Intel Corp. is doing something about rising health care costs. And, at the same time, it is demonstrating how departments with different goals can work together for the good of the company.

In the U.S., health care costs for companies are climbing faster than the rate of inflation. This year, companies can expect to see increases of about 9.9%, according to research by Hewitt Associates in Lincolnshire, Ill. This is on top of a 9.2% rise in 2005. Before then, annual increases were in the double digits.

Noting that these costs and those for other indirect goods and services were rising faster than its annual revenues, management at Intel decided to take a new look at its spending. The company restructured its purchasing operation in 2002, creating global sourcing teams to support such areas as benefits, relocation services, temporary services and others. The mission of the new purchasing operation is to have a bigger influence on the indirect spend.

By all accounts, the global sourcing team for benefits has been successful. The team today is influencing 95% of Intel’s spend, an approximately $550 million annual buy and has reduced costs by more than 10%. Equally important, the team provides quality products and services that satisfy its internal customers, Intel’s employees.

The global sourcing team for benefits is made up of representatives of human resources (HR) benefits design and administration, finance and purchasing. Sharon Barnes, global benefits sourcing manager, leads the team that includes her counterparts in HR benefits design and administration, Nancy Dickinson, U.S. health and welfare manager, and Susan Churchill, health benefits administration manager.

Over the years, the team has had its share of challenges, among them the natural tension that arises between team members with differing goals. Traditionally, purchasing is responsible for managing costs while benefits design ensures that the company is providing employees with quality products and services and benefits administration is concerned that employees are satisfied with the plans purchased. But the team has come together and harnessed that energy, defining roles and responsibilities, creating roadmaps and developing tools for the benefits buy.

For Intel, the buy includes health care (medical, prescription drug, vision, mental health and employee assistance programs), life and AD&D insurance, retirement plans, stock programs, childcare and HR consultants, disability and leave of absence plan administration.

Since 2002, the global sourcing team for benefits has concentrated its efforts mainly on the U.S., where much of Intel’s spending in this category takes place, and where many of the company’s employees work now.

As team lead, Barnes has 20 years of benefits experience and has been with Intel for seven years. She’s responsible for sourcing, selection, negotiation and contracting of benefits suppliers worldwide. A sourcing specialist for Intel’s greater Europe region and one for the greater Asia region report to Barnes. She, in turn, reports to Eric Jaeckle, professional services global sourcing manager.

The sourcing team has structured itself so that corporate purchasing, HR benefits design and HR administration can each add value to the acquisition process for the buy. At Intel, HR design is responsible for designing the medical, dental, prescription drug and other plans and determining employee contributions. Administration is responsible for employee eligibility, billing and supplier management. Finance also is represented on the team.

Until the team was formed, HR was responsible for contracting and negotiating for benefits services, occasionally working with consultants on these activities. As at most companies, HR’s reaction was guarded when asked to work with purchasing on the sourcing process. It helped that Barnes has benefits experience.

“We had three business groups at the table, each bringing a slightly different perspective to HR benefits services,” says Churchill, the health benefits administration manager. “While working as a team is a little more complicated, there’s value to us working together.”

The global sourcing team has support and direction from top management, which is one key to helping smooth out working relationships. Another is open communication between the three groups.

The team began by creating a document that outlines roles and responsibilities of each member and helps to align expectations of each group. Purchasing brings negotiating and contracting expertise to the table, and the two HR groups use their knowledge and experience to develop the scope of work for the spend.

At first, Dickinson and Churchill were wary that purchasing involvement would mean more of a focus on cost, and they were concerned about its use of e-auction tools in negotiations. “An initial price may look attractive, but if that health care supplier doesn’t administer your plan properly you can actually pay more or potentially more in the long run,” says Dickinson, the U.S. health and welfare manager. Purchasing does have cost targets that the group is charged with meeting.

It took a year of back and forth communication and hard-hitting discussion before the team members were comfortable with their roles. Getting to that level involved a lot of education and training. Dickinson and Churchill invited purchasing to their meetings, including those they held with suppliers, to get a better feel for the products they support.

The women became familiar with terms used by the other team members. For instance, purchasing has an expenditure plan or budget and HR has strategic long range plans. At first, the two didn’t line up on the calendar. While the team didn’t change the timing, members refined the process so now there are mid-year updates that take into consideration the business needs of each organization.

The global sourcing team drew up a roadmap that identifies HR’s projects (i.e., plans coming up for renewal, plans being added, etc.) for the coming year. The roadmap helps ensure that team members are in sync and that projects are complementary, and also that there will be adequate resources dedicated to the projects.

“The roadmap has been really helpful,” says Barnes. “It gives us an idea of where our resources are going and when things are going to be happening so we can better plan our group’s activities.” Now, the team creates the roadmap in the fourth quarter for the coming year.

Sharon Barnes: "The roadmap gives us an idea of where are our resources are going."

The SOW template is the starting point for each RFP. It’s contained within the RFP and is used to capture supplier response. The response is used as the basis for developing the contract’s SOW. This process has led to more efficient contracting, Barnes says. Once the team distributes the RFP, the RFP team meets to develop the supplier selection scorecard. Each section of the RFP SOW is included in the scorecard and is weighted by the team.

Especially important is the team’s effort to design new templates for contracts. They involved legal to revise terms and conditions to incorporate appropriate benefit provisions, and removed sections that aren’t relevant to meet compliancy requirements. “This makes contracting more efficient and provides protection to Intel,” says Barnes.

Software used by the team includes a proprietary Internet bidding tool that it uses on some sourcing projects. Other tools consist of net-meeting for collaboration among team members.

The team researched and analyzed suppliers and pricing, which provides leverage in negotiations. Now, they influence much of the benefits services spend.

“I’m proud of the team,” says Jaeckle, professional services global sourcing manager. “They’ve done an effective job at balancing their charters and pushing the right levers to give Intel the most cost-effective employee-benefits program.”

Recently, purchasing developed templates for contracting, scorecard and RFP processes for sourcing specialists in Europe and Asia. They are modifying the tools for use in their regions.