Procuring services is more than just purchasing products. Most buyers or procurers know that when engaging services vendors, for some reason, it can be a lot more frustrating than buying products. Why is this?
Products are tangible, and can be checked against purchase order requirements, specifications and run through statistical quality checks. But services are non-tangible.
So what is special about procuring services and engaging service providers? This article by e-procurement platform ThunderQuote seeks to provide an objective, third party perspective into your organisation’s service procurement risks and the steps to address them moving forward.
The Theory: A.K.A. Wishful Thinking 101
In a perfect world, everyone hopes that the service provider they engage would be reliable, deliver the services on time, according to what they envisioned, go the extra mile, and do what is right for them with nothing but a verbal agreement. After a few attempts at obtaining this, most organisations know this is pretty much wishful thinking.
In Practice: Service Contracts Go To Hell
In reality, if you engage a service provider without a full formal agreement with details of the exact itemised characteristics, expected performance, service levels and repeat delivery requirements, you *could* get an amazing experience, but more likely you should expect to have at least minor, if not major problems with the project.
Two-Sided Lack Of Clarity
Contract for services suffer from a number of problems. First, services projects and contracts tend to suffer from a lack of clarity on two counts- lack of clarity both for the service provider in terms of understanding the business needs and objectives of the customer, and for the business buyer in terms of lack of clarity in the technical details and projected scope of the project.
The lack of understanding of the business buyer in terms of market rates, proper technical scope and expected timelines leads to severe problems and mismatch of expectations when the project overruns its time and cost budgets. Buyers and service providers can’t read each others’ minds, so this is a common occurrence.
How do you reduce your risk of overruns and unhappiness?
What You Need In an SLA (Service Level Agreement)
Generally, you should have a service level agreement detailing:
- Exact specified actions to be performed by the service vendor
- Deliverables of the service vendor, broken down by tangible descriptions of functions
- Visual projected representations of the end-result (where relevant)
- Description of the key metrics which would be used to determine successful performance levels
- Indication of what constitutes successful service performance
- How often the service needs to be performed
- How long the service needs to be performed for
- Exact agreed hourly rate at which extra work will be chargeable.
- What constitutes ‘extra work’ for the vendor
In addition to this, you should have an overall process guide to control and standardise service provider costs in your business. This process guide requires at least a cursory understanding of the specific service needs your business has, so if you currently need more information, you can check out our market guides here:
- Pricing Guide For Mobile Apps In Singapore
- Renovation Checklist For Commercial Use (F&B and Retail)
- POS System Singapore Selection Guide
- Event Company Singapore Selection Guide
The process guide (or SOP) below is to be used by any company that is serious about controlling service provider costs and productivity for the organisation. Services engagement are often a source of productivity and cost ‘leakage’ in any organisation above 10 people. Hopefully this process guide helps to give some structure and transparency into your organisations
Quick Process Guide (SOP) For Procuring Services
- Map out services requirements by activity and market costing, ensuring clear measurable standards for each activity
- Create templates for organisation to fill up the following items
- Managers fill in templates with the activity required (checkboxes), frequency needed, amount of work to be completed (number of work units eg. number of pages in a website), and standard of performance (standards of performance should be in a banded format, with Grade A, B, C and so on)
- Completed requirements template and budget is put out to quote through company website or e-procurement systems (ThunderQuote, BasWare, Ariba etc.), and standard due diligence processes followed
- Indicate on the project requirements whether your organisation is flexible with budget should higher or lower standard of performance service offerings be available.
- Have a monitoring plan in place for checking performance standards
- Have a clear single person in-charge of ensuring vendor service delivery standards are met, and hold that person accountable for checks and implementation of strikes against the vendor
- Work on a 2 strike system for minor vendor performance delivery failures, and a 1 strike system for major performance failures (initial damages / warning, then major damages or termination of contract)
With these process checks in place, your organisation is now better placed to control procurement risk with regards to services purchases. Services form the bulk of the Indirect Material inputs (purchases that do not usually go into the final product being sold by a company), and often are not watched closely. So if your organisation hasn’t done an audit of all it’s services vendors and service procurement processes in the last six months, you are overdue for a Services Vendor Audit, and should do a thorough check of all the vendors and processes in your organisation. You’d be surprised at how much money and work is being wasted with inaccurate project scoping as well as unusual rates in your organisation. A dollar saved is a dollar earned, after all!
For better oversight and access to some of these templates, you can contact the ThunderQuote team, which would be happy to provide these for free. Should you need to source for any of the following services:
- IT / Systems integrators
- Commercial renovation / Interior design
- Mobile application development
- Website development
- Event organisers / Planners
- Photography / Videography
- Content writers / Creatives
- Photo booths
You can use the ThunderQuote platform to get free quotes from trusted local vendors. Be sure to use the 8-point checklist to control your risk, and check the ThunderQuote Trust Profile of the vendors to see what experiences other people have had with them.
ThunderQuote is the “Gebiz for businesses” and most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.