Three Major Cost Savings Beyond Price Elements for Your Purchased Services Program

Three Major Cost Savings Beyond Price Elements for Your Purchased Services Program

Robert W. Yokl, Vice President, SVAH Solutions

Most organizations look at purchased services only from a contract price standpoint to the value provided by the vendor. This keeps the negotiations and transactional aspects of the vendor relationship very simple in the purchased services side of supply chain. Now with group purchasing having valued contracts in the purchased services space, this only enhances the contract price savings for supply chain professionals. I guess this means our job is done with purchased services, right? Or are there still major dollars being left on the table? The answer is yes, because you can still look beyond price to save even more, and you don’t have to wait until the contract renewal process to go after these savings.

8% to 15% Savings Beyond Price Possible in Purchased Services

Purchased services are no different than products in that there is waste, inefficient use, and feature-rich services that you may or may not be fully utilizing. Traditionally, supply chain has been limited to only working on the contract portion of purchased services and the full control of the in-use costs of the service offering was handled by the respective contract owner, which in most cases is the department heads and managers.

Department Heads and Managers Like to Be Lone Rangers When It Comes to Purchased Services, but They Don’t Have the Time to Wring the Towel Dry on Savings

Let’s keep in mind, the first job of department heads and managers is to operate their respective departments for optimal patient care or supporting patient care. Most have not been trained in any type of supply chain or cost management discipline such as value analysis or benchmarking their purchased service agreements. They may have sat on a value analysis committee from time to time, but in most cases, value analysis did not do much with purchased services other than to defer to the respective department head and manager to handle the project/contract initiative.

How Do We Find a Way to Support Better Purchased Service Saving Beyond Price Results and Make Everyone’s Job Easier in the Process?

  • Centralize the Purchased Service Contracts Under Supply Chain for Better Tracking & Support: Fact: The supply chain department at any hospital or health system does not buy clinical products or services nor do they make any decisions on what the end customer uses. The nurses, doctors, and other clinical professionals make the call on which products and services they will deploy. What supply chain does is facilitate the best contracts, negotiations, sourcing, value analysis, and manage the vendor relationship. When it comes to purchased services, department heads and managers of Laboratory, Dietary, Facilities, etc., need to realize that they are still driving the bus on decision making, but they have this world class resource in their organization that they can tap into to drive their costs down even further. Let the supply chain department facilitate the contracting with the confidence that the departmental owners still have their same say in the decision-making process and everyone wins.
  • Give Them Reporting to Control Their Purchased Services and Make Better Decisions: In a perfect world we would call upon our department heads and managers to dive deeper into their departments’ purchased services to further wring the towel dry on purchased service costs once and for all. The challenge here is that there is very limited information at hand for department heads and managers to manage their services in a way that we can with products. The only empirical data they can use is either the invoices that come across their desks for approval or vendor reports that they must proactively request from the vendors. There are systems out on the market that can simplify this process and give great reports that include benchmarking/key performance indicators, savings reports, and predictive analysis reports.

Once you deploy a purchased services reporting system, you will wonder why you didn’t do this sooner because the information at hand is so valuable and results oriented. Most importantly, you will be able to share these benchmarks and analysis reports with the department heads and managers who own these purchased services. These reports will point you and your end customers in the right direction on whether to invest the time and effort into a purchased service initiative and whether the results will be worth it.

  • Create a Purchased Service Value Analysis Team: There are no Lone Rangers in the value analysis process. You need a team to work with in order to objectively find ALL the savings beyond price opportunities within your purchased services. A Purchased Services Value Analysis Team will help you quickly put together adhoc/working teams for each major purchased service you will be working on. Whether it is during the contracting process or trying to find waste and inefficiency, this will put a formal process in place with the right stakeholders, subject matter experts, and users. If not negotiating a contract, you can even enlist your existing vendor(s) to be part of the process to fine-tune the contract and act on any and all savings beyond price opportunities that are found.

There is no silver bullet that is going to dramatically improve your purchased services program but there are a bunch of pieces to the puzzle that you can employ that will be highly effective, give great results, and not create a ton of work for anyone. The key is to start to add these savings beyond price elements to your program or start a purchased services program if you have not already done so. There are up to 8% to 15% in new savings opportunities beyond price in purchased services, but you have to take action in order to reap the rewards.