Healthcare organizations have made remarkable improvements using Lean tools and methods. Eliminating waste from key, value adding processes has enabled hospitals to improve a host of performance measures, including enhanced patient care and reduced cost. As organizations advance in their Lean transformation, focus should be extended outward to include suppliers in bi-directional improvement efforts.
The term customer-supplier partnership has been used loosely over the years, and it often has a narrow connotation that suppliers will simply keep lowering their prices in order to reduce hospitals’ costs. Cost cutting alone is not a tactic that can be sustained for very long. But with a mindset that suppliers are an extension of your hospital, you can (and should) work with your supplier partners to improve the acquisition and flow of products and services into your organization, as well as to most effectively use the products and services purchased.
Such a partnership requires a commitment by both parties to work together for mutual benefit over the long-term. This includes sharing relevant information as well as the risks and rewards of the relationship, which requires a clear understanding of expectations, open communication and information exchange, mutual trust, and a common direction for the future. The ultimate goal of such partnerships should be to improve quality and reduce waste within both the supplier and customer organizations.
The benefits from supplier partnerships should include tangible measures (e.g., cost savings, improved quality, etc.) along with intangible benefits such as increased trust and confidence. We believe the value proposition will also include standard work using best practices, decreased variability, and better management of risk factors. Improved operational efficiencies of the supply chain will be another outcome through channel optimization, product standardization, automation, and error reduction.
- Suppliers – Include suppliers of clinical and non-clinical products and services for which you have an ongoing need. Suppliers who provide one-time products and services (e.g. construction) or independent contracts (e.g. physicians) should not be included.
- Approach – The rollout of the supplier partner program should start small. It should be considered an ongoing and targeted undertaking that will occur in phases.
- Prioritization – Externally, high leverage suppliers prioritized by spend and volume should be approached, and partnering relationships built or enhanced. Internally, end users should be brought onboard as needed, especially in the clinical areas.
- Focus – Early on, collaboration can be a hard sell. Therefore the focus should be on developing the initiative, getting people on board with the partnerships, and gaining some momentum. Avoid focusing on technology too early. Once supplier collaboration has gained some momentum, technology can be a significant enabler of information sharing.
- Communication – At least initially, information about the supplier partnership program should not be widely communicated internally or externally. The intent should be to minimize disruption of clinical and non-clinical work activities within your organization as well as to minimize angst among the suppliers not initially chosen to participate.
- Willingness to Change – The hospital must be willing to change. A partnership is not only about the supplier making changes. Hospitals must learn to listen to suppliers and act on their ideas.
- Physician Support & Buy-In – At some point, getting physicians on-board and participating in the partnership will be critical. Many physicians already have strong relationships with sales reps of various products, and this can present significant challenges when making changes. Physicians may also be weary of adopting a single supplier for fear they may fall behind technologically. We recommend initially focusing on clinical areas that would be open to partnering with their suppliers and who would provide success stories to share with others.
- Calculating Savings – You will need to determine how cost savings from the supplier partner program will be calculated and verified. Your Purchasing Department can verify any price reductions arising from the supplier partner program. But a more challenging issue pertains to the other value added savings you will realize from expanded partnership arrangement. It will be much more difficult to determine the exact cost savings of more efficient systems, standardization of supplies, lower utilization of product due to standard work, or better patient outcomes.
- Use of Savings – Pre-define what will happen with realized savings generated from your supplier partner program. This will let everyone know how the program savings will be used and will encourage and reinforce participation. For example, a percentage of achieved savings could be redirected back to:
- the hospital itself
- the department where the savings originated
- new equipment
- physician priorities
- Lean training
- the supplier
- Reviews & Accountability – Both hospital and supplier organizations should be held accountable to each other via a comprehensive scorecard to be used to guide periodic (at least quarterly) business reviews. Such reviews will ensure that issues are resolved and that both partners stay on track.
- Manage the Relationship – Supplier partnerships take time and effort, and like any relationship, require care and feeding. Mutual respect and understanding, a two-way flow of information, and listening are important to sustain a partnership. Ideally there should be alignment between the organizations on the value of the relationship, business ethics, standards of excellence, and commitment to continuous improvement.
Today’s blog was written by Aaron Fausz, Ph.D., director at HPP
Aaron has twenty years of experience helping organizations align and improve their personnel and technical systems to accomplish strategic business objectives. He has consulted with leading healthcare organizations across the country and has proven success guiding organizations through strategically driven changes and enhancing business performance. Aaron also has significant experience in needs assessment, best practice analysis, performance measurement, process improvement, and behavioral change management.
Aaron holds a Ph.D. in Industrial/Organizational Psychology from the University of Tennessee with a minor in Industrial Engineering.