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Supply Management - The Services Spin

Roberta J. Duffy is editor of Inside Supply Management®
August 2002 Services Guide, supplement to Inside Supply Management®, page 3.

EXECUTING SERVICE PURCHASES IS AS EASY AS APPLYING SOLID SUPPLY MANAGEMENT PRINCIPLES.

Are you a commodity manager? Do you specialize in acquiring a particular resource for your organization? If so, you know the market and you know the intricacies of "that type" of purchase - you excel at supply management. If you were asked by your supervisor to specialize in a different commodity, you would learn the nuances of that one as well. The same logic applies to becoming an expert in service purchasing. Adding value through the service purchase means employing the same solid supply management principles. What many executives already know and what many others are quickly learning is that the scope of supply management reaches in (and adds real value) to the service world.

To see and understand the relationship, look at "Supply Management: An Analysis of the Expansion of the Purchasing Field into New Value-Added Roles in Organizations," a 2001 white paper authored by Joseph L. Cavinato, Ph.D., C.P.M., senior vice president and ISM distinguished professor of supply management for ISM. (The paper is available on the ISM Web site at www.ism.ws/AboutISM/ISM/Definition.cfm.)

The paper makes the distinction between buying, procurement, and supply, depicting the characteristics of each and the progression from traditional activities to those that add value. Under buying, some of the points include "expediting/tracing" and "three-way matching," processes oriented toward goods or material purchases. While these competencies may still be applicable in a supply management environment, the focus is on an expanded operation that includes accessing for the firm "what it needs but does not have, including capital, time, talent, or technology to develop on its own." Each of these acquisitions can have some degree of service requirement.

Thinking about "supply" as the total business need, as opposed to segmenting goods from services, is something that supply managers should get used to. It's nearly impossible to think of a purchase that is strictly material, which doesn't incorporate some element of service. Machinery has required maintenance; technology and software require training and implementation; printed material can encompass design; and component parts can include some assembly. In addition, there are the purchases that have been traditionally thought of as strictly service, though ironically, they were categorized as "untraditional" years ago in a 1995 CAPS Research study that dissected the purchasing department's involvement in obtaining advertising, legal services, temporary personnel, security, architectural design, and so on.

This analysis of the literature and research is a fitting analogy for the overall concept of service purchases. On one hand, there is the seven-year-old study that viewed those purchases as so unique that they were isolated to study. On the other hand, in the Cavinato white paper, it's almost difficult to find a specific reference to services, because it's understood that they are included in "what the firm needs" and the principles of leading-edge supply management apply to them as well.

What makes the service purchase different from the goods purchase? In broad terms, not much. Supply management is defined as "the identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives." Each element of that definition can be applied to a service purchase. It is the specifics about any purchase (be it goods or services) that will differentiate.

SECURITY SERVICES ILLUSTRATES THE EXAMPLE

Taking just one element of the supply management process and applying it to one specific service can illustrate how the concepts relate.

Information security services is one industry that has seen tremendous growth in recent years. According to a report from the Computer Security Institute, "2002 Computer Crime and Security Survey," 99 percent of respondents (primarily large corporations and government agencies) detected computer security breaches within the last 12 months, 80 percent acknowledged financial losses due to computer breaches, and the most serious financial losses occurred through theft of proprietary information. Facing such a threat, many are searching for technology security firms to help combat it.

When evaluating potential providers, supply managers will garner the same types of information as with a goods purchase or another service purchase. A few examples include:

Personnel. For a goods provider, you might evaluate the training that laborers are given. For a service purchase, it might be the education and expertise of the individuals involved in your project. For a security services provider, you would get specific and inquire if they have training on your particular type of computer system and how they stay current on technological viruses and architecture.

Financial health. A material provider should be in solid financial health and you would investigate a service provider in the same manner. But you might be sensitive to the fact that a higher percentage of its resources will be in human capital. For security services, if your candidates are relatively young companies, you'd have to understand what is "acceptable" in terms of funding for start-ups.

Ability to deliver. For a goods purchase, this means delivering particular shipments to the designated location. For a service purchase, this might take the form of which service personnel are available at the given time. For the technology service provider, this element takes the form of response time to a security breach.

Price. Price for goods might be per item. Price for services might be more complex, if it varies per level of service worker or length of project. Price for a technology provider may be even more complex if new technologies emerge and are incorporated.

Meet the requirements. The bottomline for any purchase is whether or not the supplier can meet your requirements. For the goods provider, it might be easy to see a sample of the product, and for services it's the same. But that sample might come in the form of an industry reference. For the technology provider, it takes an even more complex twist as the nature of the service is avoidance, rather than production.

These examples are not meant to be all-inclusive, but rather highlight how concepts of supply management focus on accessing for the firm "what it needs" versus delineating between specific types of purchases. You might be a commodity manager. You might also happen to procure a great deal of services. But first and foremost, you're a supply manager.

To contact the author or sources mentioned in this article, please send an e-mail to author@ism.ws.

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