6.

0 PROCUREMENT IN SERVICE
SECTOR
 WHAT IS SERVICE PROCUREMENT?

• It is a process of :

managing strategic
buying and outsourcing of work
 CONTINUE

- are more complex due to underlying characteristics.

S
E - are typically heterogeneous and difficult to measure and dynamic
R
V in nature
I - may have been acquired by any organization are extremely
C
E diverse such as :
S
advertising auditing courier service
transportation banking computer programming
catering
 WHAT MAKES SERVICE DIFFERENT?

❖The buyer purchases an intangible

❖Difficult to compare the quality of similar services
❖Goods are produces, services are performed
❖ The buyer cannot return the service
❖ Very easy to create new product
 6.1 Objectives of Service Procurement
The objectives are to obtain the best value-trade off between :

quality quantity
flexibility
cost

delivery continuity
6.2 ANALYZING SERVICE
PROCUREMENT
The factors need to be considered:
i. Value

ii. Repetitiveness

iii. Tangibility

iv. Direction

v. Production

vi. Nature of demand

vii. Nature of delivery

viii. Degree of customization

ix. Skills of required for service

 Value
➢The services would be to classify as high, medium or low value
➢This could be done in the typical ABC/Pareto analysis or portfolio analysis.
➢ABC classification would focus quality attention on high-spend services.
➢Portfolio analysis would focus more quality attention on services.
 Repetitiveness
➢Possible to develop a standard quality assessment tool and gather quality information
on a regular basis.
➢For the unique service requirements may be more difficult as the service is delivered.
➢Normally electronic sourcing tools used to acquire repetitive services where it is
easier to standardized.
 Tangibility
➢Every service tends to have an intangible dimension such as the dimension in
hospitality industry.
➢However, some services can be seen as more tangible.
 Direction
➢It deals whether or not it is directed at people.
➢For example, food services are for people, while maintenance services are for building
or equipment.
➢When the services directed at people, it is important to recognize the special needs of
the persons who will be most affected by the service.
 Production
➢The service can be produced by people or equipment, or a combination of both.
➢Services of low labor intensity may have a high capital or asset component.
➢For example, real estate and equipment rentals, computer processing, transportation
and communication services.
 Nature of demand
➢Demand for the particular service may be continuous, periodic, or discrete.
➢A continuous service may be insurance or a 24-hour services.
➢Periodic service may be regular, such as once a week or once a month as with regular
inspections.
➢A discrete or one- shot service may be the acquisition of an interior decorator to
suggest a new colour scheme for an office complex.
 Nature of delivery
➢The nature and place of service delivery may have significant acquisition
repercussions.
➢For example, if the delivery of the service occurs in the premises of the purchaser, the
contract agreement may have to address a number of provisions.
➢So that, when the service is provided on the supplier’s premises or elsewhere, many of
these concerns may not arise, which provided service is not directed at personnel of
purchaser.
 Degree of customization
➢It makes a substantial difference whether a service is standard or customized
specifically for the purchaser.
➢The less the consumer contact, the more standard the service becomes.
➢The specification process may become more difficult and the option and the options
also more difficult to understand if the customized services is high.
 Skills required for the service
➢The production of a service my require a full range of skills, form unskilled to highly
skilled on the other.
➢For unskilled labor, it may require services such as grass cutting and other simple
maintenance tasks.
➢However, for highly professional services, it need skilled persons who need to concern
over the specific tasks.
 6.3 ACQUISITION PROCESS FOR SERVICE
Review Market
Form a
current research
team -Analyze
-Leadership strategy market
support -Conduct -Identify
-Build the historical suppliers
team analysis

Execute
strategy Acquisition Requirement
-Select right strategy definition
contractor
-Award
contract

Performance
management
-monitor Mission
performance results
-build & manage
relationship
Four areas of acquisition process are covered :

- Need recognition and specification

- Analysis of supply alternatives

- Purchases agreement, service contract types

- Contract administration, including follow-up , quality control , payment,

records , supplier management
 SUBCONTRACTING
✓ A business practice where main contractor hires additional individuals or companies
called subcontractors to help complete a project. The main contractor is still in charge
and must oversee hires to ensure project is executed and completed as specified in
contract.
✓ Subcontract can exist only when there are prime contractors who bid out part of the
work to other contractors ; hence the term subcontractor
✓ A subcontract is a purchase order written with more explicit terms and conditions.
✓ It may require unique skills and abilities because the amount and type of
correspondence charts programs reviews management
reporting

✓ Managing the subcontract is a complex activity that requires knowledge about

performance to date as well as the ability to anticipate actions needed to ensure the
desired end result.
 PROS
• Subcontractor can participate on many
teams , thus increasing the chances of
being on the winning team.
• Less risk of subcontractor means less
liability
VS CONS
• Subcontracting requires putting
together several scopes of work, thus
increasing the cost and resources.
• Subcontractor have little or no control
of the program
• Subcontracting usually means less
revenue
 COST CONTROL OF SUBCONTRACTING

Negotiation of a fair
and reasonable cost,
Written reports and
proper choice of the Schedule control
recovery programs
contract type and
incentives

Deliverable material,
data and reports must
Technical programs Configuration control
be received and
inspected
THE END