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Executive Summary

The continuous increase in the amount of purchased services, in relation to the total procurement expenditures, should at first glance lead to the assumption of a corresponding strategic relevance in theory and practice. However, this is not always the case and will be further explored within this paper.

By elaborating the context of purchasing services in theory, the focus is placed on the differences between goods and services, existing and resulting difficulties within the services procurement, and suitable processes. This framework will attempt to show that even with compiled service models, a frictionless transfer from theory to practice cannot be entirely warranted.

In practice, the realization of the acuteness to implement approaches, and thus to profit from savings via more transparency and especially collaboration efforts along the entire supply chain, is certainly possible. However, due to a general long-lasting process in implementation and the present backwardness of theory in this field of research, the procurement in practice is still more operative than strategic. This situation is further examined by an interview with the XXXX department at XXX. The dialogue confirms the present willingness to adapt new approaches, but also reveals the former anticipated backwardness in procuring service performances. Primarily, practice still serves as a basis for new strategies.

Best practices serve as an orientation for companies to adapt this strategic approximation since their own developed concepts are namely based on theoretical ideas and benchmark activities stemming from practice. Therefore, theory and practice are interlocked.

In order to profit from uncontested positive outcomes of the strategic purchasing of services, one must realize that theory and practice are dependent on each other and build a certain entity. Solely an explicit stringent cooperation between academics and practitioners will offer valuable future potentials in purchasing services.

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Table of Contents

  List of Abbreviations  V

1  Introduction  1

1.1  Research Objective  1

1.2  Procedure of Analysis  2

2  The Challenge of Managing the Services´ Spend  3

2.1  The Service Portfolio from a Supply Management Perspective  3

2.2  Differences and Similarities between Purchasing Goods and Services  5

2.3  Particular Difficulties in Purchasing Services  8

3  Concepts in Theory  10

3.1  Manufacturing-Based Models  10

3.2  The Application of Manufacturing-Based Models to Services  14

3.2.1  The Services Supply Chain Model  14

3.2.2  The Activities-Resources Actors Model  16

4  The Status Quo in Practice  18

4.1  Purchasing Services in Chosen Companies  18

4.2  Case Study  20

5  Analysis and Comparison of Theory and Status Quo - A Benchmark  22

5.1  Theoretical Approaches versus Current Processes  22

5.2  Identification of Best Practices  25

6  Conclusion and Recommendations  28

3  Appendix  30

  Bibliography  35

IV

  List of Figures  

  Figure 1 : Different Service Dimensions and Resulting Problems  7

  Figure 2 : Hewlett-Packard Supply Chain Model  10

  Figure 3 : The SCOR Model  11

  Figure 4 : The GSCF Model  12

  Figure 5 : The Services Supply Chain Model  14

  Figure 6 : The Activities-Resources Actors Model  16

Figure 7: Importance of the Four Dimensions in Theory and Practice...............- 23 -

V

List of Abbreviations

A-R-A Activities-Resources-Actors CRM Customer Relationship Management GSCF Global Supply Chain Framework H-P Hewlett-Packard POS Point of Sales SCOR Supply Chain Operations Reference SLA Service Level Agreement SRM Supplier Relationship Management

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1 Introduction

1.1 Research Objective

“Unfortunately, the tried and true rules for buying goods do not work when applied to the buying of professional services.“ ¹ Thirty years ago, Wittreich already recognized the importance and the lack of an individual approach for buying professional services compared to the sourcing of goods. At this time, the intention behind buying was merely a reactive approach to overcome companies’ lack of capabilites to provide services on their own. This represents a rather operative procurement in a reactive sense. 2

Today, this reactive behavior has developed into a more anticipating proactive approach. Lately, sourcing services has been moving in the direction of strategic purchasing. Up to 86 % of the total purchase spend are assigned to services. This service spend does not allow companies to neglect the importance of sourcing services in all sectors of today’s economy. ³ To ensure a longterm competitive advantage, companies need to analyze and evaluate their value added by optimizing the amount of buying services. ⁴ The remaining problem is that companies often struggle to break down their spend category, especially the amount belonging to services. Furthermore, what aggravates buying services is the fact that the purchasing departments are not integrated enough ⁵ to ensure predominant procurement methodologies for further efficient cost-savings. 6

Still, “the procurement department is often seen as the little brother of other company departments, who is on his way to grow up”. Even more rudimentary is the companies’ procurement of services - it is still regarded as “a real stepchild” ⁷ . In addition to this grievance in practice, a shortcoming seems to be the rare dispersion in theory and literature.

This leads to the objectives the authors of this paper seek to throw light on. Namely, to what extent can the procurement of services in theory and its implementation in practice be viewed critically, and to what extent theory and practice are interlocked.

¹ Wittreich (1966), p. 127.

² Cf. Dörsch (1976), pp. 8f.

³ Cf. CAPS Research (2002), p. 1.

⁴ Cf. Barth (2003), p. 5.

⁵ Cf. Bals/ Hartmann/ Jahns (2006), p. 10.

⁶ Cf. CAPS Research (2003), pp. 9f.

⁷ Kaufmann (2006), p. 61.

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1.2 Procedure of Analysis

To develop the stated research objective, the second section of this paper will provide the foundation for the following chapters by offering an overview about the services’ spend and its procurement in general. This chapter sets focuses on the service portfolio (2.1), the differences and similarities between purchasing goods and services (2.2) and the difficulties in purchasing services (2.3).

The foundation set above leads to the third part, in which processes in theory from a supply management perspective are applied. Therefore, manufacturing-based models will be introduced (3.1) in order to project former concepts on a services’ level (3.2). In this context, the Services Supply Chain Model (3.2.1) and the Activities-Resources-Actors Model (3.2.2) are derived.

The resulting “differences”, “difficulties”, and “processes” will continue to form the inner framework of this paper.

Within the fourth chapter, the relevance of practice is elaborated with selected companies (4.1), thus supporting the outlined foundations of the preceding two chapters. More profound, in the following section (4.2), is a practical case in cooperation with XXXXX, which reveals a company’s processes handling of the procurement of services.

The second to last section of this paper is designated to combine both theory and practice in terms of a benchmark. Comparisons between theory and practice are revealed in order to prove their interaction (5.1), which is followed by a formulation of best practices (5.2).

Finally, supplementary viewpoints and a continuance of before derived aspects and their solutions are presented in order to evaluate the objective, to which extent the theoretical procurement of services fit with the practical applications.

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2 The Challenge of Managing the Services´ Spend

By means of a general overview about the service portfolio, within the following chapter differences as well as similarities and resulting difficulties of purchasing goods compraed to services are elaborated. Differences and difficulties form the first two out of three decisive elements of the inner framework in this paper.

2.1 The Service Portfolio from a Supply Management Perspective

Initial research on the purchasing of services defined the process as a contract between a company and a third party provider to deliver a certain intangible good. ⁸ Correlated to the increasing importance of this topic, this basic definition is nowadays outstripped and various perspectives, which go beyond the earlier narrow view, are provided today. ⁹ To strengthen this point of view, Jahns’ general definition regards Supply Management as a relation-oriented, holistic planning and coordination process, which merges the earlier operative aim of efficiency with the strategic aim of effectiveness. ¹⁰ Thus, it can be viewed as the development of an instrumental concept towards a management function with the focus on an integrative relationship-based approach. ¹¹ Since the procurement of services is one part of the supply management approach, the described development via a strategic perspective can, as in the following, be transferred to the purchasing of services. This is the outcome, based upon various attempts, to define services.

A relation-oriented definition treats a service as a “process consisting of a series of more or less intangible activities that normally [...] take place in interactions between the customer and service employees [...] or systems of the service provider, which are provided as solutions to customer problems.” ¹² A further definition, which strengthens the relation-oriented understanding of services puts the focus on the high content of personal input which is offered by a service. ¹³ Out of a more process-oriented point of view, internal and external factors are combined in various steps to achieve a certain

⁸ Cf. Dörsch (1976), p. 8.

⁹ Cf. Barth (2003), p. 47.

¹⁰ Cf. Jahns (2005): Supply Controlling, p. 350.

¹¹ Cf. Jahns (2005): Supply Management, pp. 53f.

¹² Grönroos (2000), p. 46.

¹³ Cf. Bales/ Fearon (1995).

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value added for the customer. ¹⁴ Another spectrum of types of business services differentiates services into an equipment-based dimension, for example grouping automated services, and a people-based dimension, for example grouping services exercised by professionals. 15

A sample of the potentially purchased services which are most commonly named in literature are services handling information technology, marketing, logistics and warehousing, real estate and security, banking and insurance, telecommunication, consultancy, legal services, engineering, training and recruitment or sales and advertisements. To offer a structured scheme, the mentioned examples can be clustered into the following eight categories. Facility services include cleaning, real estate and security, financial services include banking, finance, and insurance, information and communication technology services include telecommunication, customization, and maintenance, business organization services include management consultancy, accounting, auditing, and legal services, research, development and technical services include technical maintenance and assistance, development, and engineering, transportation and distribution services contain warehousing, value added logistics, and transport, human resource development services consist of training and recruitment and finally, marketing services contain sales, advertisements, and agents. 16

Furthermore, it has to be taken into account that services are to be distinguished because they all differ in various criteria. One approach includes five different schemes for classifying services, therefore offering another tool in order to structure the wide array of services. These determine services concerning their nature, relationships with customers, potential of customization, nature of supply and demand, as well as the delivery of the service. 17

The most essentiel task in the buying decision is to differentiate goods and services and to confirm the different requirements for both spend categories.

¹⁴ Cf. Barth (2003), p. 55.

¹⁵ Cf. Thomas (1978), p. 161.

¹⁶ Cf. Axelsson/ Wynstra (2002), pp. 30f.

¹⁷ Cf. Lovelock (1983), p. 10.