Procurement taking control: four ways to improve consulting and services spend management
It’s time for procurement to take control of consulting and services spend: but how can professionals use their strategic skills to manage this category of spend that was, until now, ‘off-limits’?
You might have heard it referred to as the ‘ghost spend’, or the ‘one that got away’ – it’s consulting and services spend, the notoriously difficult category of expenditure management in the industry. Yet with this type of spend now nudging $58 billion a year, it’s an area that procurement professionals need to excel at identifying and regulating.
We need to start talking. The procurement community accepts the difficulties of managing consulting and services spend, but nobody seems to be addressing what professionals can actually do about it.
We’ve garnered the latest insights in our fascinating webinar, Consulting & Services Spend: The Last Frontier, produced thanks to our partners at Comensura. Here are four ways that procurement can better manage consulting and services spend:
1. Start thinking like a senior executive
One of the key reasons that consulting and services spend is so challenging to manage? It’s an emotional spend for the business: specialised business units often have pre-existing relationships with consultants who they know and trust, and when this is the case, they are often hostile towards (or completely ignore) the procurement process.
What’s more, this issue is compounded when it’s senior level executives who are engaging consultants.
Procurement professionals need to think like senior executives. So says our webinar expert Ed Cross, founder of Odesma. Specifically, when approaching senior executives about consulting and services spend, Ed recommends exerting confidence: ‘Help them think like procurement people do, and go in prepared with information such as pricing structures, key players, etc.’
2. Introduce competitive tension and diversity
When business units hire consultants right off the bat, the hiring process gets left by the wayside, and competition tension goes missing. Given this, discounts are rarely negotiated. But this presents a great opportunity for procurement to truly show their value as spend managers.
Sharyn County, General Manager Procurement, Property and Fleet at Jemena and Zinfra, has done a lot of work to remedy this problem over the past two years.
‘We’ve introduced competitive tension by … bringing in not just tier one suppliers, but tier twos and threes, and even fours,’ she explains in the webinar.
‘This has given us anywhere between 10% to 50% discounts on ceiling rates.’
But what are ceiling rates? Sharyn clarifies:
‘Ceiling rates are those they [the service supplier] will only ever give you from a panel perspective. You need competitive tension to drive discounts for those ceiling rates.’
3. Use data and technology to your advantage
There are undeniably a lot of unknowns in consulting and services spend. Fortunately though, data and technology are here to help procurement.
Ed Cross recommends sourcing data from a few particular areas:
‘There’s a lot of technology out there to help you understand what’s going on, to help you figure out rate cards, effective charge rates and models for service provision.’
‘Organisations such as Cost Drivers in South America and North America can give you a full cost breakdown, a structure for almost any service you buy. You can use that to identify what you should be paying or what the profit margin is of your consultancy.’
Ed also advises having a comprehensive review process in place:
‘Have executive investment panels review all consulting spend with data that comes out of your source-to-pay or enterprise system. Use budgetary control processes that already exist in your business, and then pass anything else onto a monthly review group.’
4. Educate the business
Sometimes, the business simply doesn’t understand what procurement does, how we do it, or why we do it. Charles Austin, Client Solutions Director at Comensura , observes that a history of being confined to certain areas of business has left procurement professionals in the dark when it comes to consulting and services spend:
‘Procurement has been seen very much as contracting with suppliers, in relative isolation to the rest of the business,’ he says.
‘Procurement has never really had direct or indirect involvement with the performance of suppliers. Their ability to provide a service to their organisations gives ongoing visibility, and control of spend is the real enabler for this to change.’
For this reason, and especially in this domain of consulting and services spend, educating the business is paramount.
Sharyn County has diligently communicated the processes involved with managing this spend in her organisation. So, what does she recommend to others?
‘Educate them [the business] on statements of work. Help them understand how to set a clear scope and measure an outcome. Also, put strong user guides in place.’
Charles, Sharyn and Ed have many more pearls of wisdom when it comes to managing consulting spend, all drawn from their own successful experiences. To learn more, make sure you register for our latest webcast: Consulting & Spend Management: The Final Frontier, streaming May 26.