Services Procurement is the process for requisitioning people-based services at an enterprise-level with an agreed-upon scope and deliverables. In short, it is the strategic outsourcing of labour to an individual or organisation for a specific purpose.
Workers obtained under a services procurement solution are found outside of an organisation’s permanent workforce. They include project-based workers such as consulting services and specialty services ranging from IT, marketing agencies, accounts payable, law firms, facilities management, and other services.
These service providers are managed through a Master Services Agreement (MSA), with one or more Statements of Work (SOW) used to monitor and deliver agreed-upon Service Level Agreements (SLAs), based on a set timeline.
Those are a lot of acronyms, we know. Simply put, an agreement is made between an organisation and a service provider, and the work is tracked and paid based on a desired outcome.
Most companies report and manage their contingent labour spend (see our MSP page for more info on contingent labour management) separate from services procurement.
This is because of payment type (deliverables/milestones vs. time and materials), work structure (one vs. many), location (off vs. on-site) and the types of services delivered.
Can Services Procurement be managed through an MSP/VMS?
Years ago, technology and services used to track outsourced workers typically only concentrated on headcount tracking, visibility, and risk mitigation. As VMS functionality and user experience improved, and MSPs began to hire experts that had expertise in project-based spend management, more companies began managing this spend via a VMS/MSP.
What are the benefits of managing Services Procurement through an MSP/VMS?
- Cost savings
Cost savings can be captured through supplier and contract management negotiations, competitive bidding through RFPs, process efficiencies, greater supply chain management, and greater budgetary controls.
These are the areas where real value can be delivered, as project-based work can be one of the most significant spend categories for human capital within an organisation. It’s critical those services are purchased as cost effectively as possible.
- Enhanced quality
Having subject matter experts manage the bidding allows for quality improvements. This happens through tracking supplier performance and optimisation, a more robust RFP process, detailed spend analysis, and the ability to report on deliverables.
- Improved workload management
Managing services procurement through an MSP/VMS enables procurement to become more strategic to the business. This is achieved by freeing up time they would spend trying to manage multiple projects and services throughout various business lines.
- Increased compliance
Centralising services procurement gives you greater control and visibility over this category of spend. It can also mitigate security risks, increase compliance to any milestones in place, and ensure suppliers comply with all company policies.
Worker misclassification is one of the biggest risks companies face, which can be more difficult to track and manage without centralisation. This can result in severe monetary penalties.
Additionally, it opens organisations up to liability with respect to state and federal wage and hour laws, overtime implications, employment tax and workers’ compensation issues, and employee benefits concerns.
- Best practices
MSP and VMS organisations can offer industry best practices collected from managing other clients’ services procurement spend. Knowledge sharing and offering lessons learned allows businesses to get the most out of their purchasing processes, negotiating best buys, and offering an edge over the competition.
Staff augmentation vs. “Services”?
Careful consideration and compliance checks should also be in place to ensure there isn’t staff augmentation disguised as “services.” This often happens when hiring managers or suppliers attempt to go around the use of an MSP or other internal procurement processes.
If there is no scope of services, deliverables, or supplier management needed, these resources should be considered contract labour.
This ensures costs are being contained, correct worker classification is being met (see “increased compliance”), and that all categories of labour - full-time, contractors, and services - have the right talent strategies applied.
It is the only path to true total talent management.
Are you getting the most from your Service Providers?
It is also important to have a technology in place - be it a VMS or other project management tool. This allows you to track deliverables and milestones.
If not, you won’t have visibility into what you are buying, what is delivered, and the service provider’s overall success.
Need a Services Procurement partner?If you’re looking for a services procurement partner and aren’t sure where to start, let us help. We’ve years’ of experience managing this spend category for organisations globally across multiple industries, and are recognised as a Star Performer in Everest Group’s Services Procurement PEAK Matrix® report 2021.
Our report Services Procurement: How to boost ROI from your hidden workforce details the importance of services procurement in today’s increasingly agile business environment. It also explores how you can get the most value out of service providers, offering practical advice.