Hospitals are facing ever-increasing pressure to evaluate and -- more importantly -- cut costs. This isn't surprising. Medical supplies represent as much as 30% of an average hospital's total operating expenses. Regulatory and economic changes and initiatives such as value-based purchasing are also pushing hospitals to bring down their expenses.
Suppliers will go above and beyond for certain hospitals and not others.
Often, this pressure to cut costs results in a "one-size-fits-all" procurement strategy, even though physicians are requiring more highly customized medical supplies in their pursuit of improved patient outcomes. These physician-preferred items can be expensive and hard to get, especially when an appropriate purchasing strategy isn't in place.
Meanwhile, suppliers are trying to reduce their overhead too. They're just as worried about changes in healthcare as hospitals are.
Hospitals' relationships in jeopardy
The reality is, buyers and sellers are trying to control costs as much as possible, while doctors are fighting harder for the supplies they want. As a result, hospitals' relationships with patients, physicians, and suppliers may be in jeopardy. It's far too easy for negative outcomes to occur when a focus on price means that quality takes a backseat to margin. This is dangerous; lapses in quality can have life or death consequences.
Though the ability to compete on price is always important, suppliers need a better strategy to differentiate themselves from the competition. Gallup research shows that the buyer-seller connection benefits tremendously when it changes from a relationship based on price to one based on advice. In an advice-based relationship, the supplier's high-quality counsel creates a partnership with the buyer that is fundamentally different from a relationship based on price -- and thus constantly negotiable. Suppliers that can build meaningful partnerships with hospitals are best positioned for the future, when competing solely based on price will no longer be a viable strategy.
Hospitals also can benefit from a shift from a price-based to an advice-based relationship by becoming a partner of choice with their key suppliers. In an advice-based partnership, for example, hospitals can hold their suppliers accountable for quality and innovation, making those suppliers indispensable and irreplaceable in delivering quality care to patients. Hospitals gain access to the best supplies -- and gain collaborators who help them keep costs low, quarter to quarter and long term.
Managing key supplier partnerships
From a hospital's perspective, not all supplier relationships are created equal. Suppliers will go above and beyond for certain hospitals and not others. And no healthcare organization wants to fall into the "other" category when it comes to critical supplies. When a patient's health and life are on the line, a hospital must be fully confident that its supplier partners have its best interests at heart.
Hospitals don't need to develop partner-of-choice relationships with all their suppliers, nor suppliers with all their hospital customers. A relationship based on price may be sufficient in some cases; it may even be the most effective strategy. Supplier relationships can occur anywhere on a continuum from price-based to advice-based. Determining the best or most effective place for a particular partnership is unique for each hospital and each supplier, which makes a thorough analysis and evaluation of partners a necessary component of an effective engagement strategy. However, with key suppliers, such as providers of physician-preferred items, there is no substitute for a partner-of-choice relationship.
The traditional approach to managing buyer-seller relationships focuses on assessing the strength of a customer's relationship with a seller -- how engaged a customer is with a retail outlet or a fast-food restaurant, for example. But that approach doesn't fit the unique dynamics of a hospital-supplier relationship. Many hospitals, for instance, recognize the key role their suppliers play in ensuring quality patient care. Suppliers can reduce risks at key points along the supply chain and provide access to cutting-edge knowledge, processes, and technologies. Yet few hospitals assess the strength of their partnerships with their key suppliers.
Becoming a partner of choice
Gallup has found that supplier engagement is based on five key dimensions that best portray the strength or weakness of supplier relationships. These dimensions are not arranged in a hierarchy, but there is a logical progression: Clarity, Simplicity, and Integrity are the foundation on which Reciprocity and Connectivity can be built.
The Five Dimensions of Supplier Relationships
Supplier engagement is based on five key dimensions that best portray the strength or weakness of supplier relationships, Gallup research shows. These dimensions are not hierarchical, but there is a logical progression: Clarity, Simplicity, and Integrity are the foundation on which Reciprocity and Connectivity can be built.
Understanding the nature of each supplier partnership when viewed through the lens of these five dimensions provides a hospital with a comprehensive perspective on the strength and quality of its supplier relationships. With this knowledge, a hospital is well-equipped to align its strategic procurement team with its overarching supply chain goals. It can also help buyers and account leads prioritize which supplier partnerships demand the greatest focus.
For a hospital, becoming a partner of choice with its key suppliers can help ensure that it receives:
- access to a supplier's best people
- access to a supplier's best products, services, and resources, such as being first in line for the latest medical technology
- priority allocation of resources when key supplies are scarce
A continuous, open dialogue between a hospital and its key suppliers enables the hospital to develop and implement an effective supply chain risk management plan, which helps ensure that it can provide patients with world-class care in the event of a disruption or emergency. This dialogue can also ensure that new products are aligned with the hospital's existing processes and procedures -- and that new products meet hospital and physician preferences in maintaining high quality standards. On the other hand, not all of these elements can be maintained when suppliers introduce new products, and a strong partnership can make the transition to new supplies and processes seamless through training and preparation.
A relationship based on price is not enough to mitigate or overcome serious supply chain risks. Though price will always be a major consideration in any buyer-seller relationship, an effective, profitable, and successful partnership requires more than that.
The Affordable Care Act is one of the latest developments stirring up the status quo in the healthcare industry, and it won't be the last. Many hospitals are wondering what strategic decisions they must make to ensure they are equipped to provide quality patient care. Developing reliable, mutually beneficial partnerships with key suppliers can help hospitals reduce risk while offering the best possible service to patients, now and in the future.