Healthcare suppliers and providers that have collaborated on supply chain improvement initiatives have reaped the rewards of greater efficiency and lower costs – but it requires a level of trust nonexistent in many trading partner relationships.
“In the traditional buy/sell relationship, each party is trying to outwit the other,” said Gene Kirtser, President and CEO of Resource Optimization & Innovation (ROi), Mercy Health’s supply chain division. “But we are at a point in our industry where that is simply not sustainable. Providers and suppliers must learn to work together to find ways to reduce costs. That’s the only way we will all survive.”
ROi and its suppliers are reducing supply chain costs and inefficiencies by collaborating on a number of key initiatives, including perfect order, vendor-managed inventory and global data standards. Recognizing that supply chain inefficiencies on the provider side increase supplier SG&A costs, ROi is working to become its suppliers’ lowest cost/higher profit customer and asking that suppliers pass along a percentage of their savings to the organization in return for the effort.
We look for inefficiencies that ROi and our suppliers can collaboratively work to fix,” said Kirtser. “We tell suppliers that if we can eliminate an inefficiency to save them a dollar, they can keep 70 cents and give us 30 cents.”
According to Kirtser, trust, transparency, aligned incentives and accountability are the keys to successful collaboration. He notes that providers and suppliers must come together, put their desires and issues on the table and have a transparent conversation about what both partners need to earn to maintain and grow financial contributions for their respective organizations. By working together, trading partners can reduce costs for all parties involved and help protect margins without depending on product price increases.
“Data sharing is critical to supply chain reform and we have to work toward greater transparency,” said Kirtser. “Change is coming to the healthcare supply chain because stakeholders are demanding it. Suppliers have an opportunity now to be proactive in this area and reduce costs for their customers without necessarily reducing product price.”
Read the full report in 'Strategies for Healthcare Supply Chain Collaboration: Improving Operations, Reducing Costs'.