The pressure to reduce costs in human resources has never been higher than it is today. Organizations are looking for every opportunity to save money with a preference for lowering non-salary expenses over reductions in staff. A key weapon in the effort to reduce non-salary expense is the optimal use of a group purchasing organization. For more than 40 years, various purchasing departments throughout U.S. markets have accessed some type of GPO for contracting services; however, most HR departments are not maximizing the savings opportunities available to them through using group purchasing services. The reasons for this are plentiful — focus by HR staff on other priorities, lack of awareness, difficulty in deciphering some GPO agreements and lack of vendor support, to name a few — but now as you're facing increasing demands to reduce human capital and employee benefits with less resources is the time to put your GPO to work on your behalf.
Supply chain cost savings
At its core, a GPO is built to save its members money on the supplies and services they use to perform their business. The U.S. healthcare industry spends an estimated $300 billion annually in medical and non-medical supplies and it is here that a GPO can make a significant positive impact. An April 2009 study by Dr. Eugene Schneller of Arizona State University estimated that GPOs save U.S. hospitals more than $36 billion annually. It is estimated that the average price savings experienced by using a GPO ranges on between 10-15 percent on both supplies and services combined.
GPOs can continue to deliver these types of savings by aggregating the purchasing power of many organizations in multiple markets to balance the negotiating equation between purchasers and vendors. This leverage results in pricing that is more favorable for the group than if each tried to negotiate pricing on their own. GPOs whose members show a willingness to commit to the GPO's contract portfolio and demonstrate the ability to move product spend between vendors often are able to command additional value from the supplier community and in turn pass this saving onto their membership.
Key HR focus areas to target for savings opportunities include:
- General HR services
- Pharmacy benefit management services
- Employee savings benefits
Organizational efficiency
The phrase "doing more with less" may have never been as relevant as it is today in the HR department. As many organizations are forced to reduce staff, the need to lower other costs will not go away. In fact, the need is growing and a GPO is able to complement and, in most cases, supplement the HR department to assist in addressing this cost reduction need.
HR executives need their staff resources focused on the strategic initiatives of their organization and the ones that are going to bring the highest return on the resource investment. If your HR professional is spending time negotiating contracts for staffing services, and additional employee benefits that may be cumbersome and time consuming, then your organization is not getting the most out of your own human capital resources.
Every organization and HR department has unique service contracting needs, whether it's a one-time project or a high-volume HR development program. It is in the areas of high spend or unique situations where the HR department's staff is best suited to tackle issues and, where necessary, work with vendors directly to meet the strategic needs of the organization.
Your watchdog and advocate
Partnering with a GPO means having a partner to ensure your organization is receiving the best pricing on the services that you might already use or would like to have as an additional employee benefit. Many HR departments lack visibility into pricing outside the four walls of their organization, so over time you may discover that the price that was originally negotiated just last year is no longer market competitive.
A GPO should serve as the watchdog over your pricing, using its view into the market to maintain the competitiveness of the contracts you utilize. Done well, the responsibility of a GPO should allow you to maintain focus on mission-critical functions of the organization versus chasing market pricing.
Vendor disputes invariably occur and a GPO can serve as your advocate in those disputes, particularly as it relates to the pricing of the service and the most favorable contract terms and conditions. Issues that cannot be resolved quickly at a local level can be turned over to the GPO to elevate to a corporate level with the vendor, which often leads to a positive resolution for your HR department and saves your staff from having to chase down a national representative to resolve the problem.
So should you be utilizing a GPO at your organization? The answer is unequivocally yes. Trying to perform the contracting functions of a well-established GPO is not only costly in terms of resources, but it draws vital resources away from your organization's strategic focus and human capital resources.
When selecting a GPO, assess your needs and ask potential GPO partners how they might be able to address each of them. Do you need a GPO to merely serve as a backstop to the work your HR professional team currently performs, or are you looking to partner with a GPO that can act and perform as an extension of your HR department?
If you currently utilize a GPO, ask them to provide you with the means to optimize the value available through your partnership. Your GPO should consistently bring opportunities for cost reduction to your attention as it is the reason for their existence.
Your GPO should be able to provide you with a host of savings opportunities after a review of just these three areas. Many of the opportunities provided will not require a commitment and most savings will be easily achievable.
A GPO should be viewed and treated by your organization as a valuable resource in your battle to contain and reduce HR costs. Selecting the right partner is the important first step and thoughtful consideration should be given to finding a GPO that is aligned with your goals and needs. Once you select a GPO or if you already use one, you should expect the same level of productivity and results from your partner that you do from any of the employees within your organization.
Doing so will undoubtedly improve your bottom line.
Leah Wilhelmsen is a portfolio executive at one Provista, a leading supply chain improvement company providing group purchasing and business solutions for more than 15,000 healthcare systems, hospitals, medical facilities, universities and colleges, and corporations nationwide. Learn more about Provista.