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Did You
Know...?
That Value Analysis Was Developed Back
In the 1940's After World War II as a Way to Find Lower Cost but Higher
Quality Alternative products and methods. This was Due to the
Lack of Material Resources At The End of The War.
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Savings Beyond Price -Weekly eNewsletter
- August 16, 2011
 A
Note from Robert T. Yokl,
President and Chief Value Strategist
The NFL is
back and is starting their pre-season games, which should
make a lot of us who are football fans happy.
Unfortunately, now the NBA is on strike (or if you prefer
locked out), so I guess this proves that there is always
change everywhere you look today, especially in the
healthcare environment. For instance, a new study shows
that healthcare revenue growth is at the slowest rate in two
decades.
So as you can see ratcheting down your expenses is still
“priority one” for your healthcare organizations to survive
and thrive over the next decade. One way to do so, as I
discuss in my feature article this week, is to write
performance-based purchase service contracts vs. signing
vendor boilerplate contracts that leave you at the vendor’s
mercy.
Another way is to get better pricing for your legal services
(see my blog this week) which could be costing you $500,000,
$800,000 or even one million dollars more annually than is
necessary. You might not think legal services are under your
area of responsibility, but if you don’t take charge of this
service – who will? The answer is nobody!
So there you have it, a few new savings ideas to keep your
savings machine humming for another week, until we visit
again with you next week. Let me know if you too have any
savings ideas that you would like us to share with our
community of supply chain professionals. It would be our
pleasure to do so…
Optimize Value and Increase Savings with Performance Based
Service Contracts
As more and more healthcare
organizations decide to attack their purchase service
contract cost I thought it would be timely for me to discuss
how to write “ Performance-Based
Statements of Work”.
In this way, I hope to help you to optimize your purchase
service value and increase your savings by improving your
suppliers’ performance.
Why you might ask is this important?
Purchase service contracts don’t fit naturally into your
normal strategic sourcing bidding protocols since they
aren’t off-the-self commodities. Each contract is unique to
your healthcare organization and therefore needs to be
treated as such. The best way I know to do so is with a
carefully crafted “Performance-Based Statement of Work” to
measure, monitor and manage your supplier’s performance.
With this said, here is a checklist of the five primary
elements of any “Performance-Based Statement of Work” to
guide you through this process:
1. Performance Objective
What do you want to accomplish as a result of your contract?
An example in a laundry processing contract would be:
On-time, on budget, hotel quality linen service five-days a
week. This way you begin with the end in mind with your
performance objective, which makes it easier to write your
contract terms and conditions.
2. Required Service, Task or Deliverable
This is the nuts and bolts of the agreement: The who, what,
where and how the service is to be performed and then deliv
ered. This could be accomplished in one paragraph, one page
or a dozen pages. It all depends on the sophistication of
the ser- vice.
3. Performance Standard
What is missing in most purchase service contracts: A
standard(s) to hold your suppliers’ accountable. It could be
error rates, accuracy rates, staying within quoted costs,
downtime, etc. Whatever you decide on make sure that it is
measurable!
4. Method of Surveillance
What is inspected usually happens, so it is your job to
write into your purchase service contracts your measurement
tool(s), such as supplier monthly activity report, monthly
inspections, random samples, etc., to avoid any surprises or
service quality is- sues.
5. Positive or Negative Incentives
Everyone, including your suppliers, work best when they have
either positive or negative incentives built into their work
plan, which can be monetary or non-monetary in nature. For
instance, you could include a 5% annual bonus into your
contract language if your supplier is under budget by 15%.
Or, you can in- corporate into your contract a penalty of 2%
for every one per- cent they are over budget for any given
year.
There you have it, a five point guide to writing
“Performance-Based Statements of Work” that will provide you
with the purchase services needed, performance required and
incentives to get your service work done right the first
time.
Warmest Regards,
Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
Bobpres@strategicva.com
1-800-220-4274
Your Partner In
Savings Beyond Price™,
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