Establishing a clear understanding of both parties’ expectations can facilitate a win-win contracting experience for supply chain management and the vendor.
Is “contracting” really another word for “communication?” If not, perhaps it should be, according to experts. Ideal contracting relationships between supply chain management and suppliers require a basic understanding on one another’s needs, says John Gaida, senior vice president of supply chain management at Texas Health Resources (Arlington, Texas). “What are [each party’s] expectations?” he asks. “What drives them? What are they looking for? It’s important to listen and pay attention to all of this.”
Communication and understanding, in fact, are the building blocks of a mutually satisfying contracting relationship, says Carl Tietjen, senior director of corporate contracts and procurement services at the University of Maryland Medical System Inc. (Baltimore). In addition, successful contracting is a product of reliability, collaboration and good problem solving between the parties involved. “Inevitably, when you are working with products, problems will arise,” he says. “When they do, I look to the vendor to be flexible [and work with us].”
Generally, supply chain management experts agree they have a much greater opportunity to communicate their expectations to the vendor and to learn the vendor’s agenda if they are involved from the very beginning of the process. “Better outcomes occur when all interested parties are involved from the start,” says Dorance Dillon, director of materials management at Scottsdale Healthcare (Scottsdale, Ariz.). “Often, supply chain management comes in at the end, after the physician and vendor have talked. [At this point], they are less effective.”
Gaida agrees. “Clinical people should not be involved in the negotiating process,” he says. “I don’t dabble in the clinical side. And, while clinicians should [help] select products, when it comes to hammering out details, that’s my role.
“All that said, there is a lot of overlap insofar as what different people believe is important [in the contracting process],” he continues. “So, I work with the clinical side to see what [physicians] consider most important, beyond price.”
Indeed, supply chain management executives tend to regard their role as central in the contract management process. “The role of the contract manager as it relates to the vendor is vendor management and being the primary contact during the negotiation process,” says Tietjen.
“The vendor [should] come to supply chain management and alert us about new products [he or she] has before approaching a physician,” adds Dillon. “We want to know about new and innovative [technology]. But, a [new product] will not enter our organization until it moves through a disciplined review process.”
In addition, hospital contracting administrators should cover the following, according to Tietjen:
- Communicate hospital expectations and needs to the vendor
- Facilitate RFP plans
- Develop action plans and strategies.
Conversely, the vendor’s job is to get “the right product to the right place at the right time,” he continues. “And the product must be clinically acceptable. When it comes in the door, it must be without defect.”
“The vendor’s role is to ensure that the patient receives the product [he or she] needs, and that it is safe and the staff is adequately trained and educated [to use it],” adds Dillon. “Also, it is important that [a particular product] does not duplicate a product we already have.”
“If the vendor demonstrates commitment to the hospital, I feel more comfortable with [him or her] and am more apt to introduce him to my physicians,” says Tietjen
Industry consultants are starting to recognize a need for tools to objectively evaluate the relationship between hospital supply chain management and suppliers. In August 2006, Strategic Marketplace Initiative (SMI), a Scituate, Mass.-based forum for supply chain management and hospital contracting administrators, introduced a software “Tool for Measuring Effective Relationships.” The tool is free and can be downloaded from SMI’s web site (www.smisupplychain.com).
The tool was the product of roughly a yearlong process whereby an SMI team of suppliers and providers identified methods for measuring the effectiveness of business relationships beyond cost. The team centered its model on six aspects of trading partner relationships:
Each of these categories was further broken down into relationship elements, which could be incorporated into the software tool. The tool can be used to measure or monitor the business relationship between hospitals and vendors.
“We were trying to create a process whereby business partners could communicate about – and monitor – their relationship,” says SMI project manager Dennis Orthman. “This is a collaborative tool that enables both the supplier and provider to come together and evaluate their relationship.”
In other words, the vendor judges the hospital as well, adds Gaida, an SMI member involved in developing the software tool. “Vendors can [use this tool to] decide if they want to do business with us,” he says.
“The tool was designed to be flexible,” he continues. “It allows people to rank [each other], share information and work together. It’s not about blasting each other. It’s about communicating and moving forward toward ‘ideal’ contracting relationships.”
When using the Tool For Measuring Effective Relationships, hospital and provider business partners must first run through the various elements listed within each of the six categories. Together, they determine which items are important. “This in itself promotes communication, as one party may [value] something that the other party is unaware of,” says Orthman.
Once both parties agree on the importance of the different elements of their relationship, they can rate their collective performance on a scale of 1 to 5. “In this way, the tool attempts to quantify a subjective process,” explains Orthman. “Sharing information is critical to developing long-term relationships between business partners. This tool takes a business relationship beyond the traditional transaction, where [one party] orders a product and the other party ships it.”
In the end, however, is it really possible to measure the level of integrity in a contracting relationship? Beyond the expectations of delivery dates and product quality, how can supply chain management executives evaluate the contracting relationship?
“To some degree, this [measuring process] is subjective, but it can be objective, too,” says Dillon. For instance, is there a sense of partnering between the vendor and supply chain management? “Is the vendor showing us [he or she] wants to work with us and communicate with us, rather than just trying to get a product [in the door]? No one wants to feel taken advantage of. Pricing isn’t everything.” Honesty counts for a lot, he adds.
Tietjen looks at what his suppliers bring to the table, not only with regard to product safety and price, but ideas as well. “What works best for me is when vendors are proactive and they call me with their ideas,” he says. “When they do this, I feel they are thinking of [the hospital’s] needs, and I’m more [apt] to listen to their product offerings.”
So, while cost savings is important to Teitjen, “relationships matter a lot as well,” he says. “They also matter for the physicians. It goes a long way for me when a vendor says, ‘You don’t want to look at [a particular product we carry.] It’s not as good as others [on the market.] This shows me a high level of honesty,” he adds.
“If a relationship doesn’t form between the vendor and the hospital administrator, it usually is due to a breakdown in communication,” he continues. “It’s always different. Some relationships can happen very quickly, and some take time. But, they usually are tied to the level of communication taking place.”