Software Can Help Optimize Supplier Relationships And Spending
Perhaps more so than their brethren in other industries, financial services institutions, particularly insurance companies, rely extensively on outside suppliers for business operations.
What makes the situation highly complex for insurance companies is the need to manage suppliers in two key realms–suppliers of contract labor, known as services suppliers, and suppliers to replenish lost or damaged goods, known as goods suppliers.
Given the huge dollar amount that goes toward both services and goods suppliers, competitive insurance companies need to streamline their supplier relationships, “whittling down” their supplier ranks to include only the most high-caliber, readily available and affordable resources, while wringing optimal cost-savings out of contracts with preferred suppliers. The actual accomplishment of this feat, however, is anything but simple, primarily because suppliers contracts tend to be departmentalized and not leveraged across insurance companies.
With no central repository of information, insurance companies are severely hindered in their abilities to derive contractual cost-savings and negotiate better deals with preferred suppliers. Fortunately, new developments in enterprise software–namely, supplier relationship management (SRM) software–are dramatically changing the way insurance companies manage the full course of supplier relationships, from sourcing and procurement to invoicing and settlement, for improved profitability and customer relationships.
Here, we will examine how insurance companies can leverage SRM for improved operations in the two key realms.
Services Suppliers. Like their close cousins in the banking world, insurance companies rely extensively on contract labor to meet customer demands. Insurance companies have traditionally struggled to rein in services spending and the costs associated with managing myriad suppliers, which is estimated to account for over 50% of total corporate spending. With so much money going toward services, how can insurance companies gain control over these spiraling expenditures?
The short answer–by taking services supplier relationship management processes online, thus centralizing the process and automating the more mundane tasks associated with it. In this spirit, lets start with sourcing and procurement.
Bringing the SRM process online permits centralization, helping insurance companies to overcome departmentalization as an obstacle to efficient, cost-effective management of services suppliers. Too often, buyers in different departments across insurance companies waste time researching, analyzing and creating new relationships with suppliers that another department in the company has worked with before.
With an SRM system, an insurance company gains visibility over the redundant relationships the company may have with suppliers. Instead of five different departments creating five different contracts with the same supplier at different rates, an insurance company can leverage its buying power to negotiate preferred rates and cost structures across the enterprise, saving money for the company and its customers.
In addition, by taking the sourcing process online, insurance companies can solicit supplier bids through an SRM system. This means the company receives bids in real time like an auction, including up-to-the-minute pricing and the expected time to receive the services in question.
Going one step further, new supplier rating systems enable buyers to analyze who are the companys best and worst suppliers, providing critical information for consolidating or diversifying suppliers and negotiating better deals with them.
Todays SRM systems can provide buyers with not only unprecedented visibility into the most readily available and affordable suppliers but also a comprehensive history, down to individual details on individual worker backgrounds and compensation. In this vein, SRM systems help insurance companies ensure the integrity of their contingent workforces, while maintaining consistent compensation levels for similar skill sets–not only between individual contract workers but between contract workers and in-house resources.
Consistent compensation rates are very important, because insurance companies often dont concern themselves about the rates nor have a way to control them. This lack of control is the primary culprit for out-of-control services spending. For instance, heres a common scenario: An insurance company may have two contractors with the same qualifications and experience from the same supplier on the same client team. One may be billing out at $50 per hour, the other at $100 per hour. This happens because different hiring managers hire these contractors. Todays SRM systems automatically set limits and control rates, creating parity in compensation levels for similar skills and reducing maverick spending.
Goods Suppliers. SRM systems are also quickly gaining traction in the claims management area, helping insurance companies to manage and optimize relationships with preferred suppliers for lost or damaged goods.