Puridom Post - Leading the Way to Procurement 3.0

Purchasing & eProcurement Practices - Back to Basics

Kathleen McCahill wrote an article for Supply Chain Digital Magazine recently about taking a look at your Purchasing practices and seeing how you measure up.  No matter what level of purchasing your company practices - manual procurement to fully automated procure-to-pay spend management, you cannot ignore the fundamentals of purchasing.  The article outlines 6 practices that should be checked for relevancy/and or replaced.

As I read the article, "A Purchasing Sanity Check for 2012" I became aware of similar themes used in Kathleen's practices. As solution providers, we prepare our clients for procurement transformation and the same themes used to build the basic purchasing practices can be applied to achieving successful outcome of any organization and really in life.  These are the themes that I found in the article.

• Current & Collaborative Policies and Procedures. The policies and procedures that run your organization should be reviewed periodically to make sure they are still applicable and current.  If not, review with all involved and make the appropriate changes.  In the case of a company implementing an eprocurement solution, clear objectives should be defined and policies put in place before, during and after solution implementation.  Constant review during this stage is crucial to make sure everything is running smoothly and that all parties are in agreement with the procedures. 
• Organization. Everyone needs organization in their life.  Without it, there would be chaos.  Organization is very closely related to the policies and procedures.  Clearly define responsibilities and who is in charge of what, as well as the line of communication.
• Communication. Open communication is crucial to the success of any relationship, personal or business, especially when introducing a new concept and/or way of doing business to your company.  Implementing eprocurement into a formerly "manual procurement" organization is a big change that is sometimes a hard sell to the rest of the company, especially those in the procurement department. By communicating to everyone involved what is going to take place, why it is happening, and the benefits to each person involved, the transition should be much smoother.  In addition, open communication to all of the departments that would be affected by this change is equally important, and helps to ensure that all questions are answered. 
• Collaboration. Communication and collaboration work closely together.  Management must collaborate to dictate goals and plan strategies to meet these goals.  Introducing a new process into the mix must involve the collaboration of departments in ensure success.
• Flexibility. Without flexibility, there will never be change.  As stated in the article, think about what is critical to the success of an organization.  Develop a plan to support that focus.  Priorities may change along the way, but the focus remains the same.  For example, the focus of the company is cost savings.  eProcurement is implemented to achieve that objective, but priorities may have to be shifted along the way in order to make this successful.  Flexibility is key - focus remains the same, but priorities may change.
• Education/Training. Without the proper education or training we do not feel equipped to undertake the tasks at hand.  Make sure that all involved know their jobs and they are updated when changes are made.

 These six "checks" are things that we should all embrace.  How we utilize them within our work environment will make the difference.  No matter how complex a process may seem, it really does come down to the basics to make it work.

Meeting MLR Costs with eProcurement

A new article published by Healthcare Global magazine, (p. 76) talks about the use of eProcurement as a solution to the challenges facing many Health Plan organizations today.  In the article, How can health plans reduce cost and meet MLR targets?, eprocurement is introduced as a tool to manage and track the many levels of spend that are required by today's Health Plans under the new Health Care Reform act.

Puridiom has introduced this topic a few times and has seen an increased level of interest in the use of eProcurement tools by Health Plan organizations.  With eProcurement, Health Plans are able to implement:

• intelligent automated workflow and approvals routing
• flexible content management technologies to enable rapid user and supplier adoption
• management and tracking of all administrative spending
• tracking of specialized categories such as marketing and temporary labor
• single enterprise-level requisition, purchase, and payment workflow
• integration with accounts payable and accounting
• transactions with ensured data accuracy and precise cost assignments
• control and visibility of the entire life-cycle of a transaction

Added to this is the benefit of almost unlimited data that an eProcurement solution can gather and make available for budgeting and forecasting.

eProcurement solutions have been around for a while.  The value they can bring to an organization is just beginning to be realized.  For Health Plans facing new administrative and mandatory regulations, this type of tool could well be worth the investment. 

For more information about eProcurement and Health Plans, download the whitepaper:  Controlling Health Plan Costs with eProcurement.

 

 

 

Choosing eProcurement - What to Look For in an eProcurement Solution

It is a fact that an eProcurement solution can significantly streamline efficiencies in the purchasing processes of a company, saving time, money and man-hours.  In addition, it can provide cost controls, compliance, and visibility to an organization's spend that can become an invaluable resource of data to C-level management.   Its no wonder that many businesses in every industry sector are considering abandoning cumbersome (and time consuming) processes that rely on traditional ordering systems, and are looking to move toward implementing electronic procurement solutions.  

If you are considering making the leap to a totally computer-based procurement system, choosing from the many software solutions and services that are available can be a frustrating experience.  It doesn’t have to be.

Perhaps the most important aspect to entering the world of eProcurement lays in answering one simple question: are your vendors ready?  If your B2B supply chain includes smaller craft or specialty vendors, it’s possible that some of them won’t be equipped to handle electronic purchase orders.  While this can pose a problem, it can also lead to searching out business relationships that can provide you with equivalent products at a lower price point via an eProcurement system.  Alternatively, you might want to consider a solution that supports both electronic and traditional ordering processes. 

Regardless of how you choose to proceed, there are attributes that you should look for in any electronic procurement system:

• Is the system fairly intuitive to the end user, and have a relatively easy learning curve?  If the system doesn’t meet this basic criteria, employees who are responsible for using the system will look for shortcuts, and bypass the system-enforced processes.
• The selected system must be able to securely process transactions, including both orders and payments.  Security upgrades should be easy to install, and frequently updated.  Every authorized user should be able to have a separate security / authorization profile in the system that allows them to conduct only transactions for which they’re approved.
• A properly configured eProcurement system supports electronic data interchange (EDI) formats that are appropriate for your company.  If most or all of your purchases are from North American vendors, then the system should, at a minimum, meet the ANSI X12 EDI standard.  If you conduct international business, then the UN/EDIFACT EDI standard must be supported as well.
• Maybe most importantly, the selected eProcurement system should be scalable as your business grows.  As the number of system users and transactions increase, both the front and back ends of the system (access points and databases) must be flexible enough to deal with increased traffic and data queries.
• The system must either conform to the current purchasing workflow, or your company must make the commitment to changing the purchasing workflow process in order to meet the requirements of the system.  The former is easier to implement than the latter, however, most current day purchasing software packages are based on industry “best practices”.  If your processes don’t mesh nicely with industry standards for eProcurement, consideration should be given to modifying the internal processes. 

Moving from a traditional purchasing process to a B2B eProcurement environment can be challenging, but the potential benefits far outweigh both the cost and resource commitment in making the transition.  Taking the time to analyze the available options, and selecting a system that is the best fit for your company makes a lot of business sense in the long run.

Read how Puridiom clients made their eProcurement choice.

 

What is the Priority of Procurement in your Organization?

How important is the role of procurement in your organization today?  Is it part of the stratetic decision making process or still relegated to the back office? "Making Procurement a 2012 Priority".  a new article in the Procurement section of SupplyChainDigital.com website offers concise reasons as to why procurement is essential and should be a priority to businesses in today's competitive environment. 

A new Capgemini survey found that more than 70 percent of purchasing functions now report directly to boards of directors, and more than a quarter report directly to chief executive officers, further proof that procurement is becoming a leading factor in improving an organizations bottom line.

When it comes to prioritizing procurement, the article recommended basic steps that should be followed in order to establish a cost effective and efficient program.  We would add that these are great steps, make perfect sense, and are vitally important when implementing any change in an organization.  The shortened version is to:

• Plan

• Assign Accountability

• Ensure transparency - include all in the process

• Be legally compliant

• Seek and welcome innovation

• Communicate Clearly

• Establish payment terms

• Document everything

We would like to add to this article the importance of improved procurement technology that is now a major consideration in the re-prioritization of the procurement function.  Automation of the procurement process increases efficiencies, increases accuracy and makes spend visible to key C-level managers. Good procurement technology will enable all of the above listed steps and ensure an effective and efficient pro-active change for an organization.

For more information about eProcurement User Adoption, download our white paper, "First Steps of eProcurement Adoption."

 

 

Reducing Health Plan Costs with eProcurement

Making the Case for eProcurement in Health Plan Organizations

The Health Care Reform Act (HCR) is now being implemented and Health Plans are feeling the strain. Medical Loss Ratio (MLR) requirements mandating that Health Plans spend at least 80% of premiums on care for individual and small group policies and 85% for midlarge groups are fully in force. Health insurance companies must closely track and control their medical, quality and member education spending to stay within the 80-85% window, leaving 15 – 20% of revenue available to pay for non-MLR administrative expenses and, hopefully, leave a profit.

MLR’s, however, can vary from market segment to market segment and state to state requiring additional levels of tracking, categorization and reporting of spend.  In many states this same level of auditable assignment of costs to products and channels of sale will be required as justification for rate increases.  

The Procurement Department, with the right processes and system, can be the point of control for correct administrative expense approval, category and cost center assignment and at the same time be an engine for real cost reduction.

Health Plans using eProcurement software and the right strategy can track, control and maintain visibility to MLR and significantly reduce administrative spend to maximize operating margin.

There is a High Penalty for Non-compliance

Health plans not meeting MLR mandates in 2011 are required to provide a rebate to customers in 2012.  According to a report issued by PriceWaterhouseCoopers in May, 2010, and reported by NAIC, many insurers are not meeting the MLR requirement. It is estimated that rebates will total $2 billion to $4.9 billion from 2011 to 2013 with some analysts predicting an even higher number.

In December 2011 The GAO reported that, using 2010 data, 57% of insurances would not have met this requirement for individual plans, 30% for small group, and 37% for midlarge insurers.  Many Health Plans are simply not equipped to handle this level of detailed cost tracking and cost control and these plans will pay a high price.  

The Answer: eProcurement

How can Health Plans avoid the rebate crisis and meet the challenge of detailed cost tracking? Answer: a system that can simultaneously both lower administrative cost and precisely assign those costs to meet MLR needs.  Such a system must encompass all administrative spending, including specialized categories such as marketing and temporary labor, and follow a single requisition, purchase and payment workflow. The answer is to control spend with a Procure-to-Pay solution.

Procure-to-Pay in the Health Plan Environment

A procure-to-pay (P2P) solution enables the integration of the purchasing department with the accounts payable and accounting departments. With Procurement responsible for correct cost assignment at the requisition stage, the data accuracy that this integration provides allows precise cost assignment for accounting and accurate GL postings.  

Procure-to-pay systems are designed to provide organizations both control and visibility over the entire life-cycle of a transaction – from the way an item is ordered to the way that the final invoice is vouchered and processed – providing full insight into cash-flow and financial commitments.  Each processing step provides visibility to the cost center, project, contract, budget and up to ten other user defined tracking categories.  

In this way all costs are being tracked, visible and assigned to the appropriate category, making information easily accessible.  By centralizing authority over the integrity of this process in Procurement, and supported by the right internet (cloud) based system, eProcurement interactions with suppliers can also be automated to include new vendor registration, requirement bidding, invoice submission, reconciliation and automatic AP vouchering.  Money is accounted for at all times in a uniform, low-cost and paperless way. Low value or routine spend can be automated or made completely self-service for end users. Because system logic replaces manual labor, some health plans have used the eProcurement solution to outsource the entire A-P function to their bank, resulting in enormous improvements to efficiency, cost and time.

Benefits for the Health Plan Organization

• Labor saving tools.

• Standard interface to internal systems.

• Easy linkage to supplier systems.

• Accurate cost assignment for MLR and rate justification purposes.

• Contract and budget compliance.

• Paperless vendor management.

Conclusion

Health Plans must lower and more precisely account for their administrative spend. Procure-to-Pay solutions have been proven to meet this need producing cost reductions up to 20% and processing time improvements measured in weeks.

Read more about Controlling Health Plan Costs in a new white paper.

 

 

The Importance of the Procurement Partnership

A new article in Supply & Demand Chain Executive Magazine looks once again at the importance of the CPO/CFO collaboration and revisited the topic discussed by Andrew Bartolini and Daniel Warn in a September web seminar sponsored by Puridiom and hosted by SDCE. 

An effective procurement system often can come down to a pair of C-level personalities: the Chief Financial Officer and the Chief Procurement Officer. If these two don’t have a collaborative partnership, then efficiency—and the bottom line—will suffer.

Takeaways from the article were:

• Communicate
• Find common ground
• Agree on metrics

Andrew Bartolini referenced his report, The CFO and the CPO: One World, Two Worldviews in the web seminar and in the article.  Daniel Warn, CPO of BCBS of Rhode Island referenced the centralized strategic sourcing and vendor management function that was developed with CPO/CFO collaboration and how significant realized and cost-avoidance savings was delivered with the help of Puridiom’s Purchase to Pay (P2P) System. 

Read more on the topic, view the webinar, or read the report.

 

 

 

 

eProcurement, Health Plans and Cost Control

Federal and State programs to implement Health Care Reform (HCR) are now being implemented.   Medical Loss Ratio or MLR requirements, the requirements for Health Plans to spend 80-85% of premiums on care, are fully in force.  This impact is hugely significant and will require all health insurance companies to closely track and control their medical, quality and member education spending and aggressively reduce administrative expenses which now must be paid for out of the remaining 15 to 20% of revenue.

In many states this same level of cost detail with auditable assignment of costs to products and channels of sale will also be required as justification for any plan rate increases. The Procurement Department, with the right processes and system, can be the point of control for correct administrative expense approval and cost center assignment while at the same time be an engine for real spend reduction.

How to Meet the New Requirements?

Health plans are finding that these mandates greatly increase the complexity of cost tracking.

• Plans must spend at least 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs.  If they don’t, health plans will be required to provide a rebate to their customers starting in 2012.
• Plans must calculate their costs market segment by market segment, unable to average out high cost in one market or product with low cost in another
• Plans must report total earned premiums, reimbursement for clinical services, spending on activities to improve quality; and spending on all other non-claims costs in each state in which it operates

Many insurers are not meeting these requirements according to a report issued by PriceWaterhouseCoopers in May.  HHS estimated that rebates will total $ 2 billion to $ 4.9 billion from 2011 to 2013 with some analysts predicting an even higher number. To all health plans, proper control and allocation of administrative expense to product line and sales channel under these circumstances is now of critical importance. 

Fortunately, the health Insurance industry can move quickly to not only control but also to significantly reduce administrative cost, and at the same time improve spend value by requiring all administrative spending to follow a single automated requisitioning, purchase and payment workflow, through procurement. The new environment of increased regulation is here and many are realizing that the time to transform the procurement process is now.

For more information about Health Plan cost control and procurement, download the white paper:  Controlling Health Plan Costs with eProcurement.

Three Top Issues Facing CFO's Today

A recent study by Robert Half, "What Are the Top Challenges Facing Today's Financial Executives" focuses on three issues occupying the mind space in the corporate executive suite today.  A nice segue from our webinar discussion of CPO/CFO challenges. this white paper takes on exactly what the CFO must face in the workplace today. 

According to the study, the top issues facing the CFO today are:

• Health Benefit Cost Changes
• Control of spending and the impact on profitability
• Organization and staffing concerns

Not surprisingly, the cost of health benefits is a growing concern.  Costs of these benefits have risen dramatically resulting in hard decisions.  Passing costs on to employees, cutting employer contributions and even decreasing or eliminating health benefits are all options that are on the table.  These are difficult decisions, and ones that must be looked at over the long course to determine the most cost effective decision.  Dollars and employee loyalty, committment and benefits as job incentives are all critical factors in this decision. 

Secondly, control of spend over the entire enterprise is a vital piece of the corporate equation.  Best practice procurement strategies must be incorporated into the organization's business plan to ensure a competitive and profitable enterprise. The CFO that recognizes procurement and it's benefits is one step ahead.

Lastly, CFO's are recognizing the importance of loyal and motivated employees.  Perks that benefit the company and the employee are needed to retain top performers.  Benefits such as subsidized education/training, flexible work hours, and telecommuting help both the company and employee, as well as build retention rates.

Outsourcing of non-core business functions has become a common practice with some firms moving to also consider outsourcing core business functions where cost savings could be significant.

eProcurement service providers are in a unique position today to help the CFO assess these difficult issues.   They see cost issues such as these on a daily basis and are able to apply a single, consistent approach across the enterprise encompassing all categories of administrative spending.  A CFO could benefit with the help of a team diagnosis of company spend, conducted by experienced practitioners in each of the firm's major spend categories.

Top 5 2012 Procurement Predictions

It is that time of year again; look out for the New Year predictions! SupplyChainDigital.com has weighed in with its summary of the 2012 procurement predictions, gathered by Rosslyn Analytics.  The article, Top 5 2012 Procurement Predictions, talks about the trends in the CPO - CFO arena. 

For most in procurement, I think these predictions come less of a surprise, and more of a "FINALLY!"  In short the top 5 predictions are:

1. Procurement wins as executive teams realize the value procurement has delivered, but may lose its independence as CFO's seek to gain more ownership.

2.  Spend data loses its independence.  Other business sectors, other than procurement, will seek to use spend data across the organization.

3. Procurement takes over compliance.  Procurement has been preaching this for years - it makes sense - centralizing enterprise-wide data is easier to obtain, manage, and assess.

4.  Purchasing teams will embrace cloud computing.  User-friendly cloud-base platforms are the wave of the future, say good-bye to the complex ERP-built reporting tools.  Thank you Steve Jobs and the Apple-style friendly platforms available today.

5. Tactical outsourcing gains popularity.  Businesses will continue to reduce non-core costs, retain talended employees and accelrate busines value creation.  They will do this through outsourcing tactical costly transactional work to specialist companies.

Follow this link to read more of the Top 5 Procurement Predictions. 

 

Leveraging Multiple Types of Spend across the Enterprise

The Gartner e-Procurement Market and Vendor Landscape report was released in early September and ranked Puridiom highest in Breadth of Scope for its enterprise eProcurement solution. Scope breadth, in the report, refers to the degree to which customers have been successful leveraging their e-procurement solutions to support multiple types of spending. The Gartner Report places Puridiom in the top 5 vendors with e-Procurement solutions that support multiple types of spending.

Why is this important?  The more spend that is placed under management, the more an organization can save.  Puridiom encourages its clients to place more than just indirect spend through its solution and helps clients to process every type of spend, including services and direct spend items. 

How does it work? Puridiom invests fully in their clients, helping them to set in place the policies, strategies, and product features and settings that will help them get the most spend, from every category, under management.

Previous articles in this blog have discussed user adoption, and at times, when tackling spend management at this level, the task can seem daunting.  But the clients that have achieved successful breadth of scope with the Puridiom eProcurement solution do recognize the benefits. 

Puridiom was also recognized for its workflow and configurability.

To read about companies that have benefited from Puridiom eProcurement solutions, download these case studies.