Price Benchmarking in Purchasing Services... Is There Anything Usable Out There?
We answer that question and more with a peek into our latest podcast with special guest Chris Heckler, CEO of Valify, with me, your grateful host Pat Bohnenkamp, CEO of Seprio. Chris founded Valify about three and half years ago to solve a problem he had in directing the purchasing of thousands of categories of services for a dozen healthcare systems.
Pat: When we talk about Purchased Services, that's a term by my understanding, that originates in healthcare. But your services are not limited exclusively healthcare?
Chris: That's correct. The majority of our clients are in healthcare including big hospitals and their procurement departments. But in reality it’s about procurement and learning how to view and negotiate and talk to the vendors about specific things. Market demand is ow we're venturing out into all classes of trade and really dedicating resources in 2018 to expand that side of our business.
Pat: We have clients that call us and say "What are your benchmarking capabilities?" The fact is, we do a lot more deals than our clients do. Our clients do one contract every three years. And they don't think about that contract, generally, in between those 3 years or at least in the aspect of negotiating terms and price. We talk about the value of active market intelligence. But I think that there may be a misconception about benchmarking and I'm curious, how do you define that? What does benchmarking mean to you?
Chris: Sure. Benchmarking in the simplest form is just comparing something to a standard. But the problem is that there isn't a standard. We have almost 1300 different services for which we have to create the standard because the marketplace hasn't done it yet. And when you're talking about IT, it is even more challenging because of the thousands of different types of products that are out there and different services that can be tied into it.
Pat: What is the value that the clients are likely to get? How do they use that Valify?
Chris: So there's a couple things to talk about for this question. First, market intel based on experience is in fact a type of benchmark. You've done it so many times that a standard is created. With Valify, I know down to every single variable and exact cent. So if you’re not using Seprio or a Valify, even if you're a procurement professional, how do you know you're getting the best or even market price? You’re standard is the vendor. That’s dangerous. Your “benchmark” is what the person who sold to you, who's getting a commission, is telling you.
In my previous roles in purchasing we had the same thing. We were flying blind, basically. There was so many different types of categories of things, without data, there was no benchmarking. And so when we were negotiating contracts, all we did for benchmarking was compared to our previous price. So you know which isn't great right. So you're saying okay I was paying $100 before now paying $90. Now that's a good price. OK. All right. I might focus on some more T's and C's and stuff, but not the price because we got a discount. But we don't know at that time if the market price was 20 percent under that.
Pat: What’s the scope and the breadth of your purchased services data?
Chris: Valify contains 600 different hospitals sending us about $180 billion of spend that we slice and dice and categorize. We process literally hundreds of millions of transactions every year. We have the deepest benchmarks in the industry in this space.
To get more on our conversation about the how-to of using benchmarking through the lens of the evolution of navigating roads by using maps... from paper maps to GPS mapping tools like Waze and Google... tune into the podcast here.