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9 Powerful Sourcing Best Practices for Wildly Successful Savings Initiatives

We work with a number of companies that strive to have the most successful savings outcomes as possible. Recently, we negotiated $32 million in savings for a customer, 23% off their current costs, which significantly impacted their bottom line. As a part of our eNegotiation results report, I outlined the following best practices that were put in place to help them to maximize the savings opportunity.
  1. Establish a steering committee for initiative specific decisions: Especially with IDNs with multiple hospitals, it is impossible for supply chain alone to understand the needs of every facility in every category of goods and services. A sourcing initiative can only be successful if the needs of all those affected by a decision are accounted for.

    Forming a Steering Committee provides a governing council to help set business priorities and manage the general course of its operations. Using this approach ensures that each facility is fairly represented in the sourcing process and that the needs of each facility are correctly articulated in the RFP documentation. Remember, the current state is not always the preferred state and only those who live and breathe the goods or services know what is needed to improve the way things are currently being done. This feedback is paramount in moving to that preferred state.ThinkstockPhotos-committee-1.jpg
  1. Routinely update organization on sourcing initiatives and award decisions: Having regular meetings with the leaders of both supply chain and individual facilities keeps all participants and stakeholders updated on the status of supply chain initiatives. During these meetings, questions can be clearly addressed and answers shared that will benefit all involved. Keep in mind that achieving savings by way of a new contract is only the first step, in order to realize those savings you need to ensure that whatever transitions and implementations are required, occur efficiently without disruption to operations. To do this, everyone must be kept in the loop and be involved in this planning; routine updates to supply chain and facilities allow for the necessary communication path to ensure these savings are realized.
  1. Focus on Total Supplier Value, not only price: While price is a major consideration in any negotiation and subsequent decision, when RFPs are developed and evaluated, non-price factors must be considered including quality, service level guarantees, favorable business and legal terms, and the total cost of ownership of a particular good/service. This is the only way to get total supplier value. Top supply chain organizations seek suppliers who provide value beyond their competitors which creates a more collaborative relationship over time. Long term collaborative supplier relationships result in more streamlined procedures, efficiencies and greater cost savings. Ensure suppliers understand your business goals and allow them to be creative, you might be surprised at the added value they can bring your organization if you allow for some flexibility in their proposals.
  1. Manage contracts centrally: Rather than individual facilities being responsible for their own contracts, a centralized contract management structure can be implemented to manage most contracts within the organization, even if the contract only impacts one or a few facilities. This allows for the added visibility necessary to identify supplier standardization opportunities. In addition, contracts should be tracked through a master contract expiration file which provides added visibility of contract expirations so that initiatives can be identified proactively, preventing automatic contract renewals or a lapse in service.
    It’s important that centralization occurs so that new contracting processes can be tracked and the organization’s goals can be considered when a facility level contract is under review. For example, Central Supply Chain may know that three months from now an initiative will start to try to standardize all services in a given category; but one Facility (whose contract expires in 6 months) goes and negotiates a new term with their incumbent. This would negatively impact the Central Supply Chain initiative, but if all contracting flows through Central Supply Chain, this would get flagged and the contract extension would be prevented and the organization’s objectives would remain a realistic opportunity with roadblocks prevented.
  1. Utilize third-party support: In order to maximize the output of a centralized supply chain organization, health systems can partner with organizations whose primary business line is RFP development, management, and proposal negotiations. Typically this would involve having a team of category experts support the time-consuming work involved with data collection and analysis, RFP development, supplier management, and proposal analysis. This team would act as an extension of your existing supply chain staff. This partnership allows an organization’s supply chain to process many more categories in a given time period which increases the savings opportunities.
  1. Employ multiple sourcing strategies: A traditional RFP process may not be right for every situation. Each category should be investigated in detail to understand the current state across all facilities. Important questions should be asked and answered up-front, such as:
    • Is the system currently standardized to a single supplier?
    • When does each supplier contract expire?
    • What are our early termination options and penalties?
    • Is there a supplier or multiple suppliers that can provide service for all Mercy Health facilities?

By answering these questions, a unique sourcing strategy can be employed specific to the situation at hand that best addresses the current state. These sourcing strategies include:

  • Request for Proposals
  • Direct Incumbent Negotiations
  • Establishment of co-terminus contracts for future standardization opportunities

Don’t pigeon-hole yourself by only believing one sourcing strategy can achieve results; mold your strategies based on your situation and your objectives.

  1. Certified Project Manager Requirements: Best practice supply chain organizations request that suppliers awarded new business (requiring transition/implementation services) provide a Certified Project Manager to support the implementation process. Certified professionals have a higher skill level and a project management foundation which increases productivity. Using certified professionals, the implementation process is much more efficient and the supplier is held more accountable for the speed and success of transition. This requirement greatly improves implementation timelines and processes, resulting in identified savings becoming realized savings, more quickly.
  1. Utilize and leverage technology: Technology improves any process including the contract management process by capturing and integrating data to remove administrative burden. In addition it provides visibility into the status of a contract and facilitates reporting and compliance. During contract negotiations, technology allows you to rapidly accelerate the RFP or RFQ process using live bidding events which creates competition with suppliers and increases the number of rounds that you can run in a given amount of time. Without technology, most hospital systems are limited in how many rounds they can do. It is also very labor intensive to do multiple rounds of a negotiation when you have to mail out the RFPs, receive them back, get feedback back out to the suppler and manage responses, and conduct the necessary analysis needed to evaluate the cost savings opportunities present.

For example, Medpricer is the first and most successful eSource technology available in the market. Our technology allows for a clear audit trail of the entire RFP and negotiation process due to the fact that all information related to the RFP including supplier participation and supplier proposals are hosted on this web-based platform. Further, the eSource technology has a built in, real-time, competitive negotiation tool that allows the organizations we work with to leverage supplier proposals against one another to achieve substantial cost reductions in the fraction of the time a traditional negotiation would take.

  1. Sourcing Process Standardization: Although each sourcing initiative is unique to the category, another best practice is to standardize processes and documentation to govern the overall sourcing process which results in increased efficiency. As a result, stakeholder participants become much more comfortable with the overall process and their required time investment is lessened. The Committee can spend more time focused on identifying their needs and less time on learning new processes. It’s possible that the same Steering Committee member is participating in multiple committees, but also maintaining separate day-to-day responsibilities, therefore finding ways to make their participation in the sourcing process simpler, is a major benefit.

What best practices do you use in your supply chain organization to optimize your savings?

You can use these powerful tips and learn from what others are doing, avoid “reinventing the wheel” and achieve cost savings through increased productivity and efficiency. These best practices are designed to support multi-hospital organizations (health systems), but are also valuable to stand-alone acute care organizations looking to implement processes that will drive cost savings.

If you have any questions about these best practices or want to understand how you can implement any of these practices within your supply chain organization, you can contact me directly at jbrouchard@medpricer.com.

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