Over on Spend Matters today, Jason posted a blurb on services procurement and asked “What makes services procurement difficult?” I began to write a comment, then decided that it would be better to get my thoughts out there on my own blog.

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There are many reasons why services procurement is more challenging. Here are just a few…

1. Many services are one-time purchases. Whereas MRO items and direct materials are bought repeatedly – therefore giving the buyer time to understand the market – services are often bought just once to fulfill a specific need, particularly in smaller organizations. Think of things like a plumbing repair, a Web site redesign, or exhibiting at a trade show. These will not show up in your periodic spend profile as categories to source.
2. The traditional process for some services is sending a bill without a PO. Think of utilities, lease payments, insurance, etc. These are all things that can be negotiated by a larger company, but often fall into the way things have been traditionally done.
3. Many services are local. Products can be shipped almost anywhere. Because many services require the presence of a person where the service is performed, you may need a different supplier in different cities. This makes spend consolidation difficult.
4. Apples-to-apples comparisons can be difficult. When you are buying a product, the specifications are often easy to define. In some cases, you may be getting the exact same product from any supplier. Services can be a little trickier, especially when they are intangible. Think of legal services. When you are in discussions with several highly competent law firms, deciding which one gives you the best chance of winning a patent infringement lawsuit is often a subjective matter of judgement. This is also true of other services like advertising agency services, where you are buying ideas that you won’t even get to review until the future. Of course, there are ways to qualify those suppliers to determine who might work out best but, truly, it can be a guessing game and a gamble.

I could go on and on but, if I did, I wouldn’t get anything else done today! So I’ll stop here and invite you to post comments on some other challenges of services procurement.

You may also want to check out this article on purchasing services.

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