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Services supply chain: Strategies for a buckshot market

The global recession has forced businesses to curb costs. Consequently, companies are scrutinizing every variable expense area to remain viable. A recent Aberdeen-Penton Media survey yielded five key tactics that enterprises can use to establish a services supply chain optimization strategy today. This survey also indicated that companies that have already automated their services have reaped benefits in visibility, efficiency, and cost savings.

With the global recession reverberating throughout the marketplace, businesses have been forced to keep cost control...

a high priority. Companies are scrutinizing every variable expense area to remain viable -- not to mention profitable -- with top-line revenue growth nearly impossible in the current climate.

At this point, businesses cannot cut any more personnel or sales activities and remain in business. However, they can -- and are -- examining how to optimize the dollars that they currently spend. Companies have a sound rationale for this: Spending with external suppliers is the single greatest expense for most enterprises, accounting for half of every dollar earned.

In May 2003, Aberdeen Group and Penton Media's supply chain group examined the services supply chain approaches, processes and plans of 77 enterprises. The findings of this joint Services Supply Chain Benchmark underscore other recent Aberdeen research findings on the varied approaches enterprises take to purchasing and managing business services today. The study also identifies a real opportunity for thoughtful planning before implementing technology solutions for services optimization.

Five key services supply chain optimization tactics

Specifically, the Aberdeen-Penton survey helped identify five tactics that companies can use to establish a services supply chain optimization strategy today. Enterprises working toward improvement in service spending should consider following these steps:

  • Understand services spending per category as best as possible.
  • Analyze services spending on an enterprisewide basis.
  • Identify opportunities for vendor consolidation and competition.
  • Leverage existing e-sourcing and e-procurement tools when possible.
  • Investigate dedicated solutions for specific service categories as appropriate.

Understand services spending per category

Late last year Aberdeen conducted a survey in partnership with Penton Media on companies' spending analysis activities. That survey yielded results that were similar to this year's research effort conducted with Penton. As with the current findings, a high number of respondents reported that spend analysis was important, but considerably fewer respondents had formal procedures, and fewer still had automated the spend analysis process.

Analyze services spending on an enterprise-wide basis

Echoing a finding of the January 2003 Spending Analysis report, Aberdeen recommends that companies ensure that they are casting the widest net possible when looking at spending by category. The biggest savings opportunities come from spend aggregation and aggressive vendor negotiations, in which volume commitments can mean large, hard-dollar savings opportunities.

As the above research showed, few organizations are currently looking at services spending across the enterprise. Yet most agree that there is tremendous room for improvement.

Identify opportunities for vendor consolidation, competition

Once a company has collected comprehensive information and aggregated the opportunity for services, it must go to suppliers and lay out the new playing field. Aberdeen case study research has shown that companies rationalizing suppliers for services are able to introduce competition in areas never thought possible, resulting in dramatic rate decreases.

For example, in the print arena, job estimates often vary by as much as 100% between vendors -- with no explanation. With the current economy, all suppliers should be competitive, and enterprises should, when they can, seek prices that the market will bear.

Leverage existing e-sourcing, e-procurement tools when possible

Recent Aberdeen research indicates that companies are showing early signs of success in targeting certain service categories with existing e-sourcing and e-procurement tools, albeit with a significant level of preparation and customization. For example, companies have developed templates to electronically source services, such as hotel stays, or have created custom catalogs to let employees order printing services.

Interestingly, survey respondents indicated that they viewed the ability to address service within an integrated suite (e-sourcing, e-procurement, contract management, spend analysis, and online invoicing) as relatively important. Aberdeen research suggests this point of view stems from enterprises' resistance to too many siloed applications in an already disjointed enterprise application market with disparate financial, human resource, business intelligence, and customer relationship management applications.

Investigate dedicated solutions for specific service categories

As mentioned, Aberdeen has charted the rise of dedicated online services procurement (OSP) solutions that address services categories, such as travel, print and contract labor. OSP solution providers have filled the gap left by enterprise resource planning (ERP) and enterprise security management (ESM) suite providers by homing in on the particular commodity, process, and even regulatory requirements of these spend areas.

These solutions tend to focus on requisition transactions, however, so consider what capabilities for spend analysis and sourcing -- as well as what tools your company may already have -- that will help support implementing better contracts before your company deploys specialized mechanisms for day-to-day compliance and tracking.

Indeed, companies that have forged ahead and begin to address services automation through customization of existing e-sourcing and e-procurement technologies -- as well as deployments of dedicated OSP solutions -- are seeing significant return on investment. Companies in the survey pool that have automated services reported benefits in three key areas:

  • Visibility -- Companies reported improved information flow, easier access into services information, improved requisition tracking, better ability to plan purchases, better monitoring of services consumed, electronic data analysis capabilities, and consistent spend reporting.
  • Efficiency -- Enterprises cited improved process standardization, better organization, faster requisitioning, "hassle-free" requisitioning, ease of bill paying, easier internal audits, and enabled cost allocations.
  • Cost savings -- Benefits included maverick spend control, improved payment terms, improved contract compliance, a reduced number of suppliers, decreased transaction costs (where applicable), reduced overall service costs, and "realized ROI."

Aberdeen conclusions

The survey research suggests that enterprises that plan carefully have much to gain from automating the services supply chain. The main challenge will be in identifying service category areas in which to start, but this benchmark gives companies -- and the solution providers that support them -- fodder on where to start.

Christa Degnan is Research Director for Supply Chain Research at Aberdeen Group, a Boston-based IT market research and consulting firm.

To read more articles like this one, visit Aberdeen Group and register for free online access to Aberdeen's IT market research and analysis, and to subscribe to technology-specific e-newsletters.

© 2003 Aberdeen Group Inc.

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