Taking Services Procurement Beyond Contingent Workers: Opportunities And Challenges

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Andrew Bartels
Principal Analyst, Forrester

Companies who have been using vendor management services (VMS) software for their purchases of contractors and contingent workers are waking up to their opportunities for using similar software for their purchases of other categories of services. Those opportunities are large, with the potential for significant reductions in process costs for buying and managing these servicers, reductions in the cost of these services, and improvements in the performance of suppliers. But the challenges are equally great. Certainly, having the right software tools is critical – standard eProcurement tools won't do the job. Equally important, are the internal and external organizational barriers. Control over services spend is fragmented among many internal stakeholders, so adoption of services procurement needs to move department by department. And most services providers are ill-equipped to take advantage of the efficiencies that client use of service procurement tools could bring to them, so different tactics for supplier adoption and pricing models will be needed compared to what is used today with temporary help agencies. Those that can master these challenges will reap the benefits of cost savings and more capable service providersCompanies who have been using vendor management services (VMS) software for their purchases of contractors and contingent workers are waking up to their opportunities for using similar software for their purchases of other categories of services. Those opportunities are large, with the potential for significant reductions in process costs for buying and managing these servicers, reductions in the cost of these services, and improvements in the performance of suppliers. But the challenges are equally great. Certainly, having the right software tools is critical – standard eProcurement tools won't do the job. Equally important, are the internal and external organizational barriers. Control over services spend is fragmented among many internal stakeholders, so adoption of services procurement needs to move department by department. And most services providers are ill-equipped to take advantage of the efficiencies that client use of service procurement tools could bring to them, so different tactics for supplier adoption and pricing models will be needed compared to what is used today with temporary help agencies. Those that can master these challenges will reap the benefits of cost savings and more capable service providers.

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Taking Services Procurement Beyond Contingent Workers: Opportunities And Challenges

  1. 1. 1 © 2011 Forrester Research, Inc. Reproduction Prohibited
  2. 2. Taking Services Procurement Beyond ContingentWorkers: Opportunities And ChallengesAndrew H. BartelsVice President and Principal AnalystMay 23, 20112 © 2011 Forrester Research, Inc. Reproduction Prohibited 2009
  3. 3. Companies can achieve big cost savings through services procurement … But success requires the right software tools, the right strategy for internal adoption, and understanding of the state of supplier readiness3 © 2011 Forrester Research, Inc. Reproduction Prohibited
  4. 4. The opportunity for services procurement: Services spending is big but unmanaged Average distribution of corporate 1% 2% Accounting & Finance 3% spending on indirect goods and 3% 3% Administrative Legal services, 2003 3% 3% 5% Printing/copying 5% Travel 7% Facilities management Telecommunications 40% 9% Indirect Project-based services goods 9% Advertising Real estate 9% Logistics Services 11% Marketing 60% IT 11% HR & temporary staffing Construction/engineering 13% Professional services Source: CAPS Research, Benchmarking Report on Indirect Spend Management, December 2003 4 © 2011 Forrester Research, Inc. Reproduction Prohibited
  5. 5. Temporary staffing is just a small part of services purchases Administrative, 2% Accounting & Finance, 1% Printing/copying, Legal, 3% 3% Travel, 3% Facilities management, 3% Professional services, 13% Telecommunications, 3% Project-based services, 5% Construction & engineering, 11% Advertising, 5% HR & temporary staffing, 11% Real estate, 7% Logistics, IT, 9% 9% Marketing, 9%Source: CAPS Research, Benchmarking Report on Indirect Spend Management, December 2003 5 © 2011 Forrester Research, Inc. Reproduction Prohibited
  6. 6. Services procurement is part of ePurchasing market,and products support all stages of cycle New category: 2. Services Services supplier supplier Risk and performance assessment management 1. Services spend 3. Services analysis supplier identification8. Electronicinvoice 4. Servicesprocessing and providerpresentment sourcing 7. Services 5. Services engagement contract management life-cycle 6. Services management purchase 6 © 2011 Forrester Research, Inc. Reproduction Prohibited
  7. 7. Fewer adopters of services procurement than goodseProcurement Number of clients (thousands) 14 12 12.3 11.0 10 10.3 9.8 8.7 8 7.8 eProcurement 6 6.1 Services 4 procurement 2 1.2 1.4 0.8 0.9 1.0 0.4 0.6 0 2005 2006 2007 2008 2009 2010 2011* *Forrester forecast Base: Data from more than 100 vendors (numbers are rounded) 7 © 2011 Forrester Research, Inc. Reproduction Prohibited
  8. 8. But services procurement is one of the fastergrowing solutions in this market Vendor revenues, compound annual growth rate, 2005 to 2010 Supplier risk & performance 32% Services procurement 25% Supplier network 20% Spend analysis 18% Contract management 17% EIPP 13% Total (US$ billions) 12% eSourcing 9% eProcurement 6% Base: Data from more than 100 vendors (numbers are rounded)8 © 2011 Forrester Research, Inc. Reproduction Prohibited
  9. 9. Services procurement is starting to move beyondtemporary workers 2002 2003 2004 2005 2006 2007 2008 2009 2010 Temporary workers T&E services Line-clearing, nursing services, etc. Print and marketing services IT services IT outsourcing Legal services9 © 2011 Forrester Research, Inc. Reproduction Prohibited
  10. 10. Where opportunities lie for process-efficiency savings in services purchase§  Many savings opportunities in services purchasing –  Cut cost to enter data into financial system, create and move req., PO, and invoice –  Lower rates that suppliers charge through more competitive sourcing –  Get employees to use preferred suppliers with pre-negotiated lower rates –  Eliminate of invoice errors and reduce cost of matching PO, invoice, and receipt to validate payment –  Capture early payment discounts, avoid late penalty fees10 © 2011 Forrester Research, Inc. Reproduction Prohibited
  11. 11. Other sources of value §  Improved supplier compliance with sourcing policies §  Improved employee satisfaction and work performance through simplified purchasing of needed services §  Improved regulatory compliance (e.g., Sarbanes-Oxley, co-employment laws, security policies) §  Better services providers, with better quality service –  Better quality of services=better business11 © 2011 Forrester Research, Inc. Reproduction Prohibited
  12. 12. The challenge: Services procurement process differs from goods procurement process §  Subjective factors matter in services buying –  Quality of services provider, relationship history, availability of right individuals – all matter as much as price §  Engagement management is key –  Services only deliver value in actual delivery –  Tracking and recording of services as they are performed is critical §  Spending control is de-centralized –  Each department buys different kinds of services (i.e., legal, marketing, IT, etc.)12 © 2011 Forrester Research, Inc. Reproduction Prohibited
  13. 13. Our data shows IT departments are starting to use servicesprocurement to buy consulting & outsourcing services, notjust temps Number of clients 1,600 1,400 1358 Services procurement for 1,200 1197 contractors 1,000 1025 860 800 754 600 558 470 400 423 350 Services procurement for IT 280 consulting & outsourcing 200 services 150 40 75 0 20 2005 2006 2007 2008 2009 2010 2011* *Forrester forecast Base: Data from more than 100 vendors (numbers are rounded)13 © 2011 Forrester Research, Inc. Reproduction Prohibited
  14. 14. However, there are two barriers to growth of services procurement§  Services procurement will not achieve its full growth potential until two barriers are addressed 1.  Fragmented, decentralized management of services in most companies 2.  Lack of readiness of most service providers for interfacing with services procurement solutions§  Those who want to see services procurement achieve its full potential in their organization need to address these challenges14 © 2011 Forrester Research, Inc. Reproduction Prohibited
  15. 15. Biggest barrier to services procurement: Spending controlled by departmental kingpins In direct In indirect materials But in services, materials and MRO kingpins have control CPO has direct CPO can get CPO can only control control influence Purchasing Dept. CIO CFO COO GCO CMO15 © 2011 Forrester Research, Inc. Reproduction Prohibited
  16. 16. To succeed organizationally, pick the kingpins to go after firstBecause servicesspending is fragmentedunder multiple kingpins,you need a strategy forwhich kingpin to go afterfirst16 © 2011 Forrester Research, Inc. Reproduction Prohibited
  17. 17. Strategy #1: All services at once Benefits Logistics Travel Real manager manager manager estatePROS: •  Maximum savings CIO fast HR GCOCONS: CMO COO •  But very hard to get CFO a “strike” by getting your kingpins moving together •  Requires strong CEO leadership •  All or nothing17 © 2011 Forrester Research, Inc. Reproduction Prohibited
  18. 18. Strategy #2: Temporary workers and benefits Real Logistics Travel estate manager managerPROS: •  Temporary workers CIO a current pain point CFO GCO •  Benefits are big area CMO COO of services spendCONS: •  HR kingpin doesn’t have much impact •  Temporary workers have unique needs (e.g., onboarding,18 credential checking) © 2011 Forrester Research, Inc. Reproduction Prohibited
  19. 19. Strategy #3: Focus on CFO, CIO and HR Real Logistics Travel estate manager managerPROS: •  CFO and CIO are influential kingpins GCO COO with peers CMO CFO •  Addresses services that are current pain points •  Benefits are big area of services spendCONS: •  Hard to maintain19 momentum © 2011 Forrester Research, Inc. Reproduction Prohibited
  20. 20. Getting the CIO on board is key Breakdown of US enterprises’ 2009 IT operating budget by category§  IT departments buy lots of services Telecom services, –  Contractors and temporary 20% IT staff costs, 26% workers –  IT consulting and systems Third- integration services party IT services, –  Hardware maintenance and 14% support services Expensed software, –  IT outsourcing services Expensed 20% hardware, –  Telecom services 20%§  CIOs can influence business units to try and adopt new technologies Source: Forrester Business Data Services, 2009 IT Budget and Spending Survey of North20 © 2011 Forrester Research, Inc. Reproduction Prohibited American Enterprises
  21. 21. So, if you’re the CPO, how do you get the CIO engaged?§  Show the CIO the data on how the IT department spends on IT services of various kinds§  Talk about the challenges that a CIO faces in managing and controlling services spending, especially in a recession§  Talk about the small but growing numbers of IT departments that are using services procurement tools to buy consulting and outsourcing services§  Position IT as the pilot department for demonstrating the value of services procurement tools to the enterprise21 © 2011 Forrester Research, Inc. Reproduction Prohibited
  22. 22. Supplier lack of readiness is the other big barrier 1.  Outside of temporary help agencies, most services providers have poor or no readiness for working with services procurement tools 2.  Most service providers will resist the supplier-funded model that has been common in contingent workforce or vendor management system solutions22 © 2011 Forrester Research, Inc. Reproduction Prohibited
  23. 23. Few services providers have created a listing of their services offerings§  For buyers to be able to buy services online efficiently, it would help to have these services listed, with some specified in a catalog and other to be defined through collaboration§  While many services have to be defined through a negotiated statement of work, some are standard enough to be described and listed in a catalog – especially services that are governed by a master consulting or outsourcing agreement§  However, no major services vendor outside the temporary labor market has done this23 © 2011 Forrester Research, Inc. Reproduction Prohibited
  24. 24. Most services providers manually process POs for consulting and outsourcing services§  Most consulting and outsourcing services providers are handling orders and RFXs by logging into a supplier portal to pick up these documents and manually bringing into order management/project management/engagement management solutions –  No order process automation –  No linkage of internal project management systems to services procurement systems§  So, services providers are not seeing efficiency gains from clients’ use of services procurement solutions§  And they resist supplier-funded requirements24 © 2011 Forrester Research, Inc. Reproduction Prohibited
  25. 25. Still, some IT services providers are using services procurement tools on the buy-side, with potential to use on the sell side§  Leading IT services vendors have adopted services procurement solutions for their purchases of contractors and sub-contracted IT services vendors§  These IT services vendors are exploring and piloting the use of these solutions on the sell-side, for clients to use to place services and work orders§  There’s precedent! Staffing companies have been using similar tools with their clients when they place requests for contractors and temps with them25 © 2011 Forrester Research, Inc. Reproduction Prohibited
  26. 26. Recommendations §  Make services procurement a priority – benefits are huge! §  Effective services procurement requires changing processes, new technologies, organization §  Approach in phased fashion, starting with departments who are ready to act §  Focus on the CIO and IT department to help them get their services spend under control, and to serve as an example and pilot for other departments §  Work with your services vendors to help get them prepared for working with services procurement tools §  Use services procurement vendors with proven solutions, because they can help drive success, which will fuel further success26 © 2011 Forrester Research, Inc. Reproduction Prohibited
  27. 27. Thank youAndrew Bartels+1 516.869.0128abartels@forrester.comwww.forrester.com © 2009 Forrester Research, Inc. Reproduction Prohibited

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