We all know the biblical version of the 10 Commandments, but did you know that similar instructions could also relate to your purchased services to ensure your continued success? Here are the 10 Commandments we consider sacrosanct if you are to master this supply chain discipline:
The 10 Commandments Of Purchased Services
1. Thou shall not ignore the value of value analysis: Value analysis is the study of function and the search for lower cost alternatives. Meaning, you need to decide with your customer what functions (primary, secondary, and aesthetic) are absolutely, positively required in their contract services. Then search for lower cost alternatives (e.g., insourcing, reducing required hours, re-engineer processes, etc.) to reduce your overall contract cost.
2. Thou shall not delegate your purchased services fiduciary responsibilities: Too many healthcare organizations still rely on their department heads and managers to manage their purchased services contracts (PSC). This has created an environment where your department heads and managers are wholly responsible for their purchased services contracts. This has led to higher costs, detrimental terms and conditions, unhealthy vendor relations, and legal issues down the road.
3. Believe that KPI benchmarking is the key to uncovering your hidden savings: It is impossible to know where you stand on your purchased services’ cost, quality, and outcomes compared to your peers without KPI benchmarking. It will open up a whole new world of opportunities for you.
4. Thou shall include key performance standards in each of your purchased service contracts: To make sure that you are receiving the value you paid for, you need to include key performance standards (measurements of success) in all of your PSCs. For instance, you could have as one key performance standard that the contractor is not to exceed 5% increase in labor cost over the term of their contract.
5. Never forget to bid, then negotiate your purchased service contracts: Group purchasing contracts are a good starting point for benchmarking your current purchased service contracts, but bidding will provide you with the lower cost because of the nature of competitive bidding. It brings the best out of your vendors!
6. Thou shall write work specifications for each purchased service contract: The most important lesson we have learned about PSCs is to write your own work specifications for any new or renewal purchased service contract that comes across your desk. If you accept your vendor’s contract (as is) you are probably buying services you don’t need or want.
7. Thou shall focus your savings efforts on utilization as well as price at the pump: Just because you have the best price for your purchased service contract doesn’t mean they are cost effective. You also need to eliminate all waste and inefficiencies in their value streams. For example, one of our clients found when they looked at their telecommunications invoices that they were being slammed with thousands of dollars of phone charges annually they hadn’t authorized. But they were getting the best price!
8. Thou shall always keep thy work specifications up to date: When I read a purchased service contract that hasn’t had its specifications revised, improved, or amended in a number of years, I can always find small or big savings opportunities because our clients’ customers don’t need everything that is included in their contracts to perform the services that are described.
9. Consider that it could be cheaper to insource than outsource your services: It becomes such an ingrained habit to outsource a particular service for many years that we overlook the possibility of insourcing these services again when the timing and conditions are right to do so. Food service and environmental service outsourcing are good examples of this happening.
10. Thou shall customize your purchased services contracts: We would all like to think that we can cost effectively buy anything and everything through one of our group purchasing organizations, but the truth of the matter is that your purchased services contracts are better suited to be customized to your healthcare organization’s unique requirements vs. accepting off-the-shelf contract solutions from your GPOs.
If you would like more wisdom about your purchased services, may I suggest you subscribe to our FREE Healthcare Purchased Services Magazine that will continue your education on how to manage and control these multimillion dollar purchases.
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