Tech & Work

Capturing value from e-procurement of services: Lessons from the real world

Today's leading companies take a strategic view toward workforce planning. In doing so, they save money and increase productivity.


By Jai Shekhawat

While companies grapple with a weak economy, smart businesses are thinking less about the types of workers with which to staff their organizations and more about the mix of solutions needed to meet business objectives. After addressing this question, heads of organizations can determine the right mix of permanent, contract, or offshore workers, or other project-based support to meet their goals, whether they're building a software platform or getting their buildings cleaned.

The pool of talent is deeper and broader than ever, due in large part to layoffs. To find the right mix and track hundreds or thousands of workers who may or may not be permanently employed, leading companies take a strategic view toward workforce planning. In doing so, they save money and increase productivity.

Thoughtful businesses that have used the Internet to electronically procure materials to build their products now are doing likewise with workforce planning or services. These companies are using Web-based applications, known as “services procurement” solutions, to create private marketplaces with staffing agencies for sourcing, delivering, and managing outsourced services, such as contract labor, consultants, and fixed-price projects. The results have been impressive; some companies have saved as much as 25 percent of their annual budget for these kinds of services.

CAPS Research estimates that 54 percent of corporate procurement spending is for services; the balance goes toward direct and indirect materials. For many Fortune 500 companies, that’s nearly $2 billion in services.

In a private electronic marketplace, staffing agencies bid competitively on positions and projects distributed to them online by an organization’s hiring managers. This competition at the transaction level produces quicker responses, better rates, and higher quality candidates for the company buying services. While services outsourcing and contingent labor are not new, the “Webification” of such tasks is.

Another recent phenomenon worth noting is the upskilling of the services mix. I mentioned that a “clean building” was a goal, not who was doing the work or perhaps even how it was being done. But equally compelling is that contract positions are not just for secretaries and administrative assistants anymore. Highly skilled positions such as professional services consultants from the Big 5, IT workers, and scientists have entered the mix. The dramatic rise in the skill level required of contingent workers and the scope of assignments has driven the need for a collaborative platform to ensure that companies are saving money and capturing knowledge while continuing to attract the best talent.

Current challenges
Most companies try to manage services procurement through an inefficient combination of labor-intensive, manual processes, including paper-based record keeping, phone calls, and faxes. This time-consuming approach leads to other problems, such as limited financial reporting, lack of easily accessible information, low-level vendor compliance, and frequent unauthorized spending.

In addition, organizations typically have no convenient way to collect and share information regarding the performance of the workers. This can allow a worker who is “below par” to leave one department and get rehired in another. Equally troubling, a company may miss an opportunity to retain a high performing contractor. Sometimes, workers may fill out timecards incorrectly because they misunderstand rules regarding holiday pay, lunch hours, or overtime. In a manual system, these kinds of errors may not be easily caught and can be costly to correct.

For these reasons and others, market researcher Gartner Group foresees growing demand for services procurement applications, with 30 percent of Fortune 1000 enterprises using a services procurement solution by 2007. Furthermore, the Bureau of Labor Statistics predicts that the number of temporary workers will increase by 49 percent from 2000 to 2010, compared to a 15 percent increase expected in permanent workers during that time.

Companies in many industries, including telecommunications, financial services, and pharmaceuticals, are deriving benefits from implementing services procurement applications. For example, prior to deploying a software solution, a hiring manager at a leading telecommunications provider would call one or two suppliers when trying to fill a position. After selecting a candidate from the few submitted by the agency, the hiring manager would try to get budget approval for the position by e-mail or phone. Filling a position typically took three to four weeks, and, because it was impossible to enforce existing business rules, “maverick” spending was a major problem.

When workers were assigned to projects, they would fill out paper time sheets. The company audited these time sheets to make sure it was billed correctly, but the paper-based process was cumbersome, making it difficult to determine the total cost of a contract position.

Efficiencies through workflow automation
This same company deployed a supplier-neutral, contract labor e-sourcing and e-procurement platform that automated the entire process, from requisition to payment. Within a year, the company saved many millions that it directly attributes to the process efficiencies introduced by the software solution. Over the next five years, it expects to recoup money in the seven-figure range. Moreover, the company can now enforce business rules, such as requiring hiring managers to distribute each job requisition to a minimum of three suppliers. And the time required to bring a solution to bear has been slashed by 50 percent on average, to seven to 10 days.

In another example, a global financial services concern used the system to manage the outsourcing of offshore IT workers. Results included more accurate invoices, reduced rates due to lower mark-ups, and better application of negotiated discounts for early payment, volume, and longevity. Besides these achievements, it has been able to eliminate over-billing, improve FICA recapture, and decrease unauthorized spending.

The financial services firm also benefited from improved data capture and reporting, which helped the company gain new insights into its contract labor spending and usage. In the area of risk mitigation, an audit trail feature that creates an “electronic trail” of all transactions has enabled it to more efficiently monitor compliance with IRS mandates.

Best practices to fully leverage technology
For buying organizations, a services procurement platform is not a technology purchase; rather, it is preparing to do business differently. Change management—the initiatives to change the way people perform their jobs, to change the processes for doing those jobs, and how business gets done—is 75 percent of the effort. Leading software products in the marketplace are mature and deliver results as advertised. Getting people to change their ways, and managing that change, is the larger challenge within an organization.

Second, businesses with aims of global deployments should carefully plan and implement in business units or divisions where they will face minimal objections and where they can achieve small victories early on. Momentum builds with early success, and the number of advocates grows to help complete the project.

Last, businesses must think about how best to accomplish their goals, and later, the best mix of services toward that end. The rewards are enormous for executing a services procurement platform successfully, with savings on average in the range of 10 to 20 percent in the services spend category.

The future of services procurement
Early adopters of services procurement applications focused on using the software to hire and manage contract workers. Primary requirements in this initial phase involved supplier management, workflow and approvals, billing, invoicing, and payments. Large enterprises have now set their sights on expanding e-procurement into solutions and projects.

A third phase, just beginning, will extend online procurement to encompass the full range of services procurement, including retainer-based services such as legal, media, and public relations. This next stage will emphasize unified handling of procured resources and enhanced linkages to external environments.

The opportunity to reap significant cost savings by implementing electronic procurement solutions has been well documented. With the promise of added benefits such as more efficient processes, better data, and risk mitigation, it’s an opportunity that few corporations can afford to overlook, especially in these economic times.

 

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