Eight Purchasing Process (Andersson and Norman, 2002)

Despite all the services procurement processes mentioned above, Anderssona and Norman (2002) argue that when purchasing a more advanced services such as logistics, more details are required when specifying the contract to overcome the uncertainties and complexity. Anderssona and Norman (2002) then proposed an eight-step services procurement process specially for purchasing logistics services as follows:

Anderssona and Norman (2002) have evaluated the services purchasing process for both basic and advance services. The discussion is focused on the characteristics of the different phases for purchases particularly in both types of basic and advance services. The discussion on the services phases is based on the freight exchange as the basic type of services while logistics services have been taken into consideration to describe the more advance type of services.

2.7.5.1 Define and Specify Services

Services have been developed locally over time without proper construction and definition. This has made services specifications less standardized and may contain the requirements that limit efficient solutions. However, Anderssona and Norman (2002) claim that traditional logistics services are not that difficult to specify but may take longer time. But the issue of who should be specifying the

Four-Phase Purchasing Process (Edvardsson, 1990)

Need Detection

Selection

Implementation

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services specification, either specified by the purchasing company (Gibson et al., 1993; Lambert and Stock, 1993) or by the services provider (Coyle et al., 1992) is definitely unavoidable. Furthermore, for a services purchased that is based on real demand, a services specifications is relatively easy to define when compared to the purchase of more advanced logistics services. Therefore this research will be identifying the services-purchasing process and best practices for two major types of services.

2.7.5.2 Understand the Purchase Volume

Services are intangible and always “consumed at the same time it is produced”. As a result there is often lack of knowledge of what has really been bought in terms of the types of services (specification) and the volume in different categories (Lane and weight/volume for transportation) This internal knowledge is essential when evaluating the tenders but at the same time it provides the services provider a fair opportunity to develop the services proposal.

2.7.5.3 Simply and Standardization

Traditionally, simplification and standardization is important especially for purchasing strategies such as leveraging size, reducing supplier base or buying more standardized services. Anderssona and Norman (2002) argue that in the purchasing of basic logistics services such as freight exchange, the bidding formats have typically been standardized. Neither the shippers nor the services providers require making any efforts. As compared to a more advance logistics services, the logic applied in the normal purchase of transport may differ. Instead of being involved in standardized operations provided by the services providers, the purchasers are usually required to buy function. Therefore it is important that the services providers are able to develop and optimize their operations. Anderssona and Norman (2002) argue that before constructing more detailed operations requirements, the standard operating procedures should be initially developed.

2.7.5.4 Market Survey

It is common to develop a larger supplier base if the company’s strategy is to search for “the best price” services. When purchasing basic services such as the freight exchange, a long list of services providers will be available in the market

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place. Therefore, research or survey on the services providers may not be required. If there is a necessity to conduct a survey, it is suggested to investigate the availability of available freight exchange than the services providers. Comparatively, experienced and capable third party logistics services providers may be limited. Anderssona and Norman (2002) suggest that the third party logistics industry may still grow. Therefore the shippers are responsible to teach the services providers to manage the operations in the development of concepts and services. Hence it is important to have a market survey to determine if there are any potential providers available.

2.7.5.5 Request for Information

Thus there is a need to identify, validate and scrutinize potentials and prospective suppliers. Companies may post the “request for information” (RFI) to the potential suppliers to gather necessary information. However Anderssona and Norman (2002) argue that this step may not be necessary for certain types of services such as the freight exchange. It is challenging for advance services, as more often it is difficult to communicate vaguely defined services and develop supplier selection criteria.

2.7.5.6 Request for Proposal

As a result from the supplier search and selection process, a “request for proposal” (RFP) will be sent out to the qualified services providers. This step is particularly important, as it will specify the services and how it will be carried out. Anderssona and Norman (2002) suggest that traditional services such as the freight exchange may only involve a simpler process whereby an order may be submitted to correspondent to the RFP. The evaluation process is normally easier which is based on price. Anderssona and Norman (2002) stated, for more advanced services, RFP steps might appear more cumbersome. After several suppliers have been selected, they will be provided with necessary information to allow them to develop a process, plan and cost structure. Apart from this, some companies may chose to select only one services provider, requesting it to provide a blue print for the supplier relationship and to negotiate the cost in the negotiation phase thereafter. However it has been argued that if a more solutions based RFP is distributed, it will be more complicated to answer and analyse the selection process. This is due to the responses that are not directly comparable

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to each other as some services providers may suggest somewhat different solution.

2.7.5.7 Negotiation

Once the offers are evaluated, the services provider will be requested for negotiation. Some of the services type may involve shorter and more efficient negotiations while others may take a longer time due to the new types of services being purchased. Similarly, it may be due to the problem in understanding and proposing the right price for the proposed services offered. 2.7.5.8 Contracting

Finally, after negotiations, a contract will be developed and awarded to the selected services provider. Anderssona and Norman (2002) suggest that some services type such as freight exchange does not provide a written contract as it involves a direct purchase in the market. However, when purchasing more advanced services such as logistics, a contract drafting is essential. The contract may include plenty of details due to the uncertainties and complexities of the advanced type of services.

Previous literature clearly shows that there are several types of services procurement processes available. Although the services procurement processes may have briefly described and emphasized on the various steps, the discussion on the suitability of these services procurement processes on the broad area of services types is rather limited. However Anderssona and Norman (2002) suggested to involve a simpler and shorter purchasing process/cycle for traditional/simpler types of services such as freight exchange and a more detailed services process for advanced services types such as the logistics services. The discussion on the suitability of these different various services procurement processes for different types of services are rather limited. Therefore this research will review all the services procurement process and examine their applicability on the different types of services. It is important to categorize services appropriately to allow the discussion on the effectiveness and efficiency of these services procurement processes in the various services types. The following sections will identify, categorize and discuss the various types of services.

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Figure 2.6: Eight Purchasing Process (Andersson and Norman, 2002)

2.7.6 Organizational buying Process for Professional Services (Day and