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Summary PSM Chapter 19
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Summary of chapter 19 of purchasing and supply management
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Chapter 19 Services ProcurementService purchasers have an important role to play in two respects:
1. In making the internal processes of the organization work, i.e. lawyers, consultants, cleaners
and so on.
2. In facilitating the efficient operation of supply chain itself, through the management of
outsourced computer services such as invoice generation, purchase orders and payments
management.
Services: any activity or benefit that one party can offer to another that is essentially
intangible and does not result in ownership. Its production may or may not be tried to a
physical product.
The role of the purchasing professional in services should essentially be the same as that of buying
manufactured items, namely, to gain the maximum amount of competitive advantage for the
company. Two words describe the service interaction:
1. Expectations: refers to what the client thinks the service is going to deliver;
2. Perceptions: refers to what the client perceives the service has delivered.
Expectations tend to be set before the service encounter and perceptions are a measure of quality
during and at the end of the service experience. The means by which the service is provided is
referred to as the ‘service delivery system’ or SDS.
- The ‘core service’ represents the basic service that is being provided, and this needs to be
clearly defined.
- The ‘supporting goods and services’ refers to the services that support the core process.
These are services that are necessary to support the day-to-day running of the business.
- ‘Facilitating goods and services’ are seen as differentiators to the business. They provide
services that make the process more enjoyable but are not necessary for its efficient
delivery.
- ‘Clients’ refer to the role that the client plays in the service encounter. The client also needs
to understand what the service provider can offer and to make sure it is what is needed.
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, - ‘Staff’ refers to the training of the staff that interacts with the client. This is important as it is
these interaction point that allow clients to form an understanding of the business.
- ‘Feedback loop’ provides information back to the provider on the client’s experience of the
service, and identifies opportunities for continuous improvement.
SLAs provide a mechanism for the buyer and supplier to measure the service being provided.
Essentially, SLAs are designed to guarantee the quality of service provided to the end customer. In
fact, they are the mechanisms that most firms use today to measure the acceptable level of service
given by a provider. They are not easy to produce as they are set up to measure often intangible
services. SLAs are a very important aspect of services procurement as they outline several
fundamental characteristics of the relationship; in particular, what the service provider is promising
to deliver, how the provider will deliver this level of service.
The SLA can be further enhanced with an operating level agreement (OLA). OLAs focus on the day-
to-day management of a service delivery and tend to be extremely detailed, whereas the SLA
outlines the overarching concepts involved within the delivery of the service itself. The OLA provides
a further level of complexity in and around the relationship and defines the roles and responsibilities
of the internal resources to allow the SLA to function optimally. The OLA offers protection to the
supplier as well as committing resources from the buyer to make the relationship work effectively.
The development of SLAs and OLAs needs to be considered within the types of services that are
offered to a firm. A classification of services purchasing into three distinct categories:
1. Professional services: refers to services provided by professional firms or individuals that
tend to cover advice and management guidance. Owing to the complicated nature of these
services an SLA tends to be the most appropriate mechanism, despite the difficulty in
defining accurate measures of performance.
2. Technical services: refer to services provided for technical support and knowledge exchange.
These may include research and development contracts, or the installation of a management
information system. Again, the problem comes both from how to specify the level of service
and from how to contract for delays in the delivery of the service. These types of technical
procurements of services are also very closely related to project procurement. In fact, one
tends to be a subset of the other.
3. Operating services: refer to services that could be performed by the organization itself, but
for reasons of economics or focus it has decided to outsource them. The distinction between
operating and professional services should be made. Professional services tend to be high-
end, highly qualified individuals or firms providing professional guidance, whilst operating
services tend to be commodity-based services required for the day-to-day running of the
business. These types of businesses are often referred to as facilities management (FM).
These services are vitally important to the smooth running of the organization and, like the
previous types of service, will require the negotiation of SLAs and sometimes OLAs to
support them.
We now consider Kraljic’s product positioning matrix, modified to fit within the procurement service
concept. Remember that the original matrix refers to critical, bottleneck, leverage and routine items.
These can be redefined as: strategic services, bottleneck services, leverage services and routine
services.
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