What is the difference between buying chemicals, raw materials, and computer chips vs. advertising, legal services, travel, temporary help, and security services? In broad terms, not much, yet department heads and managers at many organizations are purchasing millions of dollars of purchased services without involving supply chain professionals in these decisions. Why is purchasing being side-stepped when it comes to these big-ticket purchases? The answer is three-fold: (i) historically, purchased services have been considered the territory of senior management and department head specialists, (ii) purchasing professionals haven’t considered that all purchased services procurement should also be their responsibility and, (iii) purchasing professionals feel uncomfortable purchasing services that they know nothing about. Let’s examine these three reasons in depth.
Although senior management and department head specialists, in most circumstances, haven’t had one day of sourcing, bidding, legal, or negotiations training, it has been the tradition at corporations to give these individuals total responsibility over millions of dollars of purchased service purchases with debatable results. However, if these purchases were left in the hands of purchasing professionals (in consultation with senior management and department head specialists) to source, bid, and negotiate these purchases, I can assure you from our own experience that the quality of these purchases and the savings yield would be 5x to 10x the outcome that corporations are experiencing now.
For decades, it has been the conventional wisdom amongst purchasing professionals that their job is to purchase the right product, in the right quantities, at the right time, at the right price, and have it delivered to the right place to fulfill their responsibilities. The question I would like you to answer is, who made this rule? If you believe this is your job description in the 21st century then you have bought into a viewpoint that is inflexible, self-limiting, and can only lead to a career dead end.
In the 21st century, your actual job description should read that you are responsible for the “acquisition to disposition of ALL goods, services, and technologies required for the operation of your organization in consultation with your internal and external customers.” The reason for this expanded view of your role is that you and you alone have a preponderance of matchless purchasing training and more experience in this area than any individual in your organization. This adds tremendous value to any purchasing decision required by your organization. It is a strategic error for your organization to let amateurs make million-dollar purchases on purchased service contracts without the assistance of a purchasing professional.
For some reason, purchasing professionals can speak fluently about chemicals and raw material purchasing strategies and tactics, but draw a blank when asked about the best practices and benchmarks being employed for the purchase of temporary help or legal services. What purchasing professionals don’t realize is that they would do the same research (industry, benchmarks, best practices, etc.) and ask the same questions (personnel, financial, delivery, price, legal, etc.) that they are asking now in relation to products and related services they are buying.
Let me give you an example of how you can add value to any purchased service with your purchasing skills. On one member’s assignment, I was delegated the task of investigating, sourcing, and contracting for transcription services for a 1,500-bed hospital (in consultation with their department head specialists) with an annual purchase value of $500,000. I hadn’t any idea of where to start, but, when I was finished with my research, benchmarking, price analysis, sourcing, bidding, and then writing a new transcription service contract, I was able to add value by: (i) standardizing on one vendor (they had five before), (ii) establishing quality standards (they had none before) and, (iii) saving $50,000 annually on the new transcription service contract.
I once felt the same way you do about purchased services until I investigated these commodities and found that my unique purchasing skills and experience also had a direct correlation to my success with these purchases, which gave my clients big wins and added value.
Adding value to purchased services procurement requires the same purchasing skills, training, and knowledge that you employ day-to-day with the other commodities you purchase. There is absolutely no difference in buying purchased services vs. products and related services. In either case, you must educate yourself about these commodities as you have done hundreds of times when a new product reaches your desk and you must start from scratch to learn this new commodity group. By doing so, you will be expanding your horizon from products to purchased services, which will give your organization big wins and added value.