This week’s SIG webinar provided a great case study of a procurement transformation – taking an organization from tactical purchasing to a true procurement organization. In this case, the focus was on HealthNet, a health insurance provider looking to bring their indirect spend (effectively all of their spend) under management.

The case study was focused around the three pronged transformation approach of process (strategic sourcing), people (resources and skills) and technology (eProcurement infrastructure).

How do you make the case for transformation?

HealthNet’s procurement group was able to take advantage of other initiatives going on rather than making their case in isolation. One of the take-aways from this applies to all procurement organizations regardless of their stage of development: look at corporate sponsored initiatives and determine which you can align your objectives with. Once you have results to report, communicate them in the same terms addressed by the other initiative.

Roadmap and Program Management

HealthNet chose a self-funded model; they covered their own expenses with the savings they negotiated, including staff and third party support firms but excluding technology infrastructure costs. The critical success factors in this case are top down executive support, a clear decision making process, and a documented project team structure. Also critical to transforming the organization is making sure the original scope of responsibilities is not disrupted by the change.

People

HealthNet upskilled their workforce by partnering with a third party service provider that not only provided training but also allowed the team to get additional experience by shadowing them on projects. Writing new job descriptions was a challenge, trying to make use of industry standards while also reflecting likely future needs of the department.

Process

HealthNet’s recommendation: start with a standard 6 or 7 step process and then make it your own. Figure out what will work best with your organization. Make sure the process is documented from end to end within your scope rather than having multiple processes (spend analysis, sourcing, supplier management) that intersect and overlap.

Technology

Train on process first, technology second. During system implementation, make sure you remove any non-value added functionality that will only clutter efforts to be complete in the future.

Spend: Define what spend will mean for your organization (PO, Invoice). Consider UNSPSC as a taxonomy but don’t be afraid to build your own if that is what will help the organization relate to the data you show them. Maintain data quality to protect your investment in the solution itself.

eSourcing Projects: Make project templates useable by making sure the team will not spend more time handling the project in the system than making progress.

eRFX: Put formal templates in the system and remember that the ‘devil is in the details’ as in managing supplier notification settings.

Auctions: practice, practice, practice – both for suppliers and also for the team that will have to manage the live event, particularly plan for scenarios where something goes wrong and the auction manager needs to know how to react, both technically and in terms of group policy.

SPM: although the ideal is to focus on collaboration with suppliers, it may be necessary to take advantage of an “adverse” situation to get the program launched. Segment the supply base and review contract SLA’s to make sure you have performance metrics to manage.

In conclusion:

My only disappointment is that HealthNet didn’t give more detail on their next steps. Given the introduction to the event, which was an overview on a recent study done on procurement organization priorities and concerns, I can imagine they are looking at continuing to minimize cost, manage risk, and maximize sustainability and efficiency.

About Sourcing Interests Group

Sourcing Interests Group (SIG) is a membership organization that has served sourcing and outsourcing professionals from Fortune 500 and Global 1000 companies throughout its 20-year history. SIG is unique in that it blends practitioners, service providers and advisory firms in a non-commercial environment. Members of all types are focused on improving bottom-line performance, quality and customer service through strategic sourcing/procurement and outsourcing initiatives. SIG is acknowledged by many as a world leader in providing an ongoing forum for networking and sharing thought leadership, innovation and “next” practices.