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Strengthen Every Link in Your Supply Chain
Strengthen Every Link in Your Supply Chain
Melody Mena
Publish Date: July 13, 2008   |  Tags:   Supply Management

All too often, we administrators fall asleep at the wheel when it comes to optimizing our relationships with those on the outside who directly control our supply chain and costs. Here's how to maintain good communication with your group purchasing organization, distributors and vendors so you can secure better prices and services, gain added perks and improve operational efficiency.

I. GPOs: Beyond the bottom line
It's well documented that GPOs can help you control costs, but what you may not know is that, with the right approach, you can negotiate for even better prices, quality and services than your current contract allows. Here's how.

  • Keep the lines of communication open. Have regular conversations — at least quarterly and preferably monthly — with your GPO rep to discuss any issues you're having with suppliers. Your rep should then communicate your needs to your distributors and vendors. The regular dialogue will help you stay informed of any changes in pricing or services that otherwise would have gone unnoticed. Many GPOs provide an interactive Web site as part of their services, making critical usage and contract compliance data available at your fingertips. Take advantage of this service: Twice each year, have your rep assess supply usage and contract compliance.
  • Shop around. The market of GPOs servicing the ambulatory service industry is growing and getting more competitive each year. Evaluate different GPOs every one or two years to make sure you have the right contract for your needs. Even if you're locked into an agreement, you can learn what else is being offered and make specific requests of your current GPO to better serve you.

For example, your GPO should identify if you need an additional level of commitment agreements with vendors and quickly assist you with this process. The GPO should also identify alternative products and supplies that have better pricing under its purchasing agreements. If your GPO isn't doing this for you, shop for a new group. Many times, if they discover you're evaluating the competition, they'll step up their services.

  • Do it your way. When renewing or signing a new GPO contract, everything is negotiable. Don't be afraid to make requests based on your needs. And, as with any contract, read the fine print.

Never lock into an exclusive arrangement for more than 24 months. If possible, request that the agreement be non-exclusive so you'll have the option of working with multiple organizations. If the GPO you're considering is truly the most competitive — as most will claim to be — they won't have a problem with this request. Also request that your contract contain a 30-day termination clause, with or without cause. Finally, if you're in a surgical center, communicate that ASCs prefer "pay at the pump" pricing instead of back-end rebates for discounted items. Request that discounts be built into your pricing up front — this will improve your facility's cash flow.

  • Never stop at the GPO price. GPOs are designed to lower costs, but that doesn't mean the price your GPO has contracted on every product is the best you can do. Talk to competing vendors, find the best price and take it back to your GPO rep. The GPO will set up a local agreement for the better price, and it will be worth the extra effort on your part. I recently found a local linens vendor whose services were more convenient for my center and who was willing to negotiate a price below what the GPO had contracted for the same service. I contacted my GPO and suggested that they reach a local vendor agreement with this company, which in turn opened the vendor's doors to more business in the community. In addition to the lower prices and enhanced service, I established a better working relationship with this vendor, putting my center in a good position to negotiate with them in the future.

II. Distributors: Crucial link in the chain
While your GPO is important, your distributors are even more so, as they control when and how crucial supplies are delivered to your center. Follow the same general rules of thumb with distributors as you do with GPOs — keep a dialogue going and avoid exclusive agreements. Your distributors' representatives should meet with your materials manager, in person, once a week — set that expectation from the start. In addition to these basic rules, be sure to negotiate for the maximum level of service on every step of the distribution process.

  • Pricing. Request a freeze in distribution pricing for 24 months unless pricing is further discounted due to increased ordering. Along these same lines, make sure you have an understanding of the distributor's tier pricing, and as you grow, request a change in tier discount.
  • Ordering. Most distributors now offer automated ordering software with handheld scanners and bar code systems. Ask that these, plus installation costs, be included as part of your distributor's services to you at no charge. If they refuse, evaluate their competitors and consider changing distributors. Also request the ability to break supply ordering into per-unit size so you don't have to order a case of something when you only need a small amount. Try to eliminate or reduce the threshold for minimum order charges if possible.
  • Delivery. Secure as many early morning delivery days per week as possible. The more frequently your distributor delivers, the less you have to keep on the shelves — which will help you move closer to just-in-time inventory.
  • Analysis. Your distributors monitor a wealth of information on your ordering patterns, including average costs of supplies with each order, monthly supply usage and volume trends, back order trends, fill rates for orders, cost trends and payables aging. Ask them to share these reports with you twice a year. Every six months, request an annual supply usage report with prices to use as an internal audit tool. Also request a monthly statement with invoices and purchase orders so you can track payables, ensure you're up to date on your account and check your financial statements.

III. Vendors: Rein in the reps
When a vendor representative walks into your center, he's likely to inspire a wide range of reactions: Clinical coordinators will jockey for his cell phone number in case they need something in a pinch; surgeons will be eager to try out new products that weren't agreed to ahead of time; staff will go looking for donuts and other free stuff in the lounge; and you'll cringe at the chaos that ensues. This scenario may sound like a nightmare, but if handled correctly, you can turn vendor reps into your center's greatest assets.

Companies supplying implants and other high-dollar supplies don't contract with GPOs, leaving you to negotiate your own local agreements. First, you must combat the common misconception among vendors that surgical centers don't have any leverage over pricing. In fact, you can and should negotiate a discount of at least 30 percent from the list price on all supplies, including consignment inventory.

To exert more control over your vendor relationships, particularly their visits to your center, create an invoicing/purchase order policy that each vendor rep must sign when he enters the building with new supplies. The policy should state that the vendor will not get a purchase order for any product used in that day's case until you've negotiated and agreed to the price ahead of time. Any additional items — supplies or implants — used in the case but not negotiated in advance will be considered a trial and won't be paid for, unless there's a documented deviation in the plan of care during the procedure. If the vendor rep doesn't negotiate prices in advance, he won't get a purchase order on the date of service and will have to meet with the administrator to review supply costs.

This process not only sets binding rules of engagement for vendor visits, but it also lets you negotiate discounts for supplies. Most outside vendors will loathe negotiating pricing for each and every case; as an incentive, offer a standing price if they consign your center's inventory.

Once pricing is out of the way, request free shipping if the vendor doesn't use your distributor. Many vendors will include shipping if requested or at least meet you halfway by including free ground shipping. If the vendor insists on charging shipping, try to get your distributor to pick up the product.

If you continue to experience pricing problems with certain vendors or products, ask the surgeon who requested the product to assist you with better pricing requests; vendors hate saying no to physicians. If the vendor still refuses to cooperate, ban that company from your institution due to price gouging, inform your physicians of the decision and seek other alternatives and price savings for that product. They'll be grateful that you involved them in the process.