Years 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 recorded and made famous by Outlaw singer David Allan Coe, who called it, “The Perfect Country and Western Song” after it was modified 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 methodologies
- 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 guaranteed 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 before 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 offices (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 Intermountain Healthcare. Johnson is known for being one of the most influential 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 influence, 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 influential 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 implement 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 developing a short-term process implementation strategy as well as a long-term functional one.
Allocation of necessary resources
Getting a successful Purchased Services Program 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 successfully 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 first 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 existing 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 opportunities 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 buying 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 specific 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 project management templates: As with any successful program the success of the Purchased Services program is dependent on its replicability. In order to ensure replicability, consistency of practice must be implemented. That can be obtained by the purchase and use of good project management software tools.
Results measurement and reporting
An add-on to most project management tools is a “Results Reporting” module. Results must be reported to senior leadership on a regular basis.
Before he sings the last verse of “You Never Even Called Me By My Name,” David Allan Coe says, “My friend, Steve Goodman, wrote this song. He told me it was the perfect country and western song. I wrote him back and told him it was not the perfect country and western song because he hadn’t said anything at all about momma, or trains, or trucks or prisons or getting drunk. Well, he wrote another verse and after reading it I realized that my friend had written the perfect country and western song and I felt obliged to include it on my next album. The last verse goes like this here: ‘Well, I was drunk the day my mom got out of prison, and I went to pick her up in the rain. But before I could get to the station in my pick-up truck, she got run over by a damned old train.…’”
In that vein, once you get organizational commitment, bring together a core team, secure the resources you need, implement project management methodologies and measure your results, you will succeed beyond your wildest dreams and just may create, develop and manage the perfect purchased services program.
