Leveraging Services Procurement to help navigate the current economic climate

2023 promises to be an unprecedented year driven by the progression of the global economic downturn, rising inflation, geopolitical uncertainty and continuing talent scarcity amplified by far reaching demographic shifts driven by “The Great Resignation” and the new norm of “remote working”

Driven by such unparalleled economic and socioeconomic factors procurement functions must ensure they have not only visibility of the commercial drivers, but the ability to impact and manage.

Less than half of research participants (48%) say they are highly informed about the basics of services providers such as contract terms. 

25% of respondents are confident they have visibility of the quality of the work delivered by the supplier. 

Only one-fourth (27%) are highly informed about progress against milestones or deliverables. 

SAP Fieldglass and Oxford Economics research survey

Procurement's ability/appetite to capture the greatest possible value depends on several elements including the size and complexity of the market, their relative influence, existence of appropriate in-house expertise and capacity, and internal category prioritisation.  

Often, we see these challenges more pronounced in Services Procurement due to their complexity to manage compared to Goods Procurement.  Unsurprisingly, this is a significant area of concern to leaders given Services Procurement represents 58% of an organisation's aggregated procurement spend (sectors such as Financial Services will experience an even higher weighting).

With an increasing reliance on Service Procurement engagements, fragmented management processes can be a stumbling block for organisations to reach their true potential. Research shows that companies with a highly aligned Services Procurement strategy grow revenue 58% faster and are 72% more profitable than those with a fragmented approach.

A recent Deloitte Global CPO Survey highlights that leveraging a partner maybe a prudent step to address challenges procurement functions are experiencing.

“High performing procurement functions avoid body shopping or wholesale BPO outsourcing and focus on MSP hybrid models for select activities to augment internal capability e.g., category management, execution support, tail supply management.”

Deloitte Global CPO Survey

One option often explored (and increasing in adoption) is the incorporation of Services Procurement into Contingent Labour programmes to develop a complete Extended Workforce view. However, what is not as well-developed is the depth of management applied across constituent elements of the Services Procurement process. Investment in these elements contributes significantly to the ability to achieve an effective procurement strategy and to aid boarder organisational objectives alongside maximising procurement's value.

Historically the case for inclusion in a contingent workforce solution is commonly focused on gaining a level of governance (driven by understandable risk mitigation concerns) and realising a level of process efficiency, often at the expense of fully exploring the underlying drivers of value. However, given the environment organisations are now facing there is an unsurprising growing desire to drive further value.

Our experience at AMS provides insight that far greater value commercially, and operationally is achieved via:

• Controlling demand management and adopting the right route to market
• Gaining access to category expertise and real-time market insights
• Investing in expertise and technology to define the supporting SoW
• Defining the appropriate commercial construct
• Devoting energy to an expansive and competitive sourcing activity that includes but not limited to market analysis, sourcing process and contract and negotiation
• Enabling processes to drive efficiencies with focus on time-consuming and administrative activities
• Managing supplier performance and investing time in strategic relationships to develop deeper collaboration and innovation.

Beyond the scale of these savings, they also tend to be the most sustainable over the long term and recognised long after any initial process efficiencies are realised.

Services Procurement as a talent opportunity?

Facing these wider business challenges equally requires a clear understanding of the availability of talent across the entire workforce, an effective model to deploy all available skills and the ability to adopt the optimum engagement model. 

Insight suggests nearly 62% of businesses expect to implement an “integrated talent strategy” in more simplistic terms combining the strongest components of both the procurement and TA/HR functions into a coherent and single talent initiative.

Recognising the Extended Workforce has been the major talent innovation of this millennium and only continues to increase as a strategic component of the global economy.  Therefore, the incorporation of Services Procurement into an integrated talent strategy arguably is no longer a nice to have, but an essential component. (Especially when considering Services Procurement accounts for 88-93% of all Extended Workforce spend)

However, our experience suggests a view of talent across the Extended Workforce and in particular Services Procurement remains largely out of reach for most leaders.

“Many C-level executives don’t have the external workforce on their radar because they are not aware of the extent to which it comprises their total workforce mix and fuels growth and innovation of their business.”

Lisa Zak, Director of Strategic Sourcing, MedtronicSAP Fieldglass and Oxford Economics research survey

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For support on how to incorporate Services Procurement into your contingent programme, please reach out to me for a discussion.