As one CFO reportedly told a group of his peers, "human resources expenses are too important to be left exclusively to the HR department." Presumably, he felt the same about legal services, marketing, advertising, contract labor, meetings and the other myriad activities that are a vital part of corporate life.

There are, of course, differences between sourcing direct materials and services. First, perhaps even more than used to be the case with direct materials, the services buy often is based on relationships rather than detailed analysis. Additionally, notions of quality are different: There aren't as many hard specs for suppliers to meet. And, services are not returnable.

The biggest difference, however, is that pure cost savings are not the primary goal. Instead, as Brian Powilatis, managing director of the Washington, D.C.-based Procurement Strategy Council says, the goal is value for the money.

So what value does purchasing bring to the services-sourcing effort? As much as anything else, it comes down to methodology and mindset. Purchasing professionals bring a concern for the big picture, fresh ideas and a process for ensuring that their companies get the most benefit for their expenditures.

Consider the improvements Allstate Insurance made to the sourcing of advertising services. The Chicago-based company has 15 different advertising agencies, but, until purchasing got involved, no common approach for dealing with the agencies and ensuring that the company got its money's worth. At the direction of then CFO and now CEO Tom Wilson, and Allstate's Board of Directors, purchasing took on responsibility for negotiating with the agencies. Vice President of Sourcing and Procurement Solutions Lori Yelvington and her team developed a strategy to ensure that the agencies weren't making an exorbitant profit from their work with Allstate.

Among their first steps was to work with The Association of National Advertisers to determine industry averages for agency margins and the metrics against which to measure agency performance. Those metrics included believability of the advertising program, recognition factors and whether the target audience was more likely to choose Allstate over competitors based on the advertising program. Then, the purchasing team changed the compensation structure for the agencies from commission based, where it seemed the more ads they placed the more money they got, to a fee-based structure that would enable the agencies to earn the industry-average 14–17% margins.

Next, the team developed incentives with marketing to allow the agencies to earn even more money if they scored well—or less if they didn't.

The key point is that in this case a purchasing staff turned what had been an informal system of supplier management into one based on a clear and specific definition of expectations and an objective process for measuring performance. The result: more value for the company's advertising expenses.

On page 42 of this issue, you'll see more examples of procurement adding value to the services buy at other companies. Read them and see how they might apply to your company.