Making Sourcing Gains Stick

HOW CAN INSURANCE COMPANIES optimize the long-term success of their strategic sourcing programs?

The following best practices have yielded powerful results:

Demand Management. Developing a thorough understanding of the goods and services being purchased is a prerequisite for effective demand management. Too often, companies are focused on controlling pricing and are not equally focused on controlling what is being purchased or on implementing appropriate usage policies.

The key to managing demand is timely category- specific information. To this end, it is sometimes best to leverage the vendor to collect this information and to put in place specific controls. For example, it may be determined that temporary employees should not have tenures exceeding 12 months. Having the vendor produce tenure data for each of their placements on a monthly basis would provide the information to manage compliance with this policy.

Service level agreements. Development of service levels is frequently an oversight in the sourcing process. We advocate developing detailed service level expectations in the request-for-proposal process. These SLAs should be drafted in contract form and carried forward into the contracting process if agreed to by the vendor, or negotiated accordingly.

For example, to ensure independent claims adjusters are available when required, its important to include in the negotiations process specific timelines for delivering the rsums of adjusters who meet requirements, with penalties for non-performance.

Supplier scorecards. To fully embed their sourcing processes, companies must put tools in place to manage their vendors on a going-forward basis. Developing a rigorous fact base is not only critical for the actual sourcing process itself, but also should be carried forward in the management of the vendor relationships.

Scorecards should reflect pricing compliance, service satisfaction, and should be bidirectional in nature. (Is the buyer meeting its obligations?) The scorecard becomes a focal point of vendor management meetings. n BEYOND SUPPLIER SELECTION

Reproduced from National Underwriter Edition, March 25, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Special Reports /

U.S. Re Sector's Key Benchmarks Decline

Related Stories

Recommended For You