There are several interpretations of the Professional Services commodity group. Greg Buckley a sourcing expert with Volition tells Smart Procurement: "Normally I consider it to be ‘the provision of services, by a 3rd party vendor, most often on an ad-hoc basis.’ His article claims that, although perhaps not the easiest category of procurement spend to manage, it is certainly possible to take control of the category and to find value in terms of cost and efficiency. This takes initial effort and intent, but the requirement is often less than is generally expected.
” A necessary generalisation is that the management of this category of spend is immature in South Africa. It is often neglected, or relegated to the domain of only senior management, or cloaked in descriptions that most normal people can’t interpret. Often businesses simply pretend it is untouchable, or intend ‘dealing with it later, ‘” says Buckley.
Professional Services as a category is not simple to manage. That is true. It can include a vast and diversified list of service groups, from Management Consulting to Dog Handling (real example). It can extend to contract labour and recruitment fees. Also, consultants will consult to you about anything. You only need to ask. Therefore, the list can appear endless.
Given the inherent error in the interpretation, a common set of maladies often exist regarding the category:
- Procurement struggle to define the business need and this leads to inefficiency
- Internal clients often assume that procurement will not add value because they lack the content expertise to define the need and turn it into a satisfactory provision of service
- The description for recurring services is often different in each instance and captured in ‘free text’ on the ERP system (and accounted for ins some broadly defined GL account)
- The classification of the category is not optimal nor conducive to effective management
- The category is often treated as a ‘dumping ground’ for services that do not obviously fit anywhere
- Spend data is flimsy and mostly restricted to the second level (category)
- Formal medium to long term contracts with suppliers are not in place
- The management of the category and its suppliers resides within operational departments instead of with procurement
The consequences are obvious and include:
- Overspend on services rendered
- Non-delivery, always blamed (but often unfairly) on the service provider
- Duplication of intervention
- Given that agreements that exist are often relationship-driven, there is often suspicion and abuse of those relationships. Also, it is often difficult to identify those relationships
- Unnecessary consumption of peoples time
- Blind spots in spend and therefore management information
- Incorrect perceptions regarding the ability of service providers to add value (intentionally ambiguous)
- A self-fulfilling prophecy regarding the difficulty associated with the management of the category
What happens elsewhere?
In several developed markets, the management of this category is vastly different to our own. The category is formally managed through service-driven agreements that govern individual engagements. The category is managed by procurement departments at the highest level, in conjunction with internal clients. Pricing structures, categorisation of resources and categorisation of services, are defined formally, according to market-driven information, and are included in contractual agreements with long shelf life. Engagements are treated as addendum to these contracts and less negotiation per instance is required. The results of this strategic sourcing of the category include better and more consistent rates, better interpretation and delivery, and greater prominence of the
role played by procurement.
Where do we start locally?
Given that Professional Services touches all areas of business, it should be a prime candidate for specific attention. Correct management of the category can be tangibly measured in bottom line results and performance efficiency. In the South African context it represents a substantial opportunity for procurement professionals to add real value. After all, the potential savings here exceed the potential savings in the majority of commodities. In my opinion, there is opportunity for any company locally to find value by addressing this category. Businesses seeking new ways to gain competitive edge therefore need to take up the challenge. The goal is not to simply force the commodity to a price-driven commodity status. Rather, it is to gain control, understanding and security such that, its value can be efficiently utilised.
Experience has shown us many of the following actions are required:
- Classification should be challenged to ensure that it enables the management of the category.A clear accurate view allows correct budgeting, resource allocation and measurement of KPI’s. A more standard view allows comparison to market information
- Spend analysis must clearly expose the current status. This must be down to the item level if one is to find duplications of services provided etc..
- The current process of the procuring the services must be challenged with the intent of ensuring that Procurement is involved to a greater degree and to immediately address room for error and inefficiency
- A mandate to take control over this spend must be created. All effort will come to nought if this is not achieved
- Senior management backing must be secured in order to elevate the importance of both the category and of the role of Procurement
- Pricing, services and resource capability can and should be ‘benchmarked’.
- Formalisation of the service provision must be sought. To the greatest degree possible this should result in more standard engagements and fight the tendency towards ‘uniqueness’
- Service providers must be encouraged to participate in this standardisation. The more mature ones certainly will
- Resources need to be allocated to DRIVE the transformation. It is resource-intensive, especially at the onset, and will not happen on its own.
- Strategic sourcing methodology should be followed to create the audit trail that shows the benefit such that the business case is enhanced over time. This can be utilised to win further support from senior management and internal clients.
Professional Services is not untouchable. It is a difficult category to initially take control of, but with the correct transformation, and then appropriate resource allocation and visibility, it is manageable and provides the opportunity for large savings. It is vital to most organisations and therefore it should enjoy equitable attention.