Sourcing Services — The Ultimate Guide of 2022

Sourcing services is the act of acquiring services needed by your business. But many of us only know how to source goods. This sourcing is uncommon, especially for end-users. As a procurement manager, this is essential in the procurement process as you also deal with services. 

In this article, we will have an overview of sourcing services that will enable you to be knowledgeable about it. You will see the difference between procuring goods and services.

Afterward, the knowledge you will gain from reading this article will enable you to apply it in your daily tasks. This can be a guide to sourcing that will enable you to master it. Are you ready now to learn the best tips? If yes, then let’s start!

Sourcing

Before we take a closer look at sourcing services, we must review the basics of the procurement process. Sourcing, as we all know, is the acquisition of the needed goods or services to operate efficiently. It is not just about acquiring goods or services as it considers a lot of factors before sourcing for suppliers. 

A good sourcing process researches potential suppliers to limit the risk of overspending and fraud. It researches for potential suppliers that will give the best suppliers or services to a company.

After reviewing what is sourcing, it is now the time to look into sourcing services. 

Sourcing Services 

Services are crucial in every business, especially those who rely heavily on services that have a specific specialization. For example, your business does not have a legal and tax compliance team or department. Of course, you will need to outsource this service to comply with the laws in your Country. Once you comply with all the legal matters, your business can run smoothly. 

Therefore, sourcing services is the process of requesting people-based services to provide for the needs of your company. In simple terms, it means hiring another business to work on your project or your needs. 

Editor's note:

Hi there! My name is Marijn Overvest, I'm the founder of Procurement Tactics.
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Difference Between Sourcing Goods and Services

Now that we are done defining sourcing services, it is time to differentiate sourcing goods and services. The main difference between sourcing goods and services is Tangibility. 

In sourcing goods, you can inspect the product you received because it can be touched. The product’s tangibility can also enable you to test its quality and durability. This will allow you to know what exactly you can expect from your supplier.

On the other hand, sourcing services are intangible. It means that it cannot be determined by your five senses alone. Sourcing services are more complex than sourcing goods as it is intangible. 

Another difference between sourcing goods and services is transferability. In sourcing goods, you acquire materials to make your product that will eventually end up in the customer’s ownership. While the ownership of service cannot be transferred as it is inherent to the service provider. 

The last difference between sourcing goods and services is the return policy. In sourcing goods, the goods can be returned or exchanged with the seller if there is any defect. However, the service rendered cannot be returned or exchanged once it is provided. 

Challenges in sourcing Services

There are many challenges in sourcing services and one of these is the expectation from clients. The business that provides services does not know what the client desires due to limited information. As a result, both will spend more time specifying their understanding of the service. 

Another challenge is that the business provider may find it hard to put a price on its services. It is difficult to judge what additional work the client may ask from them. 

Although there are many challenges, these can be resolved by laying the terms for both parties. Laying their terms will create the common ground that will enable them to discuss and execute the agreement. 

4 Factors to Consider in Sourcing Services

As we discussed earlier, sourcing services have many challenges to face. These challenges can be addressed by these four factors that will help you limit your risk.

1. Be Able to Control the Unpredictability of Outcomes

The service provider is usually judged by its past performance and referrals. That is why the integrity of the service provider can be a way to tackle the unpredictability of a project. The service provider must show the details of the service outcome to manage uncertainties. 

If uncertainties are managed effectively by the service provider, the client will trust it more. This, in effect, can make the client enter into a long-term agreement with the service provider. 

2. Management of Knowledge

The service provider must ask for the documents, policies, and description that contains the knowledge of the client’s needs. The service provider must ensure that these are always accessible. Also, the client’s employees must have general knowledge of the outcomes. 

The client will be involved with the production of the service. This will enable transparency and learning of the expertise of the service provider. This is useful if the client wants to renew the contract as it has learned the provided services. 

3. Reduction of Complexity

Intangible inputs and outputs add great complexity to the service provider. To counter this, the service provider must have a detailed plan and be conscientious with the management of the project.

Also, the service provider and the client must actively participate and assess the results before moving to the next phase. This will reduce the complexity and errors that may arise. 

4. Flourish your Relationship

The service provider and the client will be working for a long time which makes them dependent on each other. It is better to solve any conflicts that may arise and build a relationship to successfully deliver the desired outcome. 

Building a relationship where both of you assess the problems will make the management of the project easier. Because what you will deliver is an intangible product, trust is the key to limiting any misunderstanding. 

Frequently asked questions

1. What is service sourcing?

In simple terms, service sourcing is about acquiring the services needed by a business.

2. How is it different from other sourcing?

It is different in terms of tangibility. Services are intangible in nature. 

3. Why do businesses outsource?

There are many reasons why businesses outsource services. A few reasons are access to new talents or skills not in your organization, lower overhead costs, and flexibility.

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