Supplier partnerships keep blood pumping in the rock
When I started in this business, most purchasing professionals were mainly concerned with getting lower prices. The preferred way to do this was to squeeze vendors. Negotiations were hard and adversarial. The highest compliment you could give your purchasing leader was that he or she could get “blood out of a rock.” A successful day was getting bedpans for a nickel less.
This served its purpose at the time. Vendor margins were high; they had a lot of room to concede. Purchasing had little data at their hands to negotiate objectively. Hospitals’ margins were healthy, and there was little need to bring down costs dramatically.
As both hospital and supplier margins tightened and the whole healthcare supply chain became more sophisticated, forward thinking supply chain executives began to question the effectiveness of this strategy for cost reduction. Hard negotiation techniques still worked. But the return was getting smaller and need for cost savings was getting greater. Was there a better way? Many say the answer is yes, and that answer has become a supply chain best practice — partnering with key suppliers.
Partnering with suppliers is not a new idea. Some readers may recall the EHCR (Efficient Healthcare Consumer Response) study from the late 1990s. That study indicated that up to half of the cost of the healthcare supply chain, some $11 billion, could be eliminated through supply chain improvements: More efficient product movement, order management and information sharing. There were four enablers identified, and the very first one was partnerships.
Partnerships work because of the synergy effect. Each of the partners contributes some unique factor(s) and the combined resources and efforts of the parties exceed what either can do on its own. The best partnerships result in improved operating efficiencies, increased customer satisfaction, growth of market share and improved margins. Ideally, these benefits are shared by the partners in a relatively equal measure.
Beyond handshakes
But entering a partnership is more than just a word and a handshake. “Partnering” may be one of the most overused words in a supplier’s lexicon at the moment. I have been in numerous meetings with suppliers and at almost every one I hear them wanting to partner with the organization. This usually means “we want more market share” and are only willing to concede on price if we get it. This is not the kind of partnership envisioned in the best practice.
Truly partnering with a supplier is a process. For it to work, there are a few things that should be present. First, there should be compelling reason for the partnership. The parties should see concrete benefits that can be achieved in this way. Second, there must be a shared vision of what the partnership will entail and each participant’s role. Partnerships may produce some short term gains, but the real benefits are more long term. Third, there must be a genuine feeling of trust and commitment. Considering the traditional relationships between hospitals and suppliers, this may be the most difficult hurdle to overcome. And finally, there needs to be shared rewards and shared risks. Partnerships are not risk-free.
Enlarge pie, not piece
Win/win negotiation techniques are useful — perhaps necessary — in pursuing a partnership. The very first principle of win/win is approaching the negotiation in a cooperative way. The parties are taking the relationship to a new level. The other win/win difference is in the information sharing aspect. Partners must be much more open and willing to share intimate details of their respective operations including many potentially sensitive things. Consider working with an implant supplier and having an open discussion about the hospital’s relationship with a key surgeon. This kind of openness can be frightening for purchasing staff that may have been burnt by suppliers in the past. But remember, you will expect the supplier to be as open with you about things like their margins. The goal of win/win is mutual gains, making the pie bigger. And that is precisely the outcome you are seeking with a partnership.
Starting on this road begins with an introspective look at your needs. What areas might a true partnership be a benefit to you? Then look at the suppliers that are in that space. Pick the one or two that are most likely to be a good partner. These are likely ones that you already have a good relationship and/or one that might have the most to gain. Then start conversations to gauge their interest. Are there common and dovetailing goals? Might they be willing to work with the openness required? As you forge the partnership, seek areas of mutual benefit. Make sure there are objective performance measures that all will agree to. And remember that ongoing, strong communication will be needed to hold the partnership together.
Working with suppliers as partners can be a new and potentially risky experience. But it is likely no longer possible for any healthcare organization to achieve their needed cost objectives without them. If you have not already done so, start looking at your key suppliers in a new and different way. Partnering is the way of the future.
