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Because supply chain management is widely embraced as a proven method of reducing costs, it has become an important part of corporate strategy, and the procurement department is starting to manage larger categories of corporate spend.   30% to 70% of that spend represents the amount spent on services.   The amount spent on legal services spend not only represents a huge component of that spend, but it has been virtually untouched in terms of spend management, viewed as a “sacred cow.”

Despite those statistics, this enormous amount of spending is typically poorly managed, with inefficiencies in how these services are sourced and engaged, leaving tens of millions of dollars in potential savings on the table at the average large enterprise. Taken in total across all businesses and governments, there are undoubtedly billions of dollars in waste, excess process, and excess spending in the current purchases of services.  Consequently, effective management of services spend presents a high potential for significant savings.  

There are, of course, some big differences between sourcing direct materials and services. First, the services buy is often is based on relationships rather than detailed analysis of quotes.   Additionally, what constitutes quality is different:    Purchasers of services generally place more emphasis on subjective factors, such as skills, knowledge, experience, references, and even identification of individual people, when purchasing services versus goods.  On top o f that, services are not returnable.

The biggest difference, however, is that pure cost savings are not the primary goal. Instead, the goal is value for the money.  According to the Value Challenge Briefcompiled by the Association of Corporate Counsel, even before the economic meltdown, corporate counsel had started pushing back more than ever on rising legal costs and voicing their frustrations: “Costs keep rising, but with no noticeable improvement in efficiencies and outcomes . . . The system is broken. . . Better alignment is needed between cost and value.”

In Part II, we’ll discuss how electronic procurement technology helps to align the value of legal services.