Why Hospital Strategic Procurement Doesn’t Buy More From You!

Selling to hospital strategic procurement can be much easier if you understand the metrics that they value or demand from their suppliers. Many of these are generated from the requirements of their internal customers. In general, each of these can be placed in the categories of delivery, cost, responsiveness, errors and defects.

  1. Lead Time on Delivery- For most products used in hospitals today, there are multiple vendors from which to choose. Most hospitals limit their contracts to a primary vendor and 1-2 additional approved vendors. Since hospitals are keeping limited amounts of inventory on hand to preserve their cash position, it is imperative their vendors are able to ship product in a timely manner. What is timely to you may not be timely for the hospital. Take, for example, a hospital that asks you to quote pricing and delivery for a surgical tray that they are using. You can have a better price than the incumbent supplier but if you cannot deliver all of the instruments in the tray you will not earn the business. Understanding the hospitals expectations for delivery, timeliness is paramount and this differs by institution, healthcare system and IDN.
  2. On-Time DeliveryWith most hospitals now using just-in-time delivery, the shipment must arrive on-time. Hospitals track this as a metric on a dashboard.
  3. Fill RateFor some products back-orders are acceptable; for others it is unacceptable. A back order is defined as lines of a purchase order that are not shipped from the supplier to the hospital with the original order. Other key “delivery” metrics are the number of late deliveries, the number of items not shipped on time, and quoted versus actual lead times.
  4. Price VarianceIt is not uncommon for hospital pricing to be based upon purchase tiers which provides different price levels. If manufacturers have predictable purchase volumes, they can streamline their production capacity and pass on some of the savings to the hospital. It stands to reason that the more the hospital or healthcare system buy the greater the savings. Hospital procurement knows the pricing that they contracted for and they expect the invoicing to reflect that price. Be sure that there are no price variances. When there are discrepancies, it affects your credibility.
  5. Purchase Price & Total Cost of Ownership (TCO)Hospital buying must move beyond looking at single unit buying of what is the least expensive to looking at total cost of ownership or TCO. A number of factors affect the TCO. They are major and minor equipment, peripherals, supplies, annual service, upgrades, staffing, certificate of need, construction and leases. Are you helping them consider all of the costs or just the purchase price? Help them manage dollars and not just materials.
  6. Invoicing Delays/ErrorsWhen manufacturers find a problem with the hospitals invoice, usually due to a part number or pricing issue, theyplace the order “on hold” and it always creates problems. Every time that an invoice needs to be corrected or re-issued, it costs the hospital money. They often have to take a telephone call from the sales representative or customer service to understand the problem and then it takes time to correct and re-issue the PO. If you are a constant nuisance, you will not have the business for long.
  7. Perfect Order Results (YTD)A perfect order is a purchase order processed electronically (from order to payment) without human intervention, which is delivered to the correct location, on-time, undamaged, at the right price, with the desired quantity on the first attempt. Manufacturers should know their perfect order results YTD and where they stand versus their competitors.

Parting Thoughts

As you deal with strategic procurement, try to think like them. Keep in mind that they are judged and evaluated by their internal customers; many of which are clinicians that require the products you sell to perform their daily jobs. Internal customer’s judge strategic procurement on their fill rate, inventory, stock cycle time, stock/non-stock ratio and the number of calls they are required to make to get their supplies to name but a few metrics. In essence, strategic procurement must provide supply availability and supply accessibility all within the context of being responsive, courteous and helpful while still being professional. Ask yourself if you are making their job easier or more difficult?