What is services procurement?
The external workforce, which includes non-payroll (i.e., contingent) workers and services providers, is essential to thriving in the digital age.
How much do you know about your invisible workforce?
The "invisible workforce" is vital to an organisations’ success, as a substantial investment is made each year on these outsourced services – consultancies, IT outsourcers, marketing agencies, law firms, facilities management companies, call centre operators and accounting firms are just a few examples of this external or contingent workforce.
However, services providers are frequently under-managed – one in four projects is not completed on time or on budget – preventing organisations from maximising value and exposing them to risk.
Businesses today must do better to compete in the digital age.
What is services procurement?
Services procurement is the activity of hiring (and managing) service providers who deliver people-based services to an enterprise – technical consulting companies, speciality service agencies, or maintenance companies, for example. These companies are typically contracted to do project-based work via a statement of work (SOW.)
Services procurement is critical because a large part of today’s external workforce, or services and labour are engaged outside of standard full-time employee contracts.
Who are these services providers, and what kinds of services are they providing?
Services providers play pivotal roles in getting work done, and they operate at the heart of the enterprise. For example, organisations rely on consulting firms to help them better compete in the digital era, IT services providers to run their IT operations, accounting firms to balance their books, law firms to protect their intellectual property, marketing agencies to shape their brands, call-centre operators to assist their customers, and facilities management companies to maintain their buildings and equipment. These are just a few examples of the many important operational tasks administered by service providers on behalf of enterprise clients.
What’s procurement? Review the different types of procurement
What’s the difference between procurement, services procurement, and direct and indirect procurement? Let’s review these definitions.
Procurement involves the practice of buying the goods and services that enable a business to operate efficiently and profitably. Procurement is an overarching process that can be broken down into two distinct types:
- Services procurement Services procurement involve engagements with people-delivered services. These workers are sourced outside of a firm’s permanent workforce from companies that specialise in the services they provide, such as brand strategy consultants or maintenance engineers.
- Direct and indirect procurement Direct and indirect procurement refers to the acquisition of materials and goods that keep a business in operation and includes all stages of end-to end supply chain management from source to procure to pay. Direct procurement is the acquisition of any material that is used directly to develop an end product (like steel to make a bike). In contrast, indirect procurement are the goods that help day-to-day operation of a company (like paper or ink to support office operations).
Both are important categories of spend within an enterprise but often split and managed by different departments with disparate technologies. But there is a way to gain one unified view of spend, across categories, using the best of intelligent technologies and data-driven insights to strategically manage total spend.
How does services procurement benefit businesses?
Organisations today are looking for everything from specialised skills to efficient capacity, and they depend on the external workforce to get projects done faster and be flexible enough to adapt to changing conditions and requirements.
SAP Fieldglass, in collaboration with Oxford Economics, conducted a global survey of 1,050 senior executives in 24 industries to understand the importance of services providers in getting work done and their impact on business performance.
The results underscore how vital the external workforce has become in getting work done in a digital age for organisations of all sizes and within all industries.
Why is services procurement sometimes referred to as an "invisible workforce"?
While many organisations excel in managing the financial aspects of their arrangements with services providers, they fall short of managing the “people” aspects of these engagements – i.e., who is doing the work, their certifications and training, their access to systems and facilities, progress against milestones/deliverables, and more.
For example, the SAP Fieldglass and Oxford Economics research survey, unveiled some stunning statistics: Less than half of research participants say they are highly informed about the basics of services providers such as contract terms (48%), where they are located (44%), and who is doing the work (44%). Only one-fourth are highly informed about progress against milestones or deliverables (27%), the quality of the work at the supplier level (25%), and the quality of work of individual contributors (18%).
This under-management, or lack of visibility into engagements with services providers, can lead to unsatisfactory project outcomes, create security risk, and prevent companies from unlocking the maximum value from their services. After all, you can’t measure what you don’t see.
What’s at stake if businesses under-manage services providers?
A lot of wasted spend. Services providers account for roughly half of spend on the external workforce, or nearly one-fifth of total workforce spend. Yet, businesses often have limited visibility into their services providers, as one in four projects sourced from service providers is not completed on time or on budget.
If one-quarter of projects have gone rogue, a business is losing precious time and significant—if not astounding—amounts of spend.
How can enterprises improve engagements with services providers? What can they gain?
Poor visibility and lack of management rigor prevent companies from unlocking the maximum value from their services providers. Our research shines a light on this invisible workforce and examines how organisations can reap the full benefits of their services providers while also reducing risk.
We recommend four key actions that organisations can take to manage service providers, effectively unlock greater value, and increase return on investment. In particular, organisations should view services providers as an extension of their workforce, and apply the same rigor to managing them as they do their employees.
One key action to better manage services providers requires the implementation of intelligent technology with best-in-class features, such as a vendor management system (VMS).
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