Services Spend Takes Center Stage

Ariba tackles complexities of managing services spend; ICG Commerce expands services procurement into Canada

Mesa, AZ  May 13, 2003  Suddenly everybody's talking services.

On Monday services procurement solution providers Elance and Fieldglass rolled out upgrades to their offerings. Today Ariba unveiled upgrades to its Spend Management solution set that the e-procurement pioneer said would help companies to better address the complexities of managing services spend.

And, for good measure, purchasing services provider ICG Commerce today said it would expand its own services procurement offering into Canada.

The Unmanaged Services Spend

It's no wonder services is in the spotlight these days. Various estimates, including from the Center for Advanced Purchasing Studies (CAPS), suggest that services make up between 30 percent and 70 percent of companies' expenses, but more than 40 percent of the services spend is not being managed by the procurement group, resulting in maverick spending rates for services that are 40 percent higher than for indirect goods.

CAPS has also found that purchasing groups must manage more supplier relationships with services than in other areas: companies have reported having more than twice the number of active suppliers per purchasing employee for services than for direct goods, and 20 percent more than for indirect goods.

"Having spent hundreds of millions of dollars on e-procurement systems designed to streamline spending on indirect goods, enterprises are now realizing that spending on services represents an even larger opportunity for cost savings and efficiency improvements," said D. Steven Wade, director of benchmarking for CAPS Research, in releasing a survey on services spend last December. (See related story.)

Against that backdrop, Elance yesterday said it was bolstering its services procurement offering with collaboration and engagement features in support of such categories as offshore information technology development and IT consulting, and Fieldglass said it was beefing up its tools for helping companies manage global services procurement initiatives. (See related story.)

Ariba's Upgrades

Now Ariba has announced it is upgrading its Ariba Spend Management solution set to include tools for addressing this, the most fragmented and uncontrolled category of spend.

Services is by far the largest spend category for Ariba customers, and spend capture on a broad mix of service types is steadily increasing, according to the provider. The latest published reports from Ariba's "Benchmark Program" show that its participating customers are capturing $15 billion of services spend quarterly through their Ariba systems  approximately 60 percent of all spend captured though Ariba. The types of services captured include temp services, legal, design and graphic arts, transportation, marketing and advertising, technology or business services, engineering, maintenance and repair, and others.

Ariba, which made its name with its e-procurement offering, said that the new solution, due out in June, will provide the capabilities to manage the full cycle of the services spend at multiple levels within the enterprise, while providing the flexibility to address the specific needs of a broad range of service categories.

The upgrade involves new versions of various modules within Ariba's Spend Management solution set, including Analysis, Buyer, Category Management, Contracts, eForms, Enterprise Sourcing, Invoice and Travel & Expense, as well as the Ariba Supplier Network. Ariba's Workforce solution, which addresses contract labor, will continue as a separate module in the solution set.

The Feature Set

New features in the upgraded solution that address the complexities of managing services spend include:

  • Non-PO procurement  Support for non PO-based buying processes, including collaborative, vendor-initiated service entries and automatic line-item reconciliation against contracts.

  • Supplier collaboration  Access for buyers and suppliers to the same set of contractual terms, such as negotiated goods and services, pricing and milestones. Ariba said this can simplify and expedite the buying process, from requisitioning to settlement.

  • Complex, bundled pricing  Support for the range of pricing options utilized by various service categories, such as recurring fixed-fee, bundled materials and services, reimbursables and multi-attribute formula-based pricing.

  • Service level/milestone-based agreements  Tools for managing against milestones by automating the tracking and monitoring of contractual deliverables. These tools are intended to ensure on-time fulfillment of service obligations before payments are made.

  • Services spend data  Spend activities for the various service categories can be captured, tracked and monitored at granular levels. Companies can then develop sourcing strategies by using Ariba's modeling and analysis tools to comb through the data for savings opportunities by services.

A "Breakthrough"?

With various players coming forward with different solutions targeting this space, what's unique about the Ariba offering? Christa Degnan, research director at technology consultancy Aberdeen Group, believes that Ariba's solution represents something of a "breakthrough" in services procurement because of the scope of services that it attempts to encompass. "Ariba is really the first company to look at the breadth of multiple services that businesses purchase throughout the supplier relationship management lifecycle," Degnan said.

Degnan also noted that because Ariba is taking a sweeping approach to enterprise spend management, a company can use the Buyer application to help gain an understanding of where its services dollars are going and then set about optimizing that spend, using the Sourcing application to source contracts, setting up terms and conditions in the Contracts module, and using the Invoice and Supplier Network to let services vendors submit invoices. "By putting some of flexibility in the solution to involve the suppliers throughout the whole services spend process, they have really made a breakthrough in terms of how companies can address services spending," Degnan said.

Still, the analyst believes that point solutions to handle such services as travel, contract labor and print will continue to have a place in the market. "These categories require more advanced and dedicated functionality because they each have very industry-specific requirements," Degnan said. "There's some need for some ad hoc sourcing and collaboration that Ariba really can't support yet, so I would expect that for those types of spend categories, you'll still need dedicated functionality that is industry-specific."

For example, in the world of contract labor, companies do a great deal of ad hoc sourcing at the time of purchase, so the types of functionality that smaller players in this space  such as Elance, Fieldglass and IQNavigator  have put in place supports this ad hoc sourcing capability. The print procurement solutions are much the same way. For example, you might have a contract with a printer, but you might be able to get a discounted rate at a particular point in time, depending on the availability of the printing equipment.

As for how to approach services spend, Degnan recommends an incremental approach, not the least because, as she said, "most companies today aren't ready to start automating all their services purchases because they don't know what they're spending." Companies need to start tracking their services spend and only then seek opportunities for savings and optimization, adding one type of service at a time to their collection of automated processes.

ICG Commerce Heads North

And in the final bit of news around services procurement today, ICG Commerce announced that it is expanding its Professional Services Advantage (PSA) program into Canada. PSA is intended to optimize and automate activities involved with sourcing, managing and paying for services such as contracting, consulting and recruitment.

The move follows the completion of several successful PSA engagements on behalf of customers in the U.S. PSA provides a solution for multiple categories of services spend, including contracting, consulting, marketing and recruitment for information technology, admin/clerical, finance and accounting, engineering, bank and brokerage and light industrial areas.

The Canadian expansion of ICG Commerce's PSA Program will be managed out of the company's Toronto office.

For more information on professional services procurement solutions, see the article "It's All About People," the Net Best Thing column in the January 2002 issue of iSource Business.