The procure-to-pay ecosystem has seen some dramatic changes in the last year, most notably thanks to the sudden onset of work-from-home requirements and the closure of any in-person sales opportunities like trade shows.
Suddenly, the B2B buying and selling experience was thrust on the digital stage, and both sides had to adapt. This had profound impacts for organizations that had to purchase goods and items, like office supplies and machinery. But in the B2B services landscape, the procure-to-pay experience was perhaps even more drastically impacted. Businesses procuring complex services like tax advisory, labor law, system integration and management consulting services were forced to rethink and redesign their workflows at a time when the need for many of these services was immediate.
“The coronavirus crisis has underscored how dependent corporations are on the service economy, and how critical it is to have adaptable, sustainable ways to source any type of service at any time,” explained Globality Chief Revenue Officer Keith Hausmann. “Following the onset of COVID-19, corporate buyers had to immediately find a way to conduct sourcing processes that were no longer dependent on traditional, physical interaction and collaboration processes with internal stakeholders and suppliers.”
A New Strategy To Sourcing
While the pandemic injected significant disruption in the services sourcing and procurement process, many organizations had historically relied on legacy workflows and strategies to find service providers that may not have always yielded optimal results.
According to Hausmann, this created new points of friction in the strategic sourcing process as corporations could no longer rely on the same vendors they had always relied on to fulfill their service needs. Yet, as he explained, this pain ultimately proved to be a valuable shift for many organizations.
“Because few suppliers offer the best option for every need, relying on incumbent suppliers means companies may miss out on more unique expertise or cutting-edge capabilities,” he said, adding, “costs may be higher because the go-to provider may be less motivated to negotiate on price or have a higher cost structure, making them less competitive.”
This so-called “supplier bias” limits a firm’s ability to adequately evaluate the quality and cost of a service provider, creating an anticompetitive environment. But what the pandemic did was force many buy-side organizations to widen the scope of potential services suppliers in order to find businesses that were able to meet the needs of operating in a remote environment.
Driving Better Value
As organizations were forced to look beyond their traditional suppliers to meet their complex services needs, they also drove a more competitive environment that influenced other aspects of the procure-to-pay workflow.
For instance, said Hausmann, a reliance on a small pool of the same suppliers often meant request for proposal (RFP) processes were similarly stuck in their old ways, including “service overbuying, misalignment with stakeholders on service needs, supplier bias, transparency gaps — like keeping track of audit trails — and the onerous scoping process.”
While working with the same suppliers time and time again may yield a more predictable contract and ultimate cost of services provided, it hampers a firm’s ability to encourage a more favorable negotiation and pricing process. When reevaluating one’s supplier base, a corporate also has the opportunity to reevaluate its own internal workflows, which include understanding exactly what kind and level of service it needs in the first place.
“The biggest challenge to garnering a competitive price is accurately and precisely defining your needs,” said Hausmann. “The most significant pitfall with services buying is over-buying, or downstream scope creep, which occurs as a function of an unclear requirement at the outside.”
In other words, unless an organization is clear and transparent about its service needs from the onset, costs can quickly get out-of-hand when a firm overbuys or when a project gradually increases in size and scope as it progresses.
With 2020 driving up the demand for a consumer-like buying experience among B2B customers, the pressure continues to mount for the B2B services industry to optimize the customer experience from the very beginning. And as firms rethink their own sourcing and procurement strategies, competition will continue to grow for service providers to meet requirements for digitization, pricing and quality.
According to Hausmann, these realities are challenging, yet they can be overcome with the right procurement strategies and technologies for both buyers and suppliers.
“This can be achieved only with new operating models, and with a completely different approach to digital innovation that is focused on creating value for business stakeholders and customers,” he said. “Recent technology advances have made it possible to consumerize the buying experience, using truly innovative solutions that put the business stakeholder at the center of the process, which accelerates adoption to deliver the value companies expect.”