Sound the Procurement SOS

During its early years, World War II outstripped U.S. supply capability, creating huge procurement and consumer shortages across the nation. Its end, however, did little to resolve those shortages as global rebuilding created severe material supply disruptions, including critical shortages of basic materials. Consumer demand caused a shortage of electronic parts which called for a new procurement discipline.

In the ’80s and ’90s, production became global and finding the right item for production in a global marketplace was a new challenge for procurement as increasingly the production line requirement was outside of the United States. As a result, sourcing was born as a new procurement discipline.

Over time the world economy began to gain strength as it rebuilt and as raw material supply improved.

Procurement met those skill challenges just in time to receive the new millennium as the U.S. economy accelerated away from being predominantly World War II production-based to one increasingly composed of service and government. The procurement need to strategically support business enterprises with 50 percent or more of their profit and loss (P&L) made up by purchased materials costs gave way to P&Ls in new enterprises without any purchased materials costs at all. And with the advent of the Internet, procurement models changed and expanded again. No longer was the ability to obtain supplies from the right suppliers in a global economy sufficient. Procurement expanded its role to do so much more—to source, negotiate, obtain, contract and pay both goods and services in a vastly expanded and more complex marketplace. And the technology tools available to procurement—MRP, ERP, DRP and cloud solutions—evolved as well.

The end of World War II marked a need for required strategic changes to the mission of procurement—and that mission is changing again as today, procurement needs to help firms find the right employee benefits at the right cost.

New procurement mission

Rising administrative costs today threaten the very existence of many businesses. Propelled by skyrocketing employee benefits cost, the procurement SOS is sounding.

According to a recent survey of 1,400 chief financial officers (CFOs) across companies of all sizes, two issues that represented 70 percent of what they worry about include out-of-control employee benefit costs; and their ability to control spending.

Both are inextricably linked as many CFOs are concerned that no one seems completely certain about the full impact of new government laws—including new healthcare regulations on their business or what the unintended consequences of these new regulations may be.

Given the uncertainty of economics, politics and regulation, CFOs are reluctant to increase spending levels despite a recent but modest uptick in sales.

At every turn it seems that life in general and business in particular has become more difficult, more complex and uncontrollable. Paradoxically, at most U.S. companies, employee benefits—the area of greatest CFO concern—are usually the area of least procurement involvement.

Employee benefits are not an art. They are a set of business requirements and can be cost optimized through the very same techniques, tools and technologies used by procurement to meet the strategic mission objectives given to them over the decades.

Reap the procurement benefits

Optimizing the value of benefits programs today rests on these proven procurement fundamentals:

  • Supplier competition produces the best proposals
  • Simple processes can be automated and work better than complicated ones
  • Automated processes are more accurate, faster and ultimately less expensive
  • The Internet changes everything

 

Procurement has the skills, the tools and the need to take on a new strategic mission to create a benefits marketplace for companies.

Modern procure-to-pay cloud software is a “marketplace in a box.” Complete packages are available over the Internet and are both low in cost and preconfigured with best-practice work processes that are simple, intuitive to use and highly efficient.

Marketplace technology opens up the world of potential suppliers through simple and efficient Internet auction techniques. Procurement will use marketplace technology to find the best vendors, choose the right ones and get rid of the rest.

Procurement for healthcare services

Amidst the maze of HR benefit alternatives, there is a hidden reality so important to the CFO that it needs to be restated: employee benefits are not an art. They are another important category of services to be purchased and the purchase of this important category of service is a direct process fit to the capabilities of a modern procurement team.

The more that a company moves to benefit plans that offer defined contribution and value-added benefit programs, the more closely these types of benefit plans permit vendor-to-vendor and plan-to-plan comparisons. These types of plans are ideally suited to modern sourcing techniques and procedures using Internet procurement tools.

Using the right procurement techniques and software, companies can quickly expand the universe of vendor- and plan-candidates to find those that represent the best value.

Under the management of today’s procurement department, marketplace “software in a box” has the Internet shopping cart always in motion—and the top vendors offering the best benefit programs are always welcome.

On the Internet, Web procurement never sleeps. It’s a place where services and goods—including health insurance, dental and vision, pharmacy and other benefits—are continuously being bid and value is being optimized in favor of the employer group.

In this marketplace, requests for services and vendor commitments are fully visible and fully auditable. Costs are reduced by competition and prior approval workflows. The manual processes of writing requisitions, laboring over requests for proposal (RFP’s), preparing purchase orders (PO’s), processing paper invoices, writing and mailing checks, are no longer needed. Now, existent electronic processes are leading edge and far lower in cost than the old ways.

The do-it-yourself marketplace routinely adds black ink to the bottom line. What are you waiting for? Get your procurement department involved.

Dennis Toohey, Director of Solutions for Puridiom, holds 20+ years of experience including procurement management and systems, strategic sourcing and supply chain management for companies such as Blue Shield of California and North American Philips.

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