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Buying a service, how difficult is it?

Before discussing services procurement let’s answer the question What are services?

A service has been defined as “any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything” (Philip Kotler). Some obvious examples include call-centre, cleaning, transport & logistics and IT services: something is ‘done for you’, but there is no transfer of ownership of anything as part of the service transaction. (It is also worth remembering that some form of service is part of the ‘bundle of benefits’ you acquire when you purchase materials and goods: sales service, customer service, delivery, after-sales care, warranties and so on.)

Distinctive features of services

  1. Intangibility (or in procurement terms, ‘lack of inspectability’: Baily et al). A service cannot be measured, weighed, chemically analysed or otherwise ‘inspected’ before it is purchased, or when assessing satisfaction (or conformance to specification) after purchase.
  2. Inseparability: services are produced and consumed at the same time. The efficiency and effectiveness of the processes and people involved in ‘producing’ (delivering) the service are crucial to the customer’s experience of it, and will be crucial to the procurement function’s selection and evaluation of the service.
  3. Heterogeneity or variability. Goods emerging from a manufacturing process generally have a high degree of uniformity, which simplifies their evaluation. In contrast, every separate instance of service provision is unique, because the personnel and circumstances are different. This makes it difficult to standardise service specifications so that customers can be sure what they will get, or that they will get the same thing every time.
  4. Perishability (or in procurement terms, ‘impracticability of storage’). A service cannot be stored or stockpiled for later use, so the timing of supply is difficult to control.
  5. Ownership (or in procurement terms, ‘uncertainties in contractual agreements’ ). Services do not result in the transfer of ownership of anything, making it difficult to define when a contract for services has been properly fulfilled, and when risk and liability have passed from one party to another:

After we knew the features of a service, what are the key features of service procurements,

  • The more work that can be done at the pre-contract stage the better. Service levels, schedules, and the basis for charges should be agreed in as much detail as possible before the final agreement is signed; disputes often stem from differing expectations on the part of buyer and supplier.
  • The procurement of services requires professional input, but it is equally important to involve user  departments in the specification of the service. For one thing, they are ideally placed (as customers) to help determine the level of service they require or expect; for another, involvement will help to secure ‘buy in’ and minimise later disputes. ·
  • Supplier management is an important ingredient in successful service buying. Often the level of service agreed upon is expressed in terms which are difficult to measure: it is not like purchasing steel rods which definitely are, or definitely are not, of the diameter specified. It is vital that from the earliest stages, the supplier is made aware of what the customer regards as satisfactory performance, and exactly what will be regarded as unsatisfactory.
  • Supplier management is an important ingredient in successful service buying. Often the level of service agreed upon is expressed in terms which are difficult to measure: it is not like purchasing steel rods which definitely are, or definitely are not, of the diameter specified. It is vital that from the earliest stages, the supplier is made aware of what the customer regards as satisfactory performance, and exactly what. will be regarded as unsatisfactory.
  • Certain legal and technical considerations must also be addressed in the procurement of services. For example, staff employed by the contractor may work on the buyer’s premises (eg in the case of catering, cleaning or security), and this may raise issues such as,
    • Indemnity insurance, to cover the buyer’s liability in case of accidents or other events in which contracted staff suffer injury or loss
    • Confidentiality and protection of intellectual property, since contractors may gain access to information or designs which are commercially sensitive or valuable.

This is not the end, Measures of service quality, and Monitoring service levels are all mentioned in chapter 1 in context of procurement and supply unit 1 of CIPS diploma.

Source: “context of procurement & Supply”, CIPS-Profix publishing limited, 2012

 

September 25, 2016

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