Definition of Purchased Services
Services procured externally due to cost-effectiveness, regulatory requirements, or a lack of in-house expertise.
Purchased services are those that an organization either cannot or chooses not to provide internally. Companies and organizations acquire these services either for convenience or due to a lack of internal capability. These external services, provided by suppliers, support operations or deliver core services. Typically, they are outsourced to leverage specialized expertise, reduce costs, or allow the organization to focus on its core activities.
Organizations purchase many services from external providers. The guarantor of the purchased service is always an internal organizational unit.
Examples of Purchased or Outsourced Services
- Energy supplies
- Banking services and account management
- Insurance
- Transport services
- Maintenance of machinery and equipment
- Accounting management
- Payroll management
- Internet connection
- IT services
Purchased services are external services acquired by an organization from third-party providers to support its operations, fulfill specific needs, or enhance its capabilities. These services are typically outsourced to leverage specialized expertise, save costs, or focus on the organization’s core activities.
Best Practice for Purchased Services and Vendor Management
Managing purchased services effectively requires implementing best practices to ensure cost efficiency, quality, and vendor reliability. Here are some fundamental best practices for managing purchased services:
Develop a Vendor Selection Process
- Research and Shortlist Vendors: Use online reviews, referrals, and vendor marketplaces to identify reliable providers.
- Request Proposals (RFPs): Solicit detailed proposals, including pricing, service delivery, and terms.
- Evaluate Vendors Based on KPIs, SLAs: Assess vendors on cost, quality, experience, and reliability before making a decision.
Ensure Vendor Compliance, Manage Vendor Risks
- Vendor Due Diligence: Verify the vendor's compliance with industry standards and regulations.
- Risk Assessments: Regularly evaluate potential risks such as over-dependence on a single vendor or data security issues.
Keep Minimum Contractual Requirements with Vendors
- Detailed Agreements: Include clear terms for deliverables, timelines, costs, penalties for non-performance, and termination clauses.
- Use service level agreements (SLAs) for Performance Metrics: Use KPIs (e.g., delivery time, quality, cost-effectiveness)
Maintain Strong Vendor Relationships
- Transparent Communication: Keep history of communication, to avoid business discontinuity.
- Maintain Records: Store contracts, service level agreements (SLAs), and correspondence in a centralized, easily accessible location.
Monitor Service Quality
- Regular Check-Ins: Establish a communication schedule with vendors to monitor progress and address concerns promptly.
- Performance Metrics: Use KPIs (e.g., delivery time, quality, cost-effectiveness)
Automate Vendor and Service Management
- Use SaaS Tools: Leverage software to automate workflows, track vendor performance, and manage contracts and payments.
- Reminders and Alerts: Automate notifications for contract renewals, payment deadlines, and performance reviews
How Aptien helps you Manage Outsourced Services and its Suppliers
Aptien solutions tailored for small and medium-sized businesses (SMBs) can significantly streamline the management of purchased services and their vendors. Here’s how they can help:
1. Centralized Vendor Management
- Vendor Database: Maintain a centralized repository for all vendor information, including contact details, contracts, service agreements, and payment terms.
- Category-wise Organization: Classify vendors by service type (e.g., IT, maintenance, marketing) for better visibility and management.
- Performance Tracking: Rate and evaluate vendor performance based on predefined KPIs.
2. Contract and Service Management
- Contract Repository: Store all contracts digitally with search functionality for quick access.
- Renewal Reminders: Set automated alerts for contract renewals or expiration to avoid service disruptions.
- Terms Compliance: Track compliance with contract terms using audit logs or task management features.
3. Purchase Order and Invoice Management
- Purchase Order Automation: Generate, approve, and track purchase orders (POs) within the platform.
- Invoice Matching: Match invoices to POs and service agreements to ensure accurate payments.
- Expense Tracking: Categorize expenses to monitor spending patterns and identify cost-saving opportunities.
4. Workflow Automation
- Approval Processes: Automate vendor approval workflows to ensure compliance with company policies.
- Task Management: Assign and track tasks related to vendor onboarding, service delivery, or dispute resolution.
- Notifications: Receive alerts for critical activities such as contract milestones or service outages.
5. Collaboration Tools
- Communication Hub: Facilitate communication with vendors through integrated messaging or email.
- Shared Portals: Provide vendors access to a secure portal for document sharing, invoicing, and updates.