Supply Chain Management

How Is Procuring Services Different From Procuring Goods?

By Beatriz Alegria

Securing intangible assets needs a different strategy than procuring physical goods.

The increasing focus on reducing a company’s purchase spend has a significant impact on its sourcing strategies. However, in this day and age, most businesses no longer rely on just procuring the best goods at the best price to beat their competitors. Services, or intangible assets, are a significant part of the sourcing process. From clearing houses to customs agents, packaging consultants to IT experts to distribution services, globalization requires that companies work with external agents at all times. But how different is it to purchase goods than to purchase services?

Procuring Goods: It’s All About the Money

The term procurement refers to the process of sourcing and purchasing goods, services, or works from an external resource at the best possible price. With this definition, procuring physical goods is a pretty straightforward transaction: Companies just need to ensure that the right number of goods arrive at the right place, at the right time, and meet the quality standards already agreed upon within budget.

Procuring physical products boils down to finding the right manufacturer who can deliver cost-effective and high-quality goods. The key to success in the procurement of products is to be very specific and precise when defining the actual needs of a company. For instance, when sourcing from a waterproof lipstick manufacturer, it is important to agree upon a formula that will have a certain amount of pigment and will stay put for at least five hours before fading from lips. In this example, the specifications and requirements will be clearly spelled out in a contract, and it’s easy to measure the quality and the consistency of the products delivered by inspecting and comparing the lipstick samples sent by the manufacturer.

Procuring Services: Finding the Right Words

In contrast, procuring services is a process that requires a different type of strategy, in which targeted communication can make a real difference. According to Nader Naeymi-Rad, co-founder of Indie Beauty Media Group and the UpLink platform, “it boils down to clearly identifying and prioritizing your needs and then translating those into well-defined and obtainable deliveries. The next step is to shortlist vendors who can understand your needs and provide those deliverables. It is key to communicate your needs and expectations clearly and consistently.”

When sourcing goods, defining a clear scope of work is the key to success. Since services are intangibles, it is important to manage expectations on both sides before actual work can begin. According to Naeymi-Rad, “a vendor’s proposal needs to be highly detailed; you should make sure that you fully understand each point. Never be afraid to ask questions or request a written summary or clarification.” For example, when procuring digital marketing services it’s important to make sure that the buyer understands what the company can expect from a targeted Facebook ad campaign.

In this context, the specifications of the project will need to be carefully worded, as well as a clear definition of success with easily measurable KPIs. In our example, it is important that buyer and vendor define success by using specific goals, such as a 6% conversion rate of potential customers during the week that the targeted Facebook ads run.

To avoid quality issues when procuring services, it is important to maintain an ongoing conversation with the vendor about the scope, goals, and expected results of the project. Unlike manufacturing beauty products, a defective service cannot be remediated by producing more lipsticks in a set timeframe. Services usually take a longer time to give results, so it pays off to schedule time to have a consistent communication with the vendor.

Managing the Relationship with Suppliers

Whether a company is procuring goods or services, the relationship with its vendors is equally important. Finding a qualified vendor is an asset to any company, and cultivating a good relationship can greatly impact its bottom line. Naeymi-Rad notes that it pays off to “keep an open mind, because sometimes what you are looking for may not exist exactly as you want it, and you may have to compromise. Also, be fair to your vendors; if you treat them poorly, they will provide poor service.”