How To Make A Procurement And HR Partnership An Almost Heavenly Marriage

Everyone benefits when the HR/Procurement partnership works

When it comes to strange bedfellows in the business management hierarchy, the relationship between human resources and procurement stands out. That doesn’t mean, though, that theirs can’t be a marriage made in heaven.
 

Procurement, of course, has a vital responsibility in securing the best prices for the highest quality parts and supplies, and that takes traditional, commodity-based negotiating skills. HR’s responsibilities are more amorphous and typically more quantitative. And when it comes to a major responsibility of employee benefits, negotiating deals like broker relationships and healthcare contracts is more nuanced than buying mass quantities of widgets.
 
But can procurement’s traditional, commodity-based negotiating skills infuse more disciplined oversight into HR’s process of negotiating the “best” contracts with brokers and healthcare insurers?
 
A growing number of organizations, particularly larger concerns with 1,000 or more employees, think it can. The ongoing pressure of unrelenting health plan cost increases, muddy expectations on how employee benefits should be executed, and hopes to add more disciplined oversight to the process are part of the argument.
 
The challenge for HR is to lean in and find a way to make the partnership work.
 
It starts by developing and sharing your optimal selection criteria for buying HR services. This should shine some light on important nuances. It goes a long way to helping the procurement team understand the importance of partnership engagement and setting such relationship expectations as service guarantees.
 
A key point to stress? Cost has a role, but on this particular playing field, defaulting automatically to the lowest-cost bid can lead to big problems. In fact, Procurement needs to understand that the U.S. Department of Labor has repeatedly warned that this could violate a benefits plan’s ERISA fiduciary duties; “lowest cost” can never compliantly stand for a plan sponsor’s sole consideration.
 
The various other objectives to be shared that are also critical to negotiations might include:
 

1. The expertise and experience of the client relationship team and the lead consultant in particular. This extends to a thorough knowledge of your industry and your company.
2. The extent and accessibility of advisors in such specialty areas as compliance, medical/pharmacy, communications, etc. for targeted ‘point’ solutions. (Especially as they are bound to be overlooked by lower, but not necessarily better, bids.)
3. The quality and strategic depth of candidates’ plan guidance.
4. Client management protocols.
5. Use of analytics to inform the delivery of effective and relevant benefits to your employee population.
6. Meaningful service fee guarantees.
7. Ability to deliver an effective virtual open enrollment experience – especially critical as we recover from the Covid pandemic.

 
HR needs to look at this as an effort to partner with, not around procurement. To that end, it doesn’t hurt to initiate a preliminary “courtship” phase where the HR and procurement teams learn each other’s strengths and come to an understanding of where they can deliver the most value during the selection process for the maximum impact. And HR needs to keep in mind is that procurement can be a big value-add after the contract is signed. Contract requirements must be managed from both a cost and service perspective moving forward, and procurement is ideally positioned for the job.
 
We’re seeing some good outcomes from HR and procurement marriages, where the particular talents and capabilities of each are phased in at different stages of the contracting process. At one organization, for example, the HR team managed the front end of the broker RFP process. This covered expectation setting around deliverables and how the relationship would be structured. During the second phase, it was procurement’s chance to shine, as it drove the financial side of the contract and managed internal compliance needs, like confidentiality and service fee agreements.
 
The reality is that procurement is increasingly evolving from the commodity and pricing-focused business of day-to-day purchases to an orientation rooted in strategic sourcing and the value, short and long-term of supply chains. That enhances its expertise in contract management, which is integral to HR’s charge of recruitment – whether individuals or brokers or third-party services like recruiters.
 
Who of us doesn’t need the ‘occasional’ partner to share the burden of the heavy lifting, especially as HR’s role grows increasingly complex and demanding? And once the partnership is proven, it can be consummated.
 
Everyone benefits when the HR/Procurement partnership works. It takes work to balance procurement’s persuasive pricing discipline with HR’s need to find advisory partners that meet broader value considerations. And in doing so, optimizes the likelihood that defined, shared objectives can be achieved.
 
And that’s what makes for any successful marriage.  

Joseph Torella serves as President of the Employee Benefits Division at HUB International Northeast, a leading insurance brokerage firm, and part of HUB International Limited.  A 23-year industry veteran, he is responsible for the overall management of the Employee Benefits operations throughout HUB Northeast’s regional offices in New York, New Jersey, Connecticut and Pennsylvania. Connect Joseph Torella