Many procurement professionals, when asked, say that they would rather source almost any product than touch a services category. Why is that? Well, services tend to be messy – they don’t fit into our templates, and it’s difficult and complicated to detail specifications and requirements for a person as opposed to a product. However, services represent a large portion of the spend that procurement is often tasked with bringing under management. It’s a huge opportunity and the risk of not placing services spend under a structured procurement process is too high.
The basic differences between product and services procurement
Most procurement professionals will ask one fundamental questions before sourcing any category of spend – how much do we need? For products, this is expressed as a count, weight or a volume, and the connection between the projected output and the number of items required is usually pretty clear. However, for services, it’s a bit more difficult. The number of resources or hours required are hard to connect to the desired outcome. Making the jump from outcome to headcount (including specific skills and qualifications) requires a deep understanding of the service and the value it offers the business.
Skills and qualifications are also difficult to determine in services procurement. Products can be precisely measured and thus, described, as they have a specific weight, color, material and composition. Meanwhile, documenting the specifications and requirements for services is similar to writing a job description, but the person delivering the service does not interview, meet the team, have the opportunity to observe and learn, but must still perform the tasks and deliver the outcomes required.
All procurement contracts contain similar elements, such as costs, delivery terms, payment, SLAs, and dispute resolution guidance. However, for services procurement, the structure is different from product categories. Sometimes a Master Services Agreement (MSA) serves as a basis for several Statements of Work (SOWs). This is often because the services are defined broadly at first, followed by multiple detailed project-like agreement that define outcomes, work expectations and timelines.
Delivery for services procurement is also complex. When a product is purchased, either procurement or someone else can literally handle it, and there’s no question that it has been delivered. For services delivery, meanwhile, the form is different; maybe appropriate hourly coverage or clear proof of an objective-driven outcome. Additionally, procurement needs to maintain visibility into who performed the service to ensure the right person did the work, and this has to tie back directly to a contract, ensuring that terms and obligations are being met.
Quality is often as clearly visible for services as it is for products – it’s easy to know when a job is not done right. However, handling missed quality expectations can be complicated. While conversations about product quality issues tend to center on precision, machine operation, etc., conversations about services often feel more personal and closer to a HR issue.