Buyers and sellers are part of every industry. Traditionally buyers want lower prices and sellers want more business. Three bids and a “cloud of dust” is often the common activity choosing suppliers (Sellers) within healthcare. That’s when it isn’t already decided by a GPO. Unfortunately, price is the primary focus.
Suppliers are a source of great value. Just ask other industries as they understand the total cost of ownership (TCO) and the value suppliers can bring beyond price. Suppliers know where to save money, trim fat and eliminate waste in your company. We just need to “trust” them more.
Years ago, Gartner measured the “trust” factor across many industries between buyers and suppliers and found that the Healthcare Industry had the lowest trust metric by far. Why was this and why do we not work more collaboratively with our suppliers in healthcare? There are several factors that I will address below.
The demographics of the healthcare supply chain are very unique. We have a large number of products and many suppliers. The average hospital uses over 500 suppliers and the largest supplier likely is only 6-8% of their non-labor spend, and often that is a distributor. This means it’s difficult to spend the time to manage so many suppliers, let alone to do it right.
Another factor is the lack of true “self-contracting” in healthcare. While more and more IDNs are taking control of their contracting, the lack of resources and the dependence on GPOs restricts choosing suppliers and managing them beyond just “price”. Most hospital systems don’t have the resources to choose and manage 500 suppliers by themselves, hence GPO contracting services are generally justified.
Even with these factors, we shouldn’t shortchange the true value of supply chain by not creating collaborative relationships with the best suppliers. Other industries call this best practice, “Supplier Relationship Management”. This is a process of segmenting suppliers, developing joint goals, and measuring outcomes. It means developing close working relationships with your suppliers based on trust, communication, and transparency.
In my pre-healthcare career, we had the supply chain goals to “find the best suppliers and grow them” and “manage the best suppliers as extensions of our own business”. We chose suppliers based on more than price, i.e., their ability to bring value via service, quality, innovation and process improvement. We worked with our best suppliers to find waste and we shared jointly in the benefits.
I truly believe that working more collaboratively with suppliers is one the biggest “blind spots” we have in the industry. Suppliers are a great resource to help us bring even greater value to healthcare. But suppliers need more innovative IDN supply chain leaders to bring trust and operational excellence to this key relationship.
How we view and manage our suppliers has been very traditional. To expect different results, we may need an updated roadmap. We need to be the change we wish to see in the world.
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