Education
4 minutes

What is service procurement?

April 29, 2021

What is this term "service procurement" people keep mentioning? What does it mean? Here we explain what service buying is all about and answer pertinent questions like why do companies buy services, what types there are, who buys them, and how are they managed and analyzed.

It’s safe to say; all companies procure services, which simply means buying and using an external service when they want to outsource a project, whether in IT, Marketing, HR, or other departments. Most people don’t realize that buying services is more than pressing the “purchase” button - there’s a lot more that goes into it, such as scoping out the best vendors, ensuring the best spend practices, and analyzing service performance.

What is service procurement?

Service procurement is the act of buying services in various fields when a company might not have the expertise, time or resources to do it in-house. Companies of all sizes therefore opt to buy services from other companies who can perform these tasks for them.

What are the different types of services companies can buy?

Companies buy a wide range of services, depending on the needs of the organisation. Some examples of services you may be familiar with are in these fields:

  • IT services: Development Services, technical consulting agencies, safety auditing, implementation services, e.g., for SAP or Salesforce
  • Marketing services: Marketing/PR agencies, creative agencies or localisation vendors
  • Legal services: Litigation, transactional, patent legislation
  • HR: People management, headhunters, staffing/personnel companies, and recruiting agencies
  • Finance: Accounting firms, management consulting, financial consulting, and investment companies

By nature, services are more difficult to compare than physical products. How would one be able to assess the potential outcome of a litigation if one had gone with the other law firm ? Nonetheless, significant savings on services are possible. Not only by choosing exactly the right service supplier for the task at hand but also by managing him efficiently. As per consolidated research from McKinsey, Oliver Wyman and Gartner, double digit savings potential is possible among most service categories.

A graph that shows the global service spend by categories in 2020. IT Spend was the highest, followed by HR, Marketing and Legal.
Services have an incredible market size ranking in billions of dollars each year. IT services are by far the most procured among the categories, which also include HR, Marketing, Legal, Finance, and Consulting.


Why do companies buy services?

There are many reasons why buying services provided by third-party companies can be advantageous:

  1. Operating at full capacity to meet market demand
  2. Improving customer satisfaction
  3. Increasing speed to market
  4. Developing or improving existing products or services
  5. Tapping into industry expertise
  6. Saving costs on training current staff in a particular area
  7. Using trusted solutions to problems
  8. Utilising the latest technologies and trends to increase market competitiveness

How are services found?

Companies can find services that they might want to use by searching the Internet, exploring professional networks like LinkedIn or XING, business listings, word-of-mouth, conferences (offline or online), business development or sales calls, magazines, and online reviews. 

Finding the right one within this maze of sources can be daunting, so doing a certain amount of research is necessary for ensuring the service provider in question can serve your needs optimally. Next to scouting out various vendors, comparing them remains an important, yet taxing component of buying services as a lot of the information available is fragmented. In many cases, enterprises will choose from their networks, which can be very limiting and biased.

On the other hand, some service procurement platforms, like the one offered by Mercanis, provide a central point that makes finding services in many fields much easier with precise filtering, reviews, ratings, among other features. 

How can companies save money through better service buying?

How are the services bought?

Each service has its own way of being procured or bought. Usually, companies engage in conversations with the service provider or vendor to discuss the project. Before money talks get underway, both parties will discuss who they could work together to complete a project. The scope of the project is defined in a SoW (Statement of Work).

This communication step in the service buying process is where the buyer will consult numerous external services to consider the best option – the best value for money. They'll receive quotes and go for a service whose costs and deliverables best fit the budget and the project roadmap.

How are services bought within a company?

In most cases, services are bought by individual departments in a decentralised way; departments, such as marketing, legal, product, and HR, procure services from suppliers and vendors to meet their unique needs. The money is taken from the departmental budgets governed by its leading employee (CMO, CFO, Head of HR, etc.). Often enough, it's very dispersed; managing parties don’t consult with each other, nor do they share the services procured.

Vendor management: how are services managed?

When it comes to management and ongoing collaboration with service providers and vendors, companies must ensure services are doing their very best job and meeting expectations, as outlined in the SoW. Those in charge monitor all project areas, examine work quality and progress against milestones and deliverables. Generally, they should also have an overview of all the services in use and monies spent from the budget.

Procurement benchmarking – a vital part of buying services – sets clear performance and compliance standards, applies performance metrics, evaluates current strategies, and analyzes spend data to improve decision making and reach corporate goals.

Service buying is an integral part of each business’s success

Now that you have a basic knowledge of what buying services entails, you'll quickly be able to buy your first services. It can be easy and straightforward, as long as you use the right tools and keep a holistic overview of the entire process from start to finish.

Contact Mercanis for a free demo and change your company’s future for the better.

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