With purchased services categories representing up to 45% of your organization’s non-labor expenses, you should be monitoring your spend the same way you do with medical and surgical products. I only know of three or four health systems that are doing this right now. One of the major problems is that many supply chain leaders believe their GPO is monitoring this information for them. Although there are other ways to maximize your relationship with your GPO, at this time, the GPOs are not able to provide the service of monitoring purchased services spend because they don’t have the knowledge or necessary technology to handle this type of data.
Why Doesn’t My GPO Have This Data?
GPOs capture your MMIS (Materials Management Information System) data feeds. The national GPOs have spent millions of dollars building out their platforms based on collecting your product information, matching it to their database and making sure you are buying on contract and/or getting the correct price for your products.
All of their systems were built around algorithms that need unique product numbers and other unique codes to match their database records. Without those product codes (manufacturer IDs, SKU numbers, etc.) their tools just don’t know what to do with that information, so it gets dumped into a big bucket and is never mined for savings opportunities.
This is why GPOs have historically been lacking at assessing Purchased Services savings potential. They don’t have the insight or compliance capabilities within their members’ data to appropriately contract for services like they can for product categories.
So Where is My Purchased Services Data?
The only way to truly know how much you are spending across your purchased services categories (there are over 1,200 categories!) is to access your accounts payable data, your p-card data, and any other random Excel sheet your organization is using to track purchases across ALL of your locations.
I know your AP department is busy and you don’t want to bother them, but this is the only way. Hopefully you already have an interface into the AP system so you can run a simple report. There are pre-built reports within most financial software (like the AP275 Invoice Distribution report for Infor/Lawson software) that quickly pulls all of the necessary information you need to get a handle on your purchased services expenses.
What About P-Card Transactions?
The next thing is getting a download of your p-card (credit card) transactions. This is simple, so don’t worry. You just login to your vendor’s online portal and download the report. It’s just like pulling your own personal credit card or bank account information. It’s important to get this information because without it, your AP report will just list your p-card vendor name (i.e. American Express) and an amount paid. It will not show what was purchased on the card, which all needs to be correctly categorized to get a complete picture of your spending.
Now comes the tricky part: finding the random spreadsheets. You might be surprised how often we work with a health system that thinks they sent us all of their AP data and then when we load it into our technology, their CFO says, “Why is the spend so low?” and “Where did you get this data?” The VP of Supply Chain will look confused and say that we pulled it from AP. The CFO will then say, “Did you send the secret spreadsheet, too?” The VP will say no and then we will have to run the numbers again.
Doesn’t Everything Go Through Accounts Payable?
You might think that this is impossible because everything must go through your AP system. I thought so too, but have learned from experience that this is not the case. For example, did you know that a lot of organizations do not run all of their insurance, major legal expenses, or amortized capital expenses through their AP system? These are the types of transactions we find in those random, secret spreadsheets. The problem is that a lot of the time these transactions fall under a purchased services category, so we definitely need to see the complete picture to accurately identify savings opportunities.
We always request the past 12 months of data from the reports mentioned above. This gives good trending information to help identify seasonality differences and one-time purchases.
Once you have your data pulled together, you will need to categorize all of the transactions in order to find savings opportunities. This is a daunting, if not impossible, task to do on your own – even consultants take months to categorize data. Valify’s spend analytics platform categorizes data within days, and even better, the data is refreshed on a monthly basis so that you always have a dynamic, actionable view into your purchased services expenses.
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