Model of the Future – Making it Stick

Health Alliance of Greater Cincinnati walks the talk of its diverse-supplier spending program.

In February 2005, Health Alliance CEO Ken Hanover went on record saying that the IDN would purchase $23 million worth of goods or services from minority-owned, women-owned, historically underutilized and small businesses in the coming fiscal year, starting July 1, 2005. Ten months after the year started, the IDN had met its goal. Then it raised the ante, pledging to purchase $28 million from such firms in the coming fiscal year.

Buying $23 million worth of goods and services from minority firms doesn’t just happen. It calls for commitment, communication, creativity and, most important, stick-to-itiveness. The Health Alliance has it all.

The commitment
The commitment actually had its roots in a diversity awareness and education initiative that CEO Hanover instituted about four years ago, says Dennis Robb, senior VP of supply chain management. “He did this to be sensitive to our patient population, and to increase the awareness and sensitivity to our associates, which is what we call our employees, as well as the businesses with which we interact.” Hanover sought to recognize in a public way the IDN’s diverse employee and patient base.

Health Alliance executives attended intensive three-day classes and ongoing training and education to help them improve the way they interacted with people of different cultures, ages, sexual orientation, ethnic groups, etc. After several years, the program seemed to be having an effect. “But we said, ‘Maybe there’s something else we can do to reflect our commitment to the community,’” says Robb.

Although the Health Alliance had done its share of free health screening, community outreach and provision of care to the underinsured and uninsured, it hadn’t scored particularly well in terms of buying goods and services from local minority-owned firms. In fact, an assessment by a diversity-consulting firm, Cincinnati-based Pope & Associates, gave the IDN the equivalent of a grade “D” in its commitment to suppliers of color or minority. Hence the commitment to purchase $23 million in the coming fiscal year.

“[Health Alliance Chief Operating Officer] Dorman Fawley was crystal clear that this was not only a way to give back to the community, but to promote the economic growth and development of small businesses, minority-owned businesses, women-owned businesses and historically underutilized businesses,” says Robb. “We would do this through competitive processes, like our standard business practices.

“We were able to throw a net out into the community to say, ‘We’re going to do business differently at the Health Alliance, and we want you to be partners in it.’”

The Health Alliance engaged Howard Elliot, a consultant to Pope & Associates, to help get the initiative off the ground. And it assembled a Supplier Diversity Work Team to meet on a weekly basis to plot strategy and measure progress. The team – which continues to meet every week – includes people from procurement, facilities management and other departments. (Approximately five years ago, the Health Alliance outsourced its group purchasing and supply chain functions to Dallas, Texas-based Broadlane. As a result, more than 30 of the Health Alliance’s employees became Broadlane employees. They continue to work in the IDN.)

A key player early on was – and remains – Steve Love, president of the Cincinnati and Northern Kentucky African-American Chamber of Commerce. Love and the Broadlane employees helped the Health Alliance compile a database of certified diverse suppliers from whom the IDN might purchase services. “Steve Love has been an incredible counselor and confidant through this whole process, specifically, in helping us make connections with businesses we formerly were unaware of,” says Robb.

“One of the first things we did,” says Love, “was to identify – based on the Health Alliance’s procurement needs – two dozen African-American businesses that we thought could fulfill them.” Love arranged for business owners to meet Robb and Elliot, so the Health Alliance could get to know the capabilities of the minority firms. In turn, the business owners got the chance to learn more about the competitive bid and certification processes in which they would have to participate in order to do business with the IDN.

In December 2005, Robb was invited to speak to a group of approximately 150 local African-American business owners at one of the Chamber of Commerce’s monthly “Chamber Net” sessions. “It gave Dennis and Howard an opportunity to talk about the Health Alliance and the kind of businesses they were looking to contract with,” says Love, who also helped the Health Alliance spread its message to the community on the Chamber’s radio program. “We have used that program to encourage African-American businesses to make contact with the Health Alliance, to register with them, and to make sure the community was aware of the Health Alliance’s goals for supplier diversity,” says Love.

Construction
Aware that they weren’t going to find local minority-owned companies making high-tech products, such as drug-eluting stents, Robb and the Health Alliance team focused on products and service areas in which smaller and minority-owned companies have developed expertise, including office supplies, furniture, and printer and copier services.

Another area of opportunity was construction. Of the $100 million in capital dollars the IDN spent in fiscal year 2006, close to $36 million was earmarked for construction and renovation projects, and facility improvement. For that reason, Love made sure that he brought minority-owned construction companies to the table.

While the target for construction projects was big, the fact is, construction represented a challenge too, for two reasons:

  • First, few minority-owned companies in the Cincinnati area are large enough to act as general contractors for massive building projects. In most cases, they have to serve as subcontractors.
  • Second, the hospital facilities managers tend to be hesitant to take chances on vendors whom they don’t know. That’s due in large part to the critical nature of hospital construction.

To address the first challenge, the Health Alliance made every effort to fit the bid request with the capabilities of the vendors. “You have to ask yourself, ‘What is the scope of the services and products that [the minority firms] can offer?’ says Robb. “Then you align the bid opportunities to that scope.”

In some cases, the Health Alliance has encouraged “prime” firms – that is, firms with whom the IDN has done business with for years – to subcontract with one or more minority-owned ones, to give the latter a foot in the door. The Health Alliance has gone so far as to recognize as a competitive advantage bids that include such partnerships.

Recently, when the IDN issued a bid request for building expansion projects at two of its hospitals, all three of the construction companies who responded did so with minority partners. “That’s the first time in our history we saw such an action,” says Robb.

The IDN approached the second challenge – the reluctance of facilities managers to take chances on unknown companies – slowly and methodically. “Working with our facilities managers every week, on every bid and project, we were able to introduce new businesses to the organization,” says Robb. “Once one of the facilities managers took that risk, and the [vendor] did an outstanding job, [the vendor] subsequently got more business with the Health Alliance.”

One of those vendors was Cincinnati-based Ameridian Specialty Services. Founded in 1999 by Betty Owens, the company focuses on commercial construction projects. Its first job with the Health Alliance involved window caulking, sealing of a parking lot, and work on expansion joints.

“As far as diversity programs go – and we’ve been involved in a few – the Health Alliance was great to work with,” says Owens. “From the first job, the communication was great. They told us their process, and they told us what they expected.

“For a small business, cash flow is very important,” she continues. “The Health Alliance told us upfront when we would be paid, and they followed through on everything they said they would do.

“I’ve run into other companies that have outreach programs for minority contractors. They tell you about the projects that are coming up, but it seems like it’s hard to actually get the chance to perform the work. They may put out invitations to bid, but they don’t actually allow you to get in the door. The Health Alliance did.”

Bottom line
In addition to Pope & Associates and the African-American Chamber of Commerce, the Health Alliance team sought assistance from local corporations that had successful minority-spending programs in place. They included Toyota, Procter & Gamble, and Johnson Controls, all of which have factories or corporate offices in the Cincinnati area. “They were extraordinarily generous and thoughtful with their advice and counsel,” says Robb. “We were able to immediately incorporate their best practices at the initiation of our engagement.”

The Health Alliance is thrilled with the progress of its minority-spending program, says Robb. “We’ve exceeded our goal, based on our audit, and the chairman of the board has increased our goal to $28 million for the year starting July 1,” he says.

The initiative has played a role in invigorating local minority-owned businesses, he believes. And the Health Alliance has benefited too. “We’re seeing better pricing, and our facilities managers are saying they’re seeing better quality and better service. They disrupted historic relationships and took a risk. We’re seeing more economic development and better outcomes, and we’re promoting growth and jobs in our community.”

The results don’t surprise Steve Love, who says that contracting with diverse suppliers benefits buyers several ways. “First, there’s greater competition when you have a diverse supplier base, and that tends to decrease operational costs and improve margins.

“The second consideration is quality. Some people think that using minority-owned firms brings quality down. But the Health Alliance has found that after one year, quality has actually improved. Standards rise with more competition, and when standards rise, quality and expectations go up too.

“Third, companies such as Procter & Gamble have found that with a more diverse workforce and supplier base, creative and innovation increase.”

As programs such as that of the Health Alliance grow, so too will the capabilities of minority vendors, says Love.

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