the equation just increases the challenge exponentially.

Consider all the logistical variables that need to be tracked when managing service providers and outsourced labor – contracts, rate management, timely payout of invoices, timesheet approvals, invoice adjustments, on/off boarding, tax application, and labor laws.  The list goes on.

Then add to that the need to ensure compliance to corporate policies, managing a global procurement program, and the constant pressure to increase savings while maintaining the same level of service.

Given all this complexity, it’s no wonder why procurement has been slow to tackle these categories.

However, as with any problem, there are best practices to tackling them. Based on my engagement with dozens of procurement organizations at Global 2000 companies, there are four general pillars to a strategy which I would recommend when tackling spend related to outsourced services and contract labor:

Break it down:

Typically, the spend problem can be broken down into smaller manageable pieces.  For instance, the overall challenge of managing professional services can be broken down into establishing visibility, controlling maverick spend, improving compliance, eliminating inefficiencies in the process, controlling costs, improving vendor selection, eliminating over billing, etc.

Have a clear vision:

Develop a holistic vision, not simply myopic solutions and band aids to address known problems. Patchworking multiple solutions together to address smaller issues is likely to end up creating even more issues for you. Turn that vision into a roadmap that you can follow and track your progress against. Of course, with a clearly documented vision, it is much easier to get executive buy in, to sell throughout the organization, show progress and inculcate into the organization.

Measure your progress:

How do you know what you have achieved and whether you have been successful or not?  How do you know where you want to go if you don’t know where you are?  Measure before you even begin implementing any solutions and then constantly track your progress.  Be purposeful about measuring because you could miss the forest for the trees. A good rule of thumb is to measure only that which is actionable and that your organization cares about.

Be methodical, yet flexible:

Start small and be methodical when embarking upon such a complex transformation. Consider taking up a single category or sub-category to start with or even a single geography. Then grow your coverage geographically and gradually increase the number of categories you manage. This allows you to work through teething problems on a small scale, and then repeat a template once it is successful. Without this focus and perseverance, you are likely to only achieve a superficial depth in your solutions as opposed to really meaningful changes that you were looking for. Target having standard processes across the organization to simplify your tasks, but be flexible enough to accommodate certain types of services or contractors because they are key to your organization’s success. You should strive to ensure visibility, checks and balances for compliance, while entertaining sufficient flexibility in your overall holistic solution so that you can manage all your spend.

So, while it may seem difficult and challenging, tackling the procurement and management of complex outsourced services represents a significant savings opportunity. You can initiate a smooth transition by simply taking that first step – or maybe first four steps.

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