Chapter 5 Buying business services

Program The increasing importance of services Differences between goods and services A classification of services Purchasing process for services Post-contractual stage 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  Purchasing services is getting more professional Many improvement possibilities due to the limited role of the purchasing department in the relation between internal customers and external service suppliers Purchasing is getting higher on the executive officers’ agenda

Differences between goods and services  Combination with physical goods is possible  Reaction to a customers’ problem or need  Production is the interaction between customer and supplier 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. 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.

Differences between goods and services

Classification of services Classification on organizational activity(Axelsson & Wynstra, 2002):  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 The approach of services (co-)determines the way in which the purchasing process and operational phase are designed The approach of services (co-)determines the way in which the purchasing process and operational phase are designed

Purchasing process for services Input specification Throughput specification Output specification Outcome specification Focus on resources and capabilities of the supplier Focus on supplier processes needed to produce the service Focus on the functionality or the performance of the service Focus on the economic value for the customer to be generated by the service Based on Axelsson and Wynstra (2002)

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 In general, output/outcome based contracts are preferred over input or throughput specifications In general, output/outcome based contracts are preferred over input or throughput specifications

Purchasing process for services 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

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.

Conclusion The number of services is increasing and becomes more important for a company Professionalizing services buying is far from simple.  most of the service expenditures are spread throughout the company.  buying services requires specific expertise and close collaboration with internal experts. Buying services in a professional way is challenging  the specification of services may take much more time then for goods.  the quality of the service provided may be embedded in unique human expertise, this is much more difficult to decide on objective selection criteria.