If you're looking for proof that purchasing adds value to company operations, talk to Rebecca Karp and Nancy Perrine of Tyco International.

Or Brian Ross, Debra Merritt, Steve DeFord and Tina Schoner and their respective teams at Rockwell Collins.

Or Ray Mazzoleni of Genzyme.

Or Mike Mannheimer and Bob Pelon of Cox Enterprises.

Or Lori Yelvington and her team at Allstate Insurance.

Or Terry Wahlgren at Eaton Corp.

They're all making their respective companies more strategic and more efficient in sourcing, and their efforts are enabling their companies to get more value from their supply-base management activities.

And yet not one of them is currently saving their companies any money in the sourcing of metals, chemicals, electronics or other basic commodities.

Instead, they all head efforts to source services—those indirect activities that have little to do with product development but everything to do with keeping companies running smoothly. And, they are among the leaders of an emerging movement that's gaining traction in corporations: turning purchasing professionals loose in areas other than traditional direct and MRO (maintenance, repair and operation) materials.

It's a trend that started perhaps seven years ago during a small recession that made corporate management even more serious about purchasing efficiencies than they already were. Gradually, purchasing departments found themselves with more responsibility for selecting, contracting and managing services providers. Among the services that got attention early on was travel, often one of the biggest expenses in companies. Purchasing's involvement has grown to the point that the National Business Travel Association 2007 International Conference and Exposition had a special educational session called "The convergence of strategic meeting management spend, travel management and procurement." Purchasing professionals from Pfizer, Frito Lay and Tyson Foods were among panelists making presentations.

One sure sign of the value that services are being given is the money companies are dedicating to services sourcing. In the most recent Purchasing salary survey, the results showed that among all survey respondents those responsible for buying services were among the highest earners, with an average annual compensation of $104,110.

It's really no surprise. Purchasing has proved its value to companies in the direct materials arena, says Mazzoleni, head of indirect procurement at Cambridge, Mass-based biotech company Genzyme and author of the Services First blog on Purchasing.com. Now, Mazzoleni says, CEOs are asking their purchasing staffs to apply their skills in the services spend.

"What we see is that CEOs and CFOs are questioning the value they're getting from marketing, advertising, research and development, and the human resources benefits spend, and they're looking to purchasing for help," says Brian Powilatis, managing director of the Washington-based Procurement Strategy Council. And to help purchasing professionals share best practices and otherwise improve their services-buying strategies, the Procurement Strategy Council is sponsoring a roundtable on the topic for its members March 18 in New York.

While savings are certainly a goal as purchasing moves into the services arena, they're not of paramount importance. In fact, they're often not even the primary goal of those who purchase services. Says Powilatis, CEOs and CFOs are looking for value for the money they spend on services—more so than with materials. "For example, simply cutting benefits costs could affect the value of the benefits to employees," he says. Similarly, mishandling research and development spend "could dry up the product pipeline." And, in marketing and advertising, he says, "you're affecting the whole brand."

The expertise for determining value rests with the budget holder, says Karp, director of global sourcing services for Tyco. "Relationships are important," she says. "You don't come at it with the same perspective as you do with direct materials. There's not the traditional mandate to take money out through price reductions."

Not that any discussion of savings is taken off the table. On the contrary, many of those buying services are racking up big savings by putting long-term services contracts out to bid. Ross, Merritt, DeFord and Schoner of the indirect enterprise sourcing department at Rockwell Collins in Cedar Rapids, Iowa are averaging about $10 million per year in savings. Mazzoleni is averaging savings of 5–15% of the services spend per year at Genzyme. Mannheimer and Pelon of Cox Enterprises in Atlanta are saving 15-20% of their printing costs just by eliminating duplicative inventory by consolidating printing services with one supplier, Webb/Mason, and moving their buying to e-procurement (see p. 25 for details). And tech giant IBM saved about $74 million in its event-marketing activities, largely after purchasing cut the 400-plus agencies globally helping the company with that effort to just one, GPJ.

Though many of the tools and methodologies purchasing pros use for services are the same ones their direct-materials buying peers use, the respective sourcing staffs' approaches differ. "Materials are clearly defined," says Mazzoleni. "Services are open-ended." Also, says Powilatis, the definition of quality is more in the eyes of the beholder, the actual stakeholder or budget owner.

"One executive has said that commodities fluctuate but they aren't hard to buy because the specifications are so tight," Powilatis says. Services don't have those tight specs. "For example, when you're sourcing travel services, everyone who travels is an expert. It's the same with advertising, where it's hard to judge creativity. It's very hard (with services) to define the product and define success."

The trick, he says, is to understand the ultimate goal of the different services stakeholders and budget owners in the business. "For research and development, it may be time to market," he says. "For marketing, they care about the creativity and responsiveness of the agency."

Mazzoleni says it's as important for purchasing to get involved with service users and their departments at the concept stage as it is for direct-materials buyers to get involved up-front in the product-development process.

But it's also important to get the stakeholders involved in the sourcing decisions. Wahlgren, global manager of indirect materials and services at Cleveland-based Eaton, says his department always involves stakeholders or services users in narrowing the list of potential suppliers and developing a statement of work. "We try to drive ownership that it is their supplier, not some corporate supplier," he says.

Among services his staff buys are travel, fleet, contingent workforce, relocation, benefits, office services, information technology and facilities services such as janitorial and waste management.

At Tyco, in Princeton, N.J., Perrine, who is global category director for professional services, and Karp have had success at two of the most difficult services to source, legal and human resources. Their entry in legal was through a corporate Six Sigma program that is part of a company-wide operational excellence program. While there were some challenges in getting 100% of the lawyers to agree to reducing the number of law firms, says Karp, in general the senior leadership in legal was very supportive.

Karp's and Perrine's model for working with their legal department mirrors the model they and their peers in other companies follow in services purchasing. "We provide a methodology," Karp says. Using a software sourcing tool, Tyco's sourcing group and the law department wrote a statement of work describing the portfolio, including the type of work, number of matters and total lawyer hours. Writing the statement of work is critical, and sourcing brings significant value to the process, she says. "If you're too close to the subject, you could write it at too high a level," Perrine adds.

In addition to converging its law firms, Tyco distributed an RFP for its nonlaw-firm suppliers, including those supporting eDiscovery, copying and research. Perrine and Karp were instrumental in reviewing the existing supplier relationships, both at Tyco and the law firms, helping to construct the RFPs in support of the work and negotiating competitive fee arrangements.

Through the Six Sigma project, Tyco reduced the number of law firms handling product liability cases from 100 to just one and selected a small number of nonlaw-firm suppliers for eDiscovery, copying and research. The effort resulted in significant savings for the company.

Among the human resources efforts was the search for a supplier to handle compensation equity. Initially, the HR department was inclined to go with the incumbent supplier, until Perrine and her team compiled a list of other potential suppliers and provided a methodology for judging them. They hired a different supplier whose bid was three times less than what the incumbent had bid.

Equally important as the cost savings was the value of the service that the new supplier provided. And that demonstrated the importance of having the sourcing professionals involved at the early stages of those types of projects.

Says Shelley Stewart, senior vice president of operational excellence and CPO at Tyco, "partnering with the functions and applying Six Sigma principles have resulted in greater productivity and cost savings to our business."