Software Can Help Optimize Supplier Relationships And Spending

Once preferred goods suppliers are sourced and utilized as the de facto standard in a centralized system, insurance companies can tap significant cost-savings resulting from discounts. For example, a company may save an average of a day to a day and a halfs worth of rental car fees every time a customer uses a preferred auto body shop for automobile damage.

In addition to contractual cost-savings, whittling down goods suppliers can have a significant impact on what is ultimately a key determinant of bottom-line results–customer satisfaction. Remember, an online system centralizes SRM and removes communication barriers. When insurance companies and preferred suppliers are in constant contact, lost and/or damaged goods are replenished more quickly and easily, resulting in decreased inconvenience and friction, and hence, higher satisfaction, on the customer end.

Imagine how an insurance company could improve its customer service during a customers most vulnerable time–the claims process. For example, a fire burns a customers house down and the owners need to replace their household goods. Because the insurance company has negotiated contracts with preferred suppliers for preferred prices, the customer could go directly online and quickly choose and receive replacement goods from a catalog. The ease and speed of the process builds customer loyalty and lowers the cost of the claim for the insurance company.

By virtue of inherent supplier rating capabilities, todays SRM systems help insurance companies determine the most affordable suppliers, further helping to drive down insurance companies claims costs. Such systems also deliver a valuable negotiating platform. For instance, if a car rental company promises a response within a half hour and doesnt deliver, the insurance company can manage and re-negotiate the contract, ultimately promoting more value for the insurance companys dollar while promoting a higher level of customer service.

Finally, embedded analytics show insurance companies how their vendors are performing. With this concrete information, insurance companies enjoy better lines of communication with preferred suppliers, who, in turn, benefit from tangible information in terms of performance and how theyre being measured.

The ultimate benefits of SRM systems–namely, significant cost-savings and improved efficiency and customer service–are realistic and achievable, although not without their challenges.

There are three main steps to SRM in insurance: identification of suppliers with which to establish preferred relationships; negotiation of relationships; and collaboration with these suppliers when customer demand spikes (in the services supplier realm) and/or when claims are submitted (in the goods supplier realm).

Todays SRM systems do not yet handle negotiation of relationships. However, by automating the mundane tasks of managing supplier relationships–namely sourcing, which often involves a huge amount of time for procurement departments, and invoicing and settlement, which often yield huge paper trails–employees can focus on more strategic activities, including contract negotiation.

Insurance companies looking to implement any new system should be prepared for some friction, not only from within, but from its suppliers. New SRM systems have been known to intimidate suppliers a bit. With insurance companies now mandating that information be sent to the system “this way or that way,” suppliers can easily become overwhelmed. The good news is that todays SRM systems can accommodate diverse types of electronic information exchange. In addition, a Web-enabled solution is easily accessible, no matter the level of technological sophistication on the supplier side.

To overcome resistance, insurance companies must be prepared to really build the business case both internally and among suppliers. They will need to clearly explain the benefits–for insurance companies, happier customers and lower claims fulfillment costs, and for suppliers, more business and faster payment.

In the realm of goods suppliers, SRM solutions may still involve a fair degree of “re-keying” of information from front-end claims administration systems to SRM systems. Many believe that if insurance companies rely on claims adjusters to re-key information–making SRM just another manual, “need to do” process–the potential value of SRM solutions will be lost.

For this reason, many insurance companies are looking to directly integrate claims management and SRM systems. In the meantime, they are eliminating the need to “re-key” by porting information electronically at various intervals in batch mode.

Gaining real-time visibility and control over services supplier relationships and spending is becoming an increasingly critical focus area for insurance companies, especially in these challenging economic times.

Overall, SRM enables an insurance company to gain a complete picture of its supplier relationships. SRM delivers critical information on goods and services spending to all of the key people involved in the decision-making process. Most importantly, it allows insurance companies to start managing their supplier spending strategically and proactively. This helps optimize efficiency and provide additional services to customers, while reducing seemingly uncontrollable expenditures.

Frank Siderio is an insurance industry strategist, and Chris Yaldezian is a financial services industry strategist for PeopleSoft, based in Pleasanton, Calif. They can be reached via e-mail at [email protected] and [email protected].

Reproduced from National Underwriter Edition, May 12, 2003. Copyright 2003 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.