Are you taking advantage of potential savings opportunities in your purchased services contracts the same way you do in other areas?
Tackling purchased services can be tough, but focusing on your spend and discovering savings can breathe new life into your bottom line.
In the spirit of savings, here are five steps to developing a stellar purchased services program:
You can’t build a stellar program unless you understand what you’re currently working with and where all the money is going. To make this easier on yourself, you can use new tools to quickly make your data intelligent. These tools will collect purchase data from your procurement systems and then auto-categorize the vendors to determine where the biggest savings opportunities lie.
Once you identify where your entire organization is spending the most money at the vendor and category level, you can start pulling contracts to see what the realistic opportunities are for the next several years.
Now that you know where you want to focus and have pulled the contracts, you need to build a spreadsheet (or use a tool) to capture all of the important terms, conditions, and important notes about the vendor or contract. GPOs and consultants can also help you evaluate current contract terms and vendors.
Remember to be incredibly detailed with your documentation as you progress through the analysis stage because sometimes a simple unsigned Letter of Commitment (LOC) can cost you over 10% in savings on a single contract.
Once you have a complete analysis of each vendor and category, work with your internal stakeholders (a.k.a Subject Matter Experts) and your GPO to discuss the optimal sourcing strategy. Work to design a strategy that makes sense for your situation, whether it’s having your GPO complete a custom contract at a local or regional level or if you decide to tackle it yourself by consolidating vendors, renegotiating contracts, or completing an entire RFP.
Designing a custom strategy for each situation is where the true savings are hiding. There is no “one size fits all” solution to purchased services contracting.
This is where you’ll probably need a bit more support, as it’s the toughest part of the process. Hopefully you are using a value analysis team and trying to enlist the help of an executive sponsor. You will most likely need a separate value analysis team based on each department’s contracts you are working on (i.e. IT, Financial, HR, etc.).
I also recommend leaning on your GPO for as much of this as possible because most of them have experience in this space and some of the necessary technology, both of which you are already paying them for. This will allow you to:
Upload contracts into a central repository
Establish a conversion timeline
Develop KPI scorecards
Tackle any conversion issues quickly
Don’t just “set it and forget it”. This is the step in which the value you’ve worked so hard to achieve is maintained and potentially improved upon.
Evaluate broader aggregation opportunities by monitoring new vendors being added at your different facilities by roque purchasing managers.
Keep an eye on your pricing and service levels in relation to your agreed upon terms and key benchmarks/metrics.
Determine if your new purchased services program is working effectively and efficiently, and if not, make adjustments where needed.
Developing a high performing purchased services program can be quite the task, but if created and maintained in the correct way, this endeavor can lead to big rewards.
Last but not least, don’t forget: not only is it important to identify savings, it’s important to track them as well. After all, what’s the point of doing all of that work if it doesn’t get implemented? Let Valify help you track spending by category, vendor and facility so you can stop rogue spending, increase contract utilization, and track realized savings over time.
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