Consultancy Procurement 101: A Beginner’s Guide
If you’re new to procurement, consultancy procurement or rather consulting procurement can be a daunting task. That’s because there are a lot of information to take in. Where do you start? What are the best practices? How do you know if you’re getting a good deal?
In this beginner’s guide, we break down everything you need to know about consultancy procurement. We’ll give you an overview of the key steps involved in the procurement process and will help you get started on your sourcing journey.
So, let’s begin with a definition.
What Is Consultancy Procurement?
Consultancy procurement is the process of contracting an outside firm to provide consulting services. Its main purpose is to help an organization obtain expert advice or services to help solve a specific problem.
Often, an organization would hire consultants when it does not have the internal resources to address a particular issue. For example, a company may seek out a consulting firm to help them improve their manufacturing process. In this case, the consulting firm would provide advice and recommendations based on their expertise in the field.
Consulting can also be used to supplement existing staff or to fill a temporary need. For instance, a company may hire a consulting firm to help with data analysis during peak demand periods.
Obviously, consultancy procurement is a sub-category of procurement activities centered on consulting services. But let’s take a step back.
Procurement can be segregated into two elements: direct procurement and indirect procurement.
What is Direct and Indirect Procurement?
Direct procurement refers to purchasing any item that contributes to the production. It can be parts, components and goods such as raw materials that are utilized by the company’s operations. For example, wood, nails, concrete, and other construction materials are utilized as raw materials for home construction. Similarly, raw food items sold in retail stores are utilized as raw materials in the restaurant industry.
To earn revenue, companies that sell tangible goods to consumers or other businesses, use direct procurement. Businesses such as software services, whose final result is intangible and for which no raw materials are used in production, are an exception.
Indirect Procurement, on the other hand, is when a company acquires goods or services that are not used in the production of a final product. Instead, they are used in the day-to-day operations of the business. Examples of indirect procurement include office supplies, janitorial services, and consulting services.
In a nutshell,
Direct procurement is focused on acquiring goods or services that are used to produce a final product. Indirect procurement is focused on acquiring goods or services that keep the business running on a day-to-day basis.
Consultancy procurement is a sub-set of indirect procurement, often folded into the professional services category with marketing, executive search and legal. Now that we are clear on the definitions, let’s have a look at what makes consultancy procurement so special.
The Consulting Procurement Process
The consultancy procurement process can be lengthy and complicated, involving many different steps and stakeholders. However, there are some basic principles that all organizations should keep in mind when procuring consulting services.
Too many businesses that want to hire consultants don’t realize how complicated the procurement system can be. At first glance, it seems like a simple process that ends when the order is placed. But consulting isn’t that simple. Signing a contract and assuming everything will go as planned doesn’t take into account how flexible consulting and intellectual services in general are.
In order for procurement to be successful, it should be a long-term process that goes beyond the moment the contract is signed. Thus, let us look at the consulting procurement process in detail.
#1. After The Request for Proposal
Do not cut ties with consultants you did not choose to work with. Instead, tell them why you decided to go in a different direction. Be honest about the proposal’s pros and cons and how it could have been better suited to your needs.
This step doesn’t take much work on your part. But for the consultants you didn’t choose, you give them valuable information about what you want and how they can compete for future proposals and opportunities like yours.
If consultants are willing to listen, they can use these lessons to improve their chances of getting similar jobs in the future. Because you never really know. You might need a consultant again in the future, so keeping in touch with more than one can be good for both you and the consultant.
#2. Change Management
No matter how hard you try, building and keeping relationships with consultants during the execution of a project is not as easy as you think. A number of changes will happen during the project that you didn’t plan for in the proposal or contract. A few of these changes could be:
- As needs become clear, new tasks may be added, and deliverables that are impossible or hard to reach may be dropped.
- Organizations are always changing, and both sides may have to plan for a change in staff that needs to be adjusted and perhaps trained.
- Before a project starts, everything is just like a guessing game. As the real length of the project becomes clear, you may need to change the pace.
- There may be changes to the budget, project mergers, project freezes, or any number of other things that could affect how the project is done.
Change management is needed to keep these changes from throwing the project off track. By keeping a log of all changes as they happen, you can make changes to the business environment in time, before they become dangerous.
#3. Middle of The Project Assignment
Set a target date for yourself and your consultants to meet in the middle of the project as soon as possible. This is an excellent time to go over the initial goals and get back on track to meet them on time.
As you work on a project, it’s easy to get caught up in the small details that won’t change the project’s overall success. With a Mid-Project assessment, you and your team can make sure that these inevitable side projects don’t put the project’s timeline and success at risk.
The Mid-Project assessment should be a significant event for all parties involved. Separate it from regular operational project reviews, which should take place in smaller groups and on a regular basis.
#4. Closing The Project
When the project is completed, it is time to conduct a thorough evaluation. You should compare your final results to your initial goals, which will help you understand and plan for the adjustments that are still needed to reach your ultimate goal.
You can also evaluate your relationship with your consultants at this time, as well as whether they delivered on their initial promise. Consider commercial quality, delivery quality, posture, talent & expertise, and ROI as it relates to the project when evaluating your provider.
#5. Giving & Receiving Feedback
Nobody is perfect, and no project or professional relationship is. The project closure is an opportunity for you to provide feedback to your project suppliers on the results, relationship dynamics, and any other aspects you discussed in your project closure review above.
Giving feedback helps your consultants improve their business by better understanding client expectations and identifying potential blind spots. Constructive feedback will also reveal relationship issues that can be addressed in a future collaboration with you or other clients.
You can use the same information because it helps you better understand how the consultant will move through your project. As a result, you will make suppliers more competitive, which will increase the chances of good things happening. By making your purchasing process better, you can help gather information about the market and its different segments.
Lastly, you can learn just as much as your consultant from feedback about the project. Hearing from your partner about the relationship and its successes and failures can help you figure out what you can do better in the future, which will lead to better project implementation in the long run. Just asking for feedback will show that you care about good practices, being open, and being truthful.
What You Need to Know When Purchasing Consulting Services?
When looking for the best consulting firm to solve a specific problem, it is critical to consider both the problem and the type of consulting firm that would be best suited to solve it.
Moreover, it goes without saying that everyone wants to hire the best consulting service providers. However, your idea of the best consulting partner may differ from that of your competitors. You must create your criteria based on the needs and goals of your project.
When you hire a consultant, you are not simply purchasing a product or service. You are paying for the consultant’s expertise and knowledge. So, when it comes to buying consulting services, there are four important things to keep in mind.
The first thing to keep in mind is intangibility, which makes it hard to know right away what you want to evaluate or how you’d define the RFP. Writing a Request for Proposal (RFP) is hard because you have to think about a lot of different things.
Buying consulting services is not the same as buying a table. When you buy a table, even if it’s a different size, made of a different material, or a different color. It still is just a table, right?
So, when buying these kinds of products, it’s easy to compare the proposals on both the technical and business sides. But when you buy consulting services, it’s possible that they will be very different from what you’ve had before.
And everything you’d expect to see in an RFP, from the overall goals to the deliverables, schedule, team members, and so on, will be very different. So, almost nothing can be used again! You will have to start from scratch.
Next up, is the impact. When you buy consulting services, you expect something fruitful to come out of it. Maybe you’re trying to solve a problem with a consultant who is an expert in that area.
Or maybe you’re trying to improve your business process or build up the efficiency of your team. Whether it’s in the top line or the bottom line, you simply want something substantial to happen, right?
This means that employees, stakeholders, and just about everyone else will be greatly impacted at some point. So, there is a change management part that needs to be added right at the start of buying the consulting service.
If you don’t, you might hurt the chances of success for the project you want to start!
The next important aspect is the negotiation. People often use their ability to negotiate and their ability to compare in our everyday life. For instance, if someone wants to buy a table, they will bargain with the seller over the price.
To be successful in their bargain, they will look at the price of the table they are interested in and compare it to the prices of other tables of the same kind.
However, when it comes to consulting, it’s like comparing apples to oranges. That’s because you’re not just comparing the service; you’re also comparing what’s inside, how they work, and what methods they’ll use.
This makes it different because when you buy a physical product, you don’t care how it was made or anything else. But when you buy a consulting project, almost everything matters.
#4. True Value
Last but certainly not the least, is the true value when purchasing consulting services. Many procurement professionals believe that when buying consulting services, you should focus your efforts on trying to negotiate and cutting down your costs.
But the reality is, whenever you purchase something intangible, whether consulting or not, you are purchasing something that cannot be counted or measured. It could be legal, marketing, or another type of intangible service.
The scope is the part where you actually save money. That’s because you are purchasing time and expertise from skilled consultants, regardless of the size of your project. So, anything you include in your scope will define how much time, experience, and what type of consulting firm you’ll need to complete the task, and that’s how your fee will be calculated as well.
Identifying the appropriate consultants for your project is essential to ensure that you gain the greatest potential value at the conclusion of the process. Suppose, for instance, Team A is McKinsey and Team B is a local second-tier business when discussing other consulting firms.
There is about a 50% difference in daily costs. As a result, the price will be determined automatically by the type of business evaluated. In consulting, we must thus recognize that, in addition to the report, there is value in working with Team A or Team B, which corresponds to goodwill on the balance sheet.
This is not specified in the report or the contract, but it is a reward you receive as a client when you work with top-tier companies.
A Quick Round-up
That’s it! You now have a basic understanding of consultancy procurement and the various steps that are involved. Remember, always consult with your internal team and legal department when making decisions about which consultancy to work with. They will be able to provide valuable insights and help you avoid any potential pitfalls. Good luck!
Hélène Laffitte is the CEO of Consulting Quest, a Global Performance-Driven Consulting Platform and author of “Smart Consulting Sourcing”, a step by step guide to getting the best ROI from your consulting. With a blend of experience in Procurement and Consulting, Hélène is passionate about helping Companies create more value through Consulting.