Daily Archives: May 5, 2023

Don’t Use a Sub-Standard Sourcing Solution for Services!

If you know the Source-to-Pay software market, you know that most of the solutions out there were originally designed for indirect, commodity/finished good purchases, and most of the solutions are still targetted at those types of product-base acquisition today. (When we get to the list of sourcing vendors in our ongoing Source-to-Pay is Extensive series, you will see that this is the case.)

The reasons for this are multifold, but the main reasons [which often aren’t valid] for building, and maintaining, an indirect-focussed sourcing solution usually fall into one or more of the following:

  • for many non-manufacturing organizations and organizations that don’t require highly customized goods, indirect is the greatest percentage of external spend
    [often true, but not always the greatest savings potential]
  • it’s easier to do apples-to-apples with commodities and, thus, find the greatest savings
    [easy to do the comparison, but savings depends on the market and where the organization is overspending the most
  • services are the domain of CWM, right, so those platforms are likely covering it
    [they’re not, they’re focussed on workforce management, not project management, and that’s critical]
  • every organization has different services needs, and sourcing processes, so it would be hard to build a solution that wasn’t extremely specific to an industry and, hence, build a successful business
    [when you get specific, yes, but most organizations go outside for the same services: legal support, marketing support, tech support, facilities support, etc. and the types of work, and thus sourcing processes, are similar, its just the specific needs that differ (leasing vs. insurance vs. IP law, traditional media vs. web media, on-site vs cloud services and specific systems, etc.)]
  • it’s just too complicated and is best done manual
    [it’s certainly more work to design a solution, requires a different workflow, and most certainly the solution will requires customization on a client level, and does take more upfront build time, but services sourcing is not best done manual]

However, it’s likely that you were sold such a solution, and told that you can easily fit services into it with a bit of work, especially if the vendor also adapted it to support (limited) bills of material (BoMs) and direct (which they claimed was harder). The rigging to make it work would either be to create statements of work up front [which you should do] and getting all-in bids [which you probably should not do], or breaking the project done into phases and getting staged bids [which is good, if your stages are appropriate the time cost dwarfs the material cost], or offering it up as a time and materials and getting separate bids where you could optimize the material cost using third party market costs (and contract on behalf of the supplier) and the time cost by optimizing the resource rates against the expected hours/days, and then selecting the combined lowest cost [which isn’t bad, but extremely complicated and still leaves you with apples-to-orange comparisons later if sometimes the supplier did the material procurement and sometimes you did*]. And you can. Sort of. But it’s not a good solution, and you shouldn’t do it.


A whole host of reasons including, but not limited to:

  • force fitting square services into round holes is not a good solution
    [you’ll have to shave off the corners, and they could be important]
  • you’ll never know what part of the service is the most complex or costly if you can’t collect, and compare, the right, granular data
    [and, moreover, which suppliers are marking up the most and extorting high profits across the board because one part of the project is actually costly and complex and you have no way of knowing how big that one part is; that one part could only be 20% with the rest of the project being achievable with low-cost common cookie-cutter services]
  • when the project runs late or over budget, you’ll never really know why (unless there are a lot of change orders);
    [it might be just one of the phases or one task among 20 was considerably under-scoped or there was one part of the project in particular the supplier was just not suited for (even though they were for the rest of the project and were a stellar performer for mostly similar projects in the past, which didn’t have that one new/complex task; e.g. up until now, it was all simply enterprise system integration and installation and you used a different vendor for the security configuration and audits; but this time, the buyer baked it in to the core SoW, the supplier quoted as being able to do it, when they really didn’t have the expertise on hardening the product, configuring your firewalls, or fixing issues found by your third party security auditor)]
  • you won’t be able to build an accurate performance profile on your services providers and identify which ones typically come in on time, on budget, and to spec, while meeting any CSR/ESG or diversity targets set by your organization
    [and this is critical as those are suppliers you should be prioritizing for future projects, and those that aren’t performing as well, if strategic, are the ones that need to be the focus of development projects]
  • you won’t be able to manage, or even track, the project in the platform
    [and you should at least be able to look up where a project is with respect to milestones, whether or not it is on budget, and if the suppliers involved are involved with any other projects, and how much work a supplier has unfinished with you before you give them another award]

In other words, you should not use a sourcing solution that is substandard for services for your services projects — you should use one that is. And while this means you may have two sourcing solutions, this doesn’t necessarily mean you will need to have two data stores, SRM systems, analytics systems, etc. Modern Best-of-Breed solutions these days are being built API-first so they can plug into the solution you used for most of your sourcing and then punch out to them for specific projects, and push the awards back when you’re done. As indicated in our post last month that asked Where’s the Procurement Management Platform, you should be looking for a core solution that can serve as a platform, and then best of breed augmentations where needed, as no one vendor can do it all. And that’s okay. If they meet the majority of your need, and are willing to plug into an ecosystem, that’s where you start, especially since, as per our Source to Pay is Extensive series, you can’t implement it all at once anyway. But if you have significant services spend, you need to get it right.

* the doctor is fully aware you can compare apples to oranges, but the comparison is not very useful!