Making the Grade

Vendor report cards facilitate communication between one provider and its suppliers.

Paul Onufer is keeping score, and his vendors appear to respect him for it. Since 2002, the administrator and chief supply chain officer at Hackensack University Medical Center (HUMC), Hackensack, N.J., has relied on the Business Partner Scorecard as a means of measuring his suppliers’ performance.

“Before 2002, we didn’t have a formal communication tool in place for evaluating our vendor partners,” says Onufer. Together with his project team (which includes a materials management coordinator of systems and contracts, purchasing director, manager of distribution services and a supervisor of accounts payable) Onufer began researching ways of developing such a tool.

“We looked at criteria from the New Jersey Governor’s Award and attended seminars, such as the National Institute of Science and Technology’s Malcolm Baldrige Program,” he says. The team also reviewed surveys and trade journal articles and interviewed key hospital partners for their feedback on scorecard systems. “[We contacted] several hospitals to explore whether scorecards were being used.” However, none of them had implemented this tool, he adds. “Our key goals were to improve supply chain efficiencies and achieve cost reductions.”

Communication
In developing the scorecard system, Onufer and his project team members spoke directly to their distributor and manufacturer partners to explain their goals and intents. Indeed, communication has been key to HUMC’s successful relationships with its vendor partners, he points out.

Following these initial discussions, Onufer and his team constructed a scorecard with seven key measurement categories. Each category applied to both distributor and manufacturer partners and was numerically weighted according to its importance. From highest-weighted to lowest-weighted, the categories were:

  • Deliveries
  • Payments
  • Credits
  • Returned goods
  • Customer support
  • Operational and financial improvement
  • Supplier growth opportunities.

“Each of the seven areas in one way or another is reflected in the contracting process,” says Onufer. “And cost-benefit targets help vendors be more accountable.” Of the seven categories, Onufer says that only one – operational improvement – is somewhat subjective. “Still, it’s a fair measurement,” he says. “All partners start with zero points. If I receive positive comments [on their performance], we add points. If I get negative comments, we subtract points.”

An introductory letter was mailed with the first scorecard to each of 12 pilot vendors, all who reacted positively. “They thought it was a great idea,” says Onufer. “The scorecards defined our goals in the medical industry for supply chain efficiencies and expectations for our partners, and they appreciated the feedback.

“The scorecards definitely improved the dialogue between our organizations in each case,” he continues. In fact, so much so, that after one year, HUMC boosted its supplier pool from a pilot group of 12 to an all-time-high of 41. “Today, we work with 31 suppliers,” he says. “Some of our business partners did not perform well, so we consolidated.” Nevertheless, these 31 suppliers represent 80 percent of the medical center’s total spend on med/surg supplies, he notes.

“Over the years, we have adjusted the number of points weighted to each category, but the categories themselves have remained unchanged,” he continues. “Because we spent a good amount of time [upfront] researching and dialoging with the people we do business with, our scorecards have met the mark for us.

“We don’t receive scorecards from our vendors,” he adds. “They don’t have a formal rating system for us. Performance-based feedback from the vendor generally focuses on growth opportunities and payment activities.”

On the face of it, updating measurement categories and maintaining scorecard data might appear to be an overwhelming task for the individual responsible for doing so – Patrick Tabasco, systems and contracts coordinator materials management. But state-of-the-art software tools make this doable. “Patrick is responsible for assigning points to each category,” says Onufer. “This would be impossible to do without automation.”

Tabasco spends about three days of every month preparing scorecards, he explains. Statistical data can be collected internally through the materials management PeopleSoft® system. And, in 2006, the hospital implemented a business intelligence software program that enables Tabasco to pull additional reports, such as information on invoice variances. Feedback from HUMC’s purchasing department, clinical personnel and physicians helps as well, adds Onufer. “Our buyers have the greatest contact with vendors,” he says. “And, our users in the medical field also can provide us with feedback about their interactions with vendors.” Once the data is in, Tabasco works with suppliers to evaluate their scores and discuss ways to improve them and become a best-practice benchmark.

In the future, HUMC may decide to add other initiatives to the scorecard, notes Onufer. “We have more information available to us through our business intelligence software,” he says. “We now can access market share information for similar types of vendors, and we may want to incorporate this in the scorecards. For instance, when we set goals, [we would like to see] how well we perform against these measures with our vendor partners.

“The scorecards have really provided a true criteria for our supply chain priorities aligned with our organizational goals,” he adds.

About Laura Thill

Laura Thill is a contributing editor for The Journal of Healthcare Contracting.

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