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June 13, 2017

Two Sides of Hired Services Procurement: Opportunity and a Word of Caution

Two Sides of Hired Services Procurement: Opportunity and a Word of Caution

In this series, I am sharing some of the lessons I learned as a procurement professional dedicated to hired services — both location based and corporate. In Part 2, I discussed the process of establishing demand and requirements, as well as the eSourcing considerations associated with each type of service.

In this post, I want to share some of the additional opportunities associated with hired services, along with the areas where procurement should proceed with extreme caution. After all, services procurement is about securing access to expertise more than anything else. As Julien Nadaud, Determine’s Chief Product Officer, pointed out in a recent Determine OutLoud podcast, “You can not buy people the way you buy goods.” Procurement needs to approach services with the same level of preparation that they would apply to any other complex, strategic effort.

Additional Opportunity

In my last post, I mentioned that even what might be considered “indirect” services are close to the operational center of the company. As a result, services are rife with value creation opportunities for procurement.

Location-based Services: Small and Diversity Suppliers
Because location-based services often draw providers from the community where the service is performed, procurement should be on the lookout for small and diverse suppliers that can compete toe-to-toe with conventional suppliers. In many cases, however, the suppliers may not be certified. If your company has a supplier diversity team or director, bring them in early and introduce them to suppliers that are eligible but uncertified. Perhaps all they need is to see the business opportunity associated with getting their certification. I personally had the opportunity to assist with this while sourcing window cleaning services, helping a woman-owned local business earn its certification with our support and encouragement.

Corporate Services: Right-sizing each task
With knowledge-based corporate services (think: legal, auditing, IT support), there are likely to be multiple roles per service category, each with specific qualifications and different rates. Take the time to dig into which person is performing which task, whether the pairing makes sense and how much it costs to have that person on that task. Once the assignments are determined, include those details in the contract. Focusing on this with legal services, for example, means tasks that can be performed by legal aides or paralegals are not being handled (and billed) by a partner in the law firm.

Use Caution!

Sure, there is plenty of upside associated with hired services, but there are also some areas where it is important to be very careful. These are not reasons to shy away from services procurement – just be aware and learn from the lessons of others.

Location-based Services: Regulations and Work Permits
This is an absolutely true story. Floor washing is a critical services category for a supermarket chain. Customers want to walk into a bright, clean store where the floors are shiny, well maintained and free from trash. Loose items or spills create the risk of slip and fall accidents, something no grocery store wants to deal with. I was assisting a category manager who had just signed contracts that would cover floor washing suppliers at all our stores for the next three years. While meeting with a supplier for the next category of spend we would source, she got a call on her cell phone. Someone had called the Immigration and Naturalization Service (INS) to report one of our largest suppliers. INS raided the stores where the supplier’s teams were working – which happened to be our stores that night – and took them all into custody. Not only were we left with dirty floors, we had to face a potential public relations issue due to our supplier’s failure to remain compliant. With important requirements like work eligibility, do not assume that your supplier has it covered. Ask questions up front and throughout the life of the contract.

Corporate Services: Sourcing v. Outsourcing?
With so many responsibilities and requirements being addressed by third parties, it can be hard to distinguish between outsourcing, hired services, and contingent workforce. The level of closeness between your company and the providers may vary, and it may be necessary to involve other functions depending on how you categorize each need. How often will the services require resources to be in corporate facilities? If it is just a brief time to drop off uniforms, water plants, or maintain grounds, those are likely to remain hired services categories. If the service provider will replace company employees or regularly work on-site, you’re more likely looking at a contingent workforce category. That’s one where you’ll want to involve Human Resources, as well as other internal stakeholders.

Hired services are no messier than any other complex category of spend that procurement brings under management. They have intricacies to be understood and accommodated, but the rewards are immense – for procurement as well as for the company as a whole. If you need an additional reason to take the plunge into hired services, just think of the stories you will accumulate!

Determine has designated June as Services Procurement Month, which culminates with a Forrester webinar on June 22 at 1 p.m. ET / 10 a.m. PT. Along with my blogs on the topic, you should also check out Julien Nadaud’s OutLoud podcast and two guides from Spend Matters.

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