Strategic Spend: Purposeful supplier engagement improves relationships, furthers financial sustainability

Managing healthcare indirect spend and purchased services is a massive effort for health systems and hospitals across the country; the issue isn’t for a lack of effort by these entities — it’s a numbers problem.

Over the past five years, there have been more than 5.5 million unique vendors — reflecting more than $2 trillion in spend — in our Vizient Purchased Services Analytics tool. Of those vendors, 74,000 make up 94% of the spend, leaving close to 5.4 million suppliers representing the longtail of that remaining 6% of spend.

Now, consider that a single health system, on average, transacts with over 10,000 of those entities every year. For supply chain executives, the sheer volume of suppliers can be overwhelming — especially considering how interwoven the supply chain is within a health system. When it comes to expense management, supplier management, contract management, quality/service management and category management, healthcare operates like no other industry.

Given the breadth and volume, how should healthcare organizations manage suppliers across the continuum of care, particularly in a manner that strengthens margins and ensures safe, quality, patient-centered operations?

Decentralization leads to declines in patient quality and satisfaction

At times, healthcare organizations can struggle to find a balance between working with large, complex supplier partners — who offer extensive service offerings — versus smaller, local suppliers who provide specialized expertise for a particular service and who help give back to and support their local communities.

With so many unique partnerships (large or small), these relationships are often unknown outside of the department they’re contracted with, inadvertently establishing silos between health system departments and creating redundancy among services. This decentralization limits a strategic approach, often negatively impacting patient satisfaction and quality.

Acknowledging the problem is the first step — but fixing it can be a challenge in and of itself. Some healthcare organizations may feel inclined to solve this issue by investing in strategic partnerships with suppliers and consultants. But more often than not, these consultants lack the healthcare experience required to help. With such a complex industry, it’s best to work with experts who have been in healthcare and understand the unique requirements necessary for compliance and patient safety. Read more about why healthcare experience is crucial to managing non-clinical expenses.

Strategic partnerships are not just transactional

Strategic partnerships in healthcare are often believed to be those who have the highest spend and largest footprint within the provider organization. In reality, many of these types of relationships are more transactional than strategic, because high-expense suppliers have not been challenged to improve service, quality or pricing.

Many healthcare organizations are pushed into transaction-focused partnerships due to the conditioning of traditional supplier and category management approaches. However, strategic partnerships should not be built on how much an organization spends; rather, they should be built on mutual trust, innovation and an understanding of common goals and priorities. Healthcare organizations are becoming smarter about who they invite to the table as their partners, but it takes planning and cross-departmental coordination and support to maximize the return on investment with suppliers.

Finding the right partnerships starts with planning

Establishing appropriate supplier partnerships involves due diligence and planning with suppliers, manufacturers and nearly all health system departments. Planning is essential to ensure quality patient care, effective operations and minimal disruption. When considering a new supplier partnership, healthcare supply chain executives should:

• Understand the supplier’s culture, core competencies, strengths and weaknesses as well as any existing history between the supplier and the healthcare system.
• Evaluate the health system’s business needs and requirements across the system. Be sure to understand the business case and how the supplier fits into the system’s clinical and financial goals.
• Emphasize mutual transparency between the supplier and provider to build a foundation of trust.
• Identify potential partners via a request for information (RFI) or through collaboration with your group purchasing organization.
• Combine transactional and operational data to establish a true category management program.

Start with a few core, successful suppliers who specialize in healthcare. You’ll find that many suppliers are just as eager to engage in more strategic and sustainable relationships.

Increased alignment for improved operations and cost savings

Health systems who establish deeper, more strategic relationships with their suppliers often see streamlined operations, increased alignment of goals and objectives, and improved cost savings. Suppliers, too, gain a greater sense of alignment to the health organization that they may otherwise not have — strengthening the service and quality delivered.

Establishing strategic investments in supplier partners enhances category management and expense management across the healthcare continuum. Smart partnership decisions and success are not just based on transactions with the supplier, but alignment to goals and priorities of both organizations to benefit one another.