Services. No company can run without them. In fact, services spend as a percent of total spend ranges from 30 percent in manufacturing to between 70 and 80 percent in financial services and other sectors. At a time when cost reduction is job number one, organizations of all sizes across industries are taking advantage of the buyer’s market conditions for direct and indirect materials. Yet few have tackled services, despite the fact that services procurement offers tremendous cost savings opportunities in this economic climate.

If you place a conservative estimate of 5 percent savings as a result of implementing a services procurement solution, it makes you wonder why.

Services procurement is unquestionably different from general goods procurement. Unlike goods with specific SKUs such as a pencil or LINUX server, services have unique attributes and therefore require special consideration when purchasing them. After all, you can’t compare database administrators as easily as you do office supplies. Services procurement also involves an extended user base that includes internal requestors, receivers, approvers and payers, along with external providers and suppliers.

So there are challenges, to be sure. But if you look beyond the myths of services procurement and see the realities, they can be overcome.

Myth: You can manage services costs through Requests for Proposals.

Reality: Sourcing is only one part of the equation. Half of all negotiated savings can be leaked during the purchasing process. There is no question that lowering costs through strategic sourcing is a critical step in any spend management program. However it’s like the stock market - negotiated savings aren’t realized until an actual transaction occurs. And like the stock market, all kinds of things can happen to spoil anticipated savings before they materialize - not buying from the right vendor at the right price, for one. With the right approach, companies can stop leakage and bring savings to the bottom line. Ideally, the process should combine technology with market knowledge, category expertise, spend management services and a global network to:

• Provide central visibility into spend across the organization, including suppliers and how their rates compare across business units and geographies.
• Enable tracking of requisitions and approvals.
• Accelerate internally driven cost savings.

Myth: Managing services spend is complicated and expensive.

Reality: No doubt there are complexities associated with services that do not apply to sourcing goods, as services have unique and different attributes. In temp labor, for example, time cards are essential, as is collaborating around skill sets and capturing expenses. With print services, the type of stock, complexity of the job and color versus black and white must be considered, and projects may be based on fixed fee, time and expense, milestones or a combination. And some services require a completely customizable process and data capture.

The good news is there are solutions designed specifically to handle such issues. Look for one that can be quickly be up and running, while still being configured to your exact needs. Also consider those with pre-configured catalogs for services such as temp labor that come loaded with industry-standard job descriptions that provide highly granular spend visibility, save implementation time and more quickly drop cash to your bottom line.

Myth: It’s all about Temp Labor. HR should handle it.

Reality: Temp labor is a good place to start, but achieving total spend management requires all services to be managed using a standardized process. Temporary labor may be one of the largest services categories that organizations purchase, but it is seldom the only one. Print spending, for instance, is significant in many organizations, accounting for as much as three percent of corporate revenues. Plus, print has an even greater potential for percent savings than temp labor, approaching 30% in many cases. This is why it is so critical for procurement to lead the charge on services, coordinating and centralizing spend from all departments.

Research clearly shows that in best-in-class organizations, the procurement department drives the procurement of all types of services, working closely with key stakeholders. Such collaboration has dramatically increased spend under management, and in categories such as contingent labor generated cost savings some 115% higher than contracts negotiated by single departments.

I’ll cover the other Myths & Realities in my follow up posts in this series. I also encourage you to download the Myths, Pitfalls and Realities Around Services Procurement whitepaper. It expands on the points above and provides a checklist of questions around technology, metrics and process to support your efforts.

Dan Ashton is Senior Solutions Marketing Manager, responsible for Services Procurement & Content, at Ariba.