What's Planergy?

Modern Spend Management and Accounts Payable software.

Helping organizations spend smarter and more efficiently by automating purchasing and invoice processing.

We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.

King Ocean Logo

Cristian Maradiaga

King Ocean

Download a free copy of "Indirect Spend Guide", to learn:

  • Where the best opportunities for savings are in indirect spend.
  • How to gain visibility and control of your indirect spend.
  • How to report and analyze indirect spend to identify savings opportunities.
  • How strategic sourcing, cost management, and cost avoidance strategies can be applied to indirect spend.

Services Procurement: What Is It and How To Manage It

Services Procurement

Understanding services procurement is essential for any successful business.

It is the process of acquiring external services to meet the needs of an organization and involves different steps, such as identifying a need, setting up a contract, and managing the relationship between the service provider and the customer.

In this article, we will discuss services procurement, how it works, and how to manage it best.

What is Services Procurement?

Services procurement is acquiring services from external vendors or suppliers to fulfill organizational needs. It involves procuring services from outside sources and managing the relationship with supplier or service provider.

This type of procurement can be used for virtually any service, including IT, consulting, legal advice, web design, marketing services, engineering support, etc. It typically is project-based and relies on a statement of work, or SOW.

For example, you could hire a contingent workforce of freelance writers to handle your company’s website content rather than hiring for the position in-house.

You set the budget and deliverables, then work with various freelancers with a test assignment. You hire the freelancer (or freelancers) you feel do the best job, and they follow your processes to provide what you need.

This contingent labor allows you to optimize your marketing without fully engaging an internal marketing department or marketing agency. Marketing procurement is a common case where services procurement is required.

You don’t pay for the service if no content needs to be created, so there’s no need to keep a retainer or spend money on unused services, allowing for better control over spend management.

Types of Procurement and How Services Procurement is Different

  • Direct Procurement

    Direct procurement is the process of obtaining items necessary to produce a desired end product. This typically includes raw materials and components.

  • Indirect Procurement

    Indirect procurement involves purchasing items essential for day-to-day operations but not necessarily related to the company’s final product. Examples include office supplies or advertising campaigns.

  • Goods Procurement

    Goods procurement primarily entails obtaining physical items and usually consists of direct and indirect procurements.

  • Services Procurement

    Services procurement focuses on acquiring people-based services such as hiring contractors or security services, which could also involve direct and indirect procurement.

Types of procurement

What Is The Difference Between Goods and Services Procurement?

Goods procurement involves the buying of tangible goods, while services are non-tangible services provided by vendors.

Goods have fixed prices, whereas services usually involve negotiation between buyers and sellers to reach a pricing agreement.

Goods can generally be bought off the shelf, but most service procurements require custom contracts to meet specific requirements.

Services procurement is a complex task that involves finding the perfect individual or organization to complete the job.

It’s more than just selecting the service that best fits a need; it requires writing a job description of someone who may never be seen during the selection process, making a judgment call on estimating demand for services, and then ensuring the quality of those services.

Quality assurance can also be challenging since conversations between procurement and suppliers are more direct and personal when sourcing services.

Technology solutions are incredibly helpful in dealing with goods, but they must have an agile stance to maximize value creation as they are applied to service category sourcing.

Fitting skills and requirements into a single box is undeniably one of the most intricate components of services procurement.

Steps in the Services Procurement Process

Before beginning any services procurement process, you should establish goals and requirements for what you are looking for in terms of service delivery.

This helps ensure you get what you need the first time instead of having to go back and renegotiate contracts or change vendors mid-way through your project.

Once your requirements have been established, it’s time to search for potential vendors.

Here are some key steps to consider when developing a services procurement plan:

  1. Requirements Gathering

    Determine precise specifications for what type of service is needed and set expectations regarding quality, cost, and timeline.

  2. Vendor Selection

    Research potential vendors and compare each one against your criteria before selecting a few finalists with whom you can negotiate contracts.

    Send multiple requests for proposals (RFPs) to learn more about each business partner and what they could offer you.

  3. Contract Negotiation

    Finalize agreements with selected vendors, considering budget constraints and legal considerations.

  4. Doing Business

    Once you’ve started working with a vendor, having a clear statement of work and adequate contract management is key. There should be purchase orders and milestones to ensure your project remains on course.

    Whether you work with a small business or enterprise-level partner, strategic sourcing is key because you want to keep stakeholders happy.

Steps in the services procurement process

Services procurement may be more complex, but when done correctly, it can make a world of difference for an organization.

Benefits of Services Procurement

Services procurement offers numerous advantages for businesses, particularly when done effectively by experienced professionals who know how to find the best deals while maintaining quality standards.

Here are some major benefits of utilizing services procurement:

  • Cost Savings

    By leveraging existing partnerships or getting competitive bids from multiple vendors, companies can save money on specific projects or ongoing activities such as employee recruitment or training programs.

  • Improved Quality

    Choosing reputable companies with proven track records ensures that businesses get high-quality services from experienced professionals who understand their industry and specialize in delivering effective solutions to clients’ needs quickly and efficiently.

  • Faster Time To Market

    By outsourcing certain tasks related to new product launches or marketing initiatives, businesses can significantly cut down on development time and maximize their return on investment (ROI).

Benefits of services procurement

All of these benefits provide businesses with a competitive advantage over their competition.

Money savings can be funneled into other business areas to fuel further growth. Improved quality boosts the user experience and customer satisfaction levels, and a faster time to market ensures businesses can sell quicker for higher profits.

Challenges in Services Procurement

Although many advantages are associated with procuring external services for business operations, organizations also face some common challenges during this process.

  • Inadequate Budgeting

    Without a budget, a business may not be able to negotiate favorable terms with providers.

    Without sufficient funds, businesses may be unable to pay for the necessary components of their service, such as technical support or maintenance fees, leading to reduced quality and performance.

  • Unclear Requirements

    Without fully understanding what a business needs from the service they’re looking to procure, it’s easy for businesses to purchase services they don’t need or hire vendors that don’t have the necessary skills and resources to fulfill requirements.

    That’s why it’s critical to have a comprehensive and detailed list of requirements before engaging with potential suppliers.

  • Lack of Appropriately Skilled Personnel

    This can prevent businesses from finding the right providers.

    Without the necessary expertise, businesses may be unable to evaluate and compare potential vendors correctly and make informed decisions.

    Without the right level of skill in-house, businesses may not accurately define their requirements when engaging with potential vendors.

  • Difficulties Managing Relationships

    Managing supplier relationships in services procurement can be difficult as several parties are involved, including the business and its vendors.

    Without effective communication and collaboration between these parties, it may be hard for them to work together to meet the service requirement.

    Maintaining strong relationships with vendors can be tough due to changing market conditions, increased competition, and different expectations from both sides.

    Establishing clear objectives at the outset and constantly improving understanding and trust between the various parties is essential.

  • Wasted Spend

    Without adequate supply chain management, organizations risk wasting a lot of money.

    Oxford Economics and SAP research shows that external service providers account for 42% of external workforce spend.

    Statista reports that approximately 31% of sourced projects are not completed on time, within budget, or do not meet the company’s original goals.

    limited visibility into these service providers can wreak havoc. If nearly one out of every 3 projects goes south, that’s a lot of lost time (and money.)

  • Security Risks

    Without effective oversight, organizations face increased security risks. In a world of digital transformation, service providers are often entrusted with sensitive data and customer information.

    Organizations risk unexpected outages or data breaches if supplier compliance is not properly managed, especially when it comes to applicable regulations such as GDPR or HIPAA.

Challenges of services procurement

Tips For Successful Services Procurement

The following tips will help ensure successful services procurement:

  • Set Realistic Expectations

    Both parties must enter into an agreement knowing exactly what they expect from each other so as not to be disappointed later down the line if something goes wrong or an unexpected expense arises due to unforeseen circumstances beyond either party’s control.

  • Leverage Existing Relationships

    If you already have strategic partnerships with certain suppliers/providers, then use those connections instead of starting from scratch when sourcing new vendors & negotiating contracts.

    This will enable you to take advantage of better terms due to pre-existing trust between buyer & seller.

  • Have an Experienced Team Member Lead the Negotiations

    Having someone knowledgeable oversee negotiations ensures smoother transactions since they will be able to anticipate issues before they arise and craft strategies based on collected data points that maximize savings while ensuring compliance with company policies.

Tips for successful services procurement

Services procurement is an essential part of running any successful business today.

By understanding what it entails and properly managing relationships with suppliers through clear objectives, ongoing communication, and tracking payments/invoices, businesses can ensure they get exactly what they need from these external sources while remaining profitable in the long run.

With careful planning and management, services procurement doesn’t have to be daunting; instead, it should be seen as another tool for success within any organization’s operations strategy.

What’s your goal today?

1. Use Planergy to manage purchasing and accounts payable

We’ve helped save billions of dollars for our clients through better spend management, process automation in purchasing and finance, and reducing financial risks. To discover how we can help grow your business:

2. Download our “Indirect Spend Guide”

Download a free copy of our guide to better manage and make savings on your indirect spend. You’ll also be subscribed to our email newsletter and notified about new articles or if have something interesting to share.

3. Learn best practices for purchasing, finance, and more

Browse hundreds of articles, containing an amazing number of useful tools, techniques, and best practices. Many readers tell us they would have paid consultants for the advice in these articles.

Business is Our Business

Stay up-to-date with news sent straight to your inbox

Sign up with your email to receive updates from our blog

This website uses cookies

We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you’ve provided to them or that they’ve collected from your use of their services.

Read our privacy statement here.