The perfect purchased services program Last of a multi-part series by Fred W. Crans


ears ago, a famous Chicago-based troubadour named Steve Goodman wrote a satirical number co-penned with John Prine, titled, “You Never Even Called Me By My Name.” The song was re- corded and made famous by Outlaw singer David Allan Coe, who called it, “The Perfect Country and Western Song” after it was modi- fi ed to include every element necessary for a country song to be great: • Momma • Trains • Trucks • Prison • Getting Drunk

With that in mind, let’s outline the elements of The Perfect Purchased Services Program. They are: • Organizational support and oversight • A core team • Resource allocation • Project management templates and method- ologies

• Results measurement and reporting Using the Food and Nutritional Services

(FNS) example from my previous article as a starting point, let’s see how these elements come together.

Organizational support In the FNS example, the CFO chose to attack the overall operating costs of the department, not simply a re-negotiation of the existing model and the existing agreement. Such a decision, if not managed correctly, is guaran- teed to cause discord, if not open revolt in the workplace. Therefore, the development of a comprehensive Purchased Services Program needs to be seen as a strategic operational plan whose genesis is in the C-suite, as opposed to being the idea of a Supply Chain Leader with aspirations of grandeur. What the program will look like and how

it will work must be carefully planned and clearly articulated, preferably by the CEO, to the entire management team. People must be educated, informed and brought on board be- fore a single initiative is begun. This means that all the communicative tools of the organization need to be employed to guarantee success.

The core team Once implemented, the management of Purchased Services will become an ongoing element of the organization’s operational strategy. This is unlike the “World Famous

10 Percent Solution,” where a fast-talking consultant is brought in to take costs quickly out of the system and chooses a methodology that brings every supplier into a meeting room in the administrative offi ces (to impress them with the gravity of the situation), and then demands an immediate 10 percent reduction in prices, and expects to get those reductions because, “We are XYZ IDN and if they (the suppliers) don’t comply, we will take our business elsewhere.”

The stupidity of such an approach was driven home to me a few years ago by Brent Johnson, then the Supply Chain Leader at In- termountain Healthcare. Johnson is known for being one of the most infl uential supply chain voices in the industry. He led an organization with tremendous purchasing power, yet he said (and I paraphrase), “I think I’m a big guy with lots of infl uence, but I realize that when it comes to someone like J&J, my demand is just a rounding error.” This is coming from one of the most infl uential people around, and yet every IDN with 500 or more beds thinks they can move the market all by themselves. That, my friends, is the height of arrogance and stupidity.

The effective way of approaching the issue is by naming a core team, headed by a senior member of leadership to develop and imple- ment the Purchased Services strategy. That core team should have both permanent and rotating members — the permanent ones to include representation from Finance, Supply Chain, Legal Services and the C-Suite, with rotating members selected to serve rotating terms and ad hoc representatives as needed. The core team should be charged with devel- oping a short-term process implementation strategy as well as a long-term functional one.

Allocation of necessary resources Getting a successful Purchased Services Pro- gram started is not as simple as buying some software or purchasing a subscription service from a third party and appointing Joe the former buyer to “go get ‘em.” It requires an allocation of resources in both the short and long term, and requires a continuation of that allocation going forward. Here are some things for which you will need to provide funds: • Centralization of all contracts in a single repository. Before services can be success- fully managed, the contracts related to those services need to be aggregated and managed under a single auspice at a single site. How


this will be done and by whom becomes one of the fi rst problems to be solved. Most likely, this will require the purchase and implementation of contract management software if none is currently present, or at the very least, a comprehensive effort to ensure that all contracts reside in one place.

• The use of a third-party purchased services database. No one has the wherewithal to compile the necessary data to compare exist- ing practices to best practices. A single IDN, no matter how many entities reside under its roof, is just that — a single IDN. Its data is limited to itself. Perspective requires more than a single data point, and there are several purveyors in the market place, including the GPOs, that can provide an organization with effective and credible information to help that organization optimize the opportuni- ties in the Purchased Services space. Most of these organizations operate through the sales of an annual subscription.

• Bodies — short term and long term. The single biggest mistake organizations make when approaching the Purchased Services opportunity is by taking the “Penny Wise and Pound Foolish” approach and buy- ing a third-party tool, then assigning the category “Purchased Services” to a current employee to “run.” It isn’t that simple. Managing Purchased Services requires special skill sets. The necessary skills can range from simple contract re-negotiation or bidding to complex project management skills as in the Food and Nutritional Services example. People with those skill sets don’t grow on trees and they are very unlikely to be masquerading as buyers or contract specialists. You are going to have to spend money in the long term and the short term to build a successful program. The short term costs will probably include the use of a consultant with project management skills and a knowledge of the third-party tools to be engaged for a specifi c period to set up the program, implement the tools from the third-party provider, interview, hire and train the ongoing Purchased Services leader and turn the program over at the end of the engagement.

• Development and continued use of proj- ect management templates: As with any successful program the success of the Purchased Services program is dependent on its replicability. In order to ensure rep- licability, consistency of practice must be

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