Everyone would like to obtain the best prices on their purchased services contracts, but price is a moving target. That’s because there are too many moving parts on any purchased services contract. Therefore, I’m willing to bet that very few purchased services contracts are exactly alike, thus, making it almost impossible to benchmark by traditional methods. For example, a food service contract to manage your food service department could include the following under its scope of services: Hiring your current workers, buying food, running your cafeteria, and running your coffee shop. So, how can you have an apples-to-apples comparison?
A great way to focus your Purchased Services Cost Reduction and Sustainability Program is to utilize a value analysis team to review, analyze, and monitor your purchased services on an ongoing basis. Even though you may have some contract managers already given the responsibility to facilitate the contracting process, you can still gain high savings and overall functional value from your purchased services with a team approach. Following are some important lessons to consider when deploying a purchased services value analysis team that have been proven to work for me and my firm for the past 29 years in working with hospital purchased services.
Everyone in healthcare has witnessed the devastating impact of Covid-19, both personally and professionally. We’ve seen hundreds of articles stating the need to start recovering from the effects of Covid-19, and there has been a steady uptick of elective surgeries and services. Yet, healthcare still stands to lose over $300 billion in 2021. Now is the time to examine new methods and partners to financial recovery. A firm footing in the recovery process is necessary to support and shore up the economic bedrock of healthcare.
How do you find savings within purchased services areas that are primarily all covered by specific contracts that are running, on average, about two to three years in length? Most would strategize that if your CFO wants you to start saving money on purchased services contracts, you would just start with the most recent contracts that are coming due for renewal and the new services, software, and repairs, and scrutinize them. But does that really give you the best opportunities for big savings now? The answer is no, you are only looking at the contracts that are up for renewal or new contracts that may have little or no juice to squeeze for big savings. By taking the cyclical route of contracts, you commit yourself to taking what is coming due next instead of being more strategic in finding the big savings opportunities in all of your contracts now!
For those who didn’t take contract law in a business school, I thought it was important to go over the fundaments of a contract to help you avoid pitfalls such as: (i) contracts never intended to be contracts, (II) agreements that fail as contracts where the opposite was intended, (iii) contracts so unclear as to be interpreted contrary to what one side intended, (iv) contracts neglecting to cover one or more of the main points, and (v) contracts impossible of performance because of external impediments…(such as) regulations.1 Now let’s review the basic elements of any contract:
One tactic that I have found invaluable in my quest to improve purchased service quality is a “Pre-Contract Renewal/Bid Customer Survey” conducted within 90 days of a contract renewal/bid. The survey would be sent to all customers and stakeholders of a renewal contract. From my experience, it can make all the difference between who you renew or bid your next contract to. It all starts with conformance to requirements!
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.
Robert T. Yokl, President, SVAH Solutions If you remember the Kenny Roger’s song “The Gambler,” then I’m sure you will recall the lyrics, “Know when…
It’s my guess that out of the 6,090 hospitals in the United States, 30% to 50% of them aren’t effectively controlled by their supply chain departments. This creates an opportunity to open up a whole new source of savings (equal or greater than supply expenses) for those “wait and see” supply chain executives. Isn’t it time to rethink your supply chain mission?
Robert W. Yokl, Sr. VP, Operations, SVAH Solutions For many years, purchased service expenses has been the forgotten brother/sister of the healthcare supply chain non-salary…