While significant effort is invested in finding better ways to market and sell services, not nearly as much is being done in improving services procurement. Yet as importance of services and bundled solutions grows and the trend towards outsourcing and greater division of labor strengthens, scope, scale and depth of service based contracts increases and so does their impact on financial and operational performance of buyers. Procuring services often becomes strategically significant.
Customers have numerous reasons for expanding service bundle and solutions procurement; For example strategic supply-base reduction is a necessary first step to accessing benefits such as improved performance or sustained cost reductions which require close cooperation and partnerships with suppliers -as it is virtually impossible to develop the needed close relationships with too many. Furthermore buyers’ purchasing infrastructure cannot cope with a large number of outcome or performance based services which require active management of performance rather than simple monitoring of costs against activities. Finally buyers have often the incentive to pressure suppliers to enlarge service contract scope (add activities) or to increase scale (serve more of the customers operations) to reduce direct and indirect cost of delivery or standardize processes across operations.
Furthermore buying services or products entails qualitative differences, as the value of services depends significantly on customization of offerings, the ability of supplier and customer to cooperate and “co-create” value and the contract which sets the framework for the relationship over longer periods of time. Service procurement is therefore far less straightforward than products and should involve interested participants across the impacted units and functions of the organization.
We work with our clients to improve service and solution procurement, whether for particular large initiatives and complex contracts to helping create optimized procurement processes.
We usually start by helping clients deeply understand their requirements, segmenting services to be bundled in ways that are logically compelling in terms of objectives and based on what suppliers can actually provide; analyzing alternatives and performing “make or buy” feasibility studies, taking into account relevant cost and performance levels and setting baselines.
Once scope, scale and depth are decided we help preselect suppliers and design the necessary RFI and RFP documentation. We then help our clients scrutinize, compare and evaluate bids and proposals, define deliverables, outcomes and required service levels, conduct risk assessment, select preferred suppliers and develop, structure and negotiate contracts to manage risks, align incentives and manage performance and compensation.