Chapter 5
Buying business services
Program
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The increasing importance of services
Differences between goods and services
A classification of services
Purchasing process for services
Post-contractual stage
Involvement of purchasing in contracting services
Increasing importance of services
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Purchasing of business services is getting more
important:
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More and more activities are purchased
Share of purchased services in the value proposition is increasing
Purchasing services is getting more professional
Many improvement possibilities due to the limited role of
the purchasing department in the relation between
internal customers and external service suppliers
Purchasing is getting higher on the executive officers’
agenda
Differences between goods and
services
Service: a process consisting of a series of more
or less tangible activities, that normally take place
in the interaction between customer- and supplier
employees, and/or physical resources and systems,
that are offered as an integrated solution to
customer problems.
Combination with physical goods is possible
 Reaction to a customers’ problem or need
 Production is the interaction between customer and supplier
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Differences between goods and services
Pure services offering
Intangible
Heterogeneous
Production, distribution and consumption are
simultaneous processes
More difficult to demonstrate
Cannot be transported
Is an activity or a process
Is produced in interaction between buyer and seller
Customers participate in production process
Cannot be stored
Property cannot be physically transferred
Pure product offering
Tangible
Homogeneous
Production and distribution are separated from
consumption
Can be demonstrated before moment of purchase
Can be transported
Is a physical entity
Is produced in a specialized remote facility
Customers in general do not participate in the
production process
Can be stored
Property is physically passed on to new owner
Classification of services
Classification on organizational activity(Axelsson &
Wynstra, 2002):
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Facility services
Financial services
Information and communication technology services
Operational services
Research and development and technical services
Transportation and distribution services
Human resource services
Marketing services
The approach of services (co-)determines the way in which
the purchasing process and operational phase are designed
Purchasing process for services
Input
specification
Throughput
specification
Output
specification
Outcome
specification
Focus on
resources and
capabilities of the
supplier
Focus on supplier
processes needed
to produce the
service
Focus on the
functionality or the
performance of the
service
Focus on the
economic value for
the customer to be
generated by the
service
Based on Axelsson and Wynstra (2002)
Purchasing process for services
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Specifying a service
 Input,
specification of resources and skills needed to
provide the service
 Throughput, specification of the process needed to
produce the service
 Output or outcome, the buyer is explicit in terms of
results which need to be accomplished by the
provider resulting in e.g. service level agreements
(SLA)
In general, output/outcome based contracts are
preferred over input or throughput specifications
Purchasing process for services
Contracting:
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In services it can be unclear when the service is delivered
Agreements on access to company information are in some
cases necessary
Key performance indicators (KPI’s) have to be tracked using
Service Level Agreements
Periodic assessment and evaluation by buyer
Post-contractual stage
The post-contractual stage is important for
establishing a successful service delivery.
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Interaction between buying organization and supplier determines
the success of the contract
 Much time is put in to the phase of specifying the service, too little time
is put in the process of realizing what this demands from both parties
 Outsourcing asks for different capabilities of the buying party;
Employees do not longer take care of the jobs, this is done by
employees of a third party
 One has to realize beforehand what kind of service has to be
bought, the role this service will fulfill in the organization and how these
things can be realized
Purchasing and contracting services
Some notions:
 Identify which services are purchased and which
suppliers are involved in these processes
 Usually there is an existing relation between the
internal customer and the supplier of the service, it may
be difficult for the buyer to intervene.
 If the role of a purchasing professional remains
unclear, this can lead to friction. The internal customer
and the purchasing professional should therefore strive
for a common result.
Conclusion
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The number of services is increasing and becomes more
important for a company
Professionalizing services buying is far from simple.
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most of the service expenditures are spread throughout the
company.
buying services requires specific expertise and close
collaboration with internal experts.
Buying services in a professional way is challenging
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the specification of services may take much more time then for
goods.
the quality of the service provided may be embedded in unique
human expertise, this is much more difficult to decide on
objective selection criteria.