LSM 577

STRATEGIC PROCUREMENT MANAGEMENT

UNIT 5

Buying Business Services

Dr J.M. Frimpong
0509313929
MSc. Procurement. & SCM
03/25/2
Outline
• The increasing importance of services
• Differences between goods and services
• A classification of services
• Purchasing process for services
• Involvement of purchasing in contracting services
Increasing importance of services
• Purchasing of business services is getting more
important:
• More and more activities are purchased
• Share of purchased services in the value proposition is
increasing
• Approximately 50% of the total costs of many companies
is accountable to services
• in case of cost savings within organizations, 10-29%
could be saved on services versus 5-17% on goods and
products
• Purchasing services is getting more professional
 Differences between goods and
services

Service: a process consisting of a series of more or less tangible

activities, that normally take place in the interaction between
customer- and supplier employees, and/or physical resources and
systems, that are offered as an integrated solution to customer problems.

• Combination with physical goods is possible

• Reaction to a customers’ problem or need
• Production is the interaction between customer and
supplier
 Differences between goods and
services
Pure services offering Pure product offering
Intangible Tangible
Heterogeneous Homogeneous
Production, distribution and Production and distribution
consumption are simultaneous are separated from
processes consumption
More difficult to demonstrate Can be demonstrated before
moment of purchase
Cannot be transported Can be transported
Is an activity or a process Is a physical entity
Is produced in interaction Is produced in a specialized
between buyer and seller remote facility
Customers participate in Customers in general do not
production process participate in the production
process
Cannot be stored Can be stored
Property cannot be physically Property is physically passed on
transferred to new owner
Classification of services
• Services directed at people’s bodies (healthcare,
haircutting, exercise clinics, transportation)
• Services directed at people’s minds (education,
training, museums)
• Services directed at people’s tangible belongings
(cleaning services, freight transportation, equipment
repair and maintenance)
• Services directed at people’s intangible assets (legal
services, accounting, insurance)
Lovelock (1983).
 Classification of services
Classification on organizational activity
• Facility services
• Financial services
• Information and communication technology services
• Operational services
• Research and development and technical services
• Transportation and distribution services
• Human resource services
• Marketing services
(Axelsson &
Wynstra, 2002)
 Purchasing process for
services
• Specifying a service
• Input:-specification of resources and skills needed to
provide the service
• Throughput:-specification of the process needed to
produce the service
• Output or outcome:- the buyer is explicit in terms of
results which need to be accomplished by the provider
resulting in e.g. service level agreements (SLA)
 Purchasing process for services 2

Contracting:
• In services it can be unclear when the service is delivered
• Agreements on access to company information are in
some cases necessary
• Key performance indicators (KPI’s) have to be tracked
using Service Level Agreements
• Periodic assessment and evaluation by buyer
Service Level Agreement (SLA)

• SLA is a contractual service commitment.

An SLA is a document that describes the minimum

performance criteria a provider promises to meet
while delivering a service.
• How often is the service to be provided?
• During what hours will the service be carried out,
and in particular will there be any disruption
during holidays?
• How many customers will be served?
• How far will the service extend?
• What qualifications are needed by the staff members
providing the service?
• What speed of response is expected from the supplier
when the customer made a request?
• What are the disputes procedures required?
• The buyer has to investigate the supplier’s plan with
care
 Selection procedure for service
provider
• Develop evaluation criteria:
• Establish a set of criteria and a scoring system to objectively
evaluate the proposals received from service providers. The criteria
should align with the requirements defined in the RFP.
• Assign evaluators:
• Assign a team of evaluators who have the necessary expertise and
knowledge to assess the proposals against the established criteria.
• Review proposals:
• Review the proposals received from the service providers, paying
attention to their qualifications, experience, and approach to
delivering the required services.
 • Assess proposals:
• Assess the proposals against the established criteria and assign
scores to each proposal based on the information provided.
• Compare proposals:
• Compare the scores of the proposals to determine which service
provider best meets the requirements defined in the RFP.
• Conduct additional assessments (if needed):
• If necessary, conduct additional assessments, such as technical
evaluations, site visits, or interviews with the service providers,
to validate their claims and ensure that the proposal meets your
requirements.

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 • Make a final decision:
• Based on the results of the evaluation, make a final decision
on the service provider that best meets your requirements and
will deliver the services in the most effective and efficient
manner.
• Review the financials:
• Discuss details of the financial proposal of the
recommended/selected service provider and arrange
negotiation meeting with provider is needed to clarify issues
and discuss SLA and contract effectiveness

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 Post-contractual stage
The post-contractual stage is important for establishing a
successful service delivery.
• Interaction between buying organization and supplier
determines the success of the contract
• Much time is put in to the phase of specifying the service, too
little time is put in the process of realizing what this
demands from both parties
• Outsourcing asks for different capabilities of the buying
party; Employees do not longer take care of the jobs, this is
done by employees of a third party
• One has to realize beforehand what kind of service has to
be bought, the role this service will fulfill in the organization
and how these things can be realized
 Purchasing and contracting services
Some notions:
• Identify which services are purchased and which
suppliers are involved in these processes
• Usually there is an existing relation between the
internal customer and the supplier of the service, it
may be difficult for the buyer to intervene.
• If the role of a purchasing professional remains
unclear, this can lead to friction. The internal
customer and the purchasing professional should
therefore strive for a common result.
Thank you