Purchased services management (PSM) is a relatively new discipline for many supply chain professionals. That’s why it is important for the supply chain community to share their emerging PSM best practices. Here are five that we have observed to help you rein in your purchased services cost almost overnight:
1. Ensure that Every Purchased Service Contract (PSC) is Bid/Negotiated, Even if a GPO Contract is Available for Implementation: No one size fits all PSC situations; therefore, the best strategy to obtain the best quality, service, and price on your PSCs is to bid/negotiate them – period.
2. Perform Value Analysis Studies on All PSCs Over $10,000 Annually: Too often, your PSCs are feature-rich and can be trimmed by functionally analyzing what is absolutely, positively required by your customers. For instance, we had a client paying for food service concierge evening services for years that weren’t needed. Eliminating this feature resulted in savings of thousands of dollars annually with no effect on quality. This is also why you, too, need to audit your PSC’s features on all your contracts to determine whether they are really needed.
3. Prioritize Older, Ongoing, and Automatic Renewing PSCs for Evaluation First: Things change and people change; therefore, these suspect contracts offer opportunities for big PSC savings. For example, one client of ours had their cable TV service prices drop the prior year, but their vendor didn’t lower their prices until our client picked up this change in an audit. Another client’s shredding service offered, when requested, a lower cost service that would meet the hospital’s service levels exactly. Prior to this change, our client had been paying higher prices for three years for their shredding service. These two PSC savings were brought about by our clients verifying what was actually required from the contractor, not what they originally thought was needed.
4. Don’t Underestimate the Saving Power of Competitive Bidding: Your GPO contract offerings for PSCs are competitive, but they won’t provide you with the lowest cost alternatives. Only by bidding your PSCs can you be assured of obtaining the best pricing available. Also, during the bidding process you will learn all the nuances of the category of purchase that is being evaluated, thus leading to new ideas to reduce your costs.
5. Benchmark all of Your Purchased Services: PSCs aren’t always about the price at the pump, but how much mileage or utilization you are obtaining from them. That’s why it is important to benchmark your PSCs to search for best practices you aren’t currently employing that can save more than just a price reduction.
As these best practices suggest, there is more to purchased services contract management than just jumping on a new or renewal GPO contract. If you really want to wring the towel dry on your purchased service savings, you will need to dig deeper and broader for the savings, beyond just price and standardization that is the first line of defense with your PSCs.
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