Quick Practice Upgrades

  • Adjust payment periods and invoicing processes to accommodate small businesses
  • Incorporate local and diverse spending objectives into job descriptions and evaluations for supply chain
  • Communicate with community partners about contracting opportunities and supply chain needs

Adjust payment periods and invoicing processes to accommodate small businesses

Systems for processing invoices and paying vendors may inadvertently create barriers for small businesses. As supply chain departments adopt electronic invoicing, small businesses may not always have the necessary software capabilities or technology to submit invoices electronically. Another possible barrier is net payment terms, or the period of time it takes to issue payment for an invoice. Often, small businesses are not in a position to wait up to a month or more to receive payment, especially as they incur payroll and other costs associated with executing the contract. These barriers can discourage vendors from competing for the contract in the first place, or create significant operational burdens in delivering on the terms of the contract.

Often, small businesses are not in a position to wait up to a month or more to receive payment, especially as they incur payroll and other costs associated with executing the contract.

Some hospitals and health systems have addressed the electronic invoice issue by continuing to accept paper invoices, or by providing technical assistance on electronic invoicing. CHRISTUS Health, based in Irving, Texas, adapted their electronic invoicing software after learning that vendors did not yet have electronic capabilities. Now, the system is able to accept scans from paper invoices, which are then converted to the proper electronic format.1Tim Martin, interview by David Zuckerman and Katie Parker, February 19, 2016. University Hospitals (UH) in Cleveland, Ohio has taken a different approach. Any time a new supplier is hired by UH, the supplier goes through the “supplier diversity portal” which includes invoicing training.2Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016.

Grady Health System (Grady), based in Atlanta, Georgia, discovered that electronic invoicing was not a major barrier for their smaller vendors, because small business and supplier diversity advocates already trained small businesses on how to “ramp up” invoicing processes. “The [supplier diversity] councils have talked about [electronic invoicing] over the last five years, so diverse suppliers are at the forefront,” explained Todd Gray, director of supplier diversity at Grady.3Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016, transcript. Partners such as supplier diversity councils can be a key resource for ensuring that vendors are prepared for invoicing requirements.

Procurement departments have addressed the issue of payment periods by allowing for shorter payment terms or setting up standing orders to speed up processes. This strategy is employed by Duke University Health System in Durham, North Carolina. Director of Procurement Programs Mary Crawford explained that in some cases at Duke, most notably when vendors were required to invest in initial high inventories, standard payment terms were creating barriers for small vendors. To address this, Duke adjusted the net payment terms for these contract orders from thirty days to fifteen days. In addition, they modified the standing order process so vendors could have their payments processed more quickly.4Mary Crawford, interview by David Zuckerman and Katie Parker, January 21, 2016. One supplier diversity professional explained that they try to pay vendors as often as they pay employees—every two weeks. Moreover, they work with suppliers on a case-by-case basis if payment periods present an issue.

Incorporate local and diverse spending objectives into job descriptions and evaluations for supply chain

Traditionally, procurement and supply chain decision makers are evaluated and rewarded based on their ability to achieve cost savings. Although containing cost is important, evaluation should focus on “best value” instead of simply lower cost, incorporating other critical elements such as quality, the ability to meet other strategic goals such as sustainability, diversity and local, and the responsiveness of the vendor. This process includes setting goals, measuring performance based on said goals, and holding staff at all levels of the procurement process accountable to meeting them.

Although containing cost is important, evaluation should focus on “best value” instead of simply lower cost, incorporating other critical elements such as quality, the ability to meet other strategic goals such as sustainability, diversity and local, and the responsiveness of the vendor.

One best practice is to tie compensation to achievement of local and diverse spending goals. At Grady, the CEO has enabled the director of supplier diversity to set department goals for department vice presidents. These are measured annually and reported to the CEO directly. “This has allowed supplier diversity to drive to the top,” explained Gray…“Different departments have different goals, and achieving goals can lead to increased compensation.”5Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016, transcript. This strategy is also being employed at CHRISTUS. Tim Martin, the manager of supplier diversity contracting explained that supplier diversity has been added to the operational dashboard that is published on a monthly basis to all the regional CEOs. Consequently, every supply chain associate is accountable to these goals in their performance evaluation, which is then tied to compensation. To earn their bonus packages, CEO’s are held responsible for meeting the overall dashboard goals.6Tim Martin, interview by David Zuckerman and Katie Parker, February 19, 2016.

In addition to reporting progress on goals to leadership, leadership itself should be held accountable, as demonstrated in the example from CHRISTUS. According to supplier diversity consultant Howard Elliott, tying leadership’s compensation to completion of the goals can help sustain programs. Elliott notes that this worked successfully at a Cincinnati-based hospital where the CEO required that senior leaders achieve diverse spending goals to qualify for bonus packages.7Howard Elliott, interview by David Zuckerman and Katie Parker, Cincinnati, OH, January 15, 2016.  Steve Standley, chief administrative officer at UH, sums up the rationale for this approach clearly: “If you get 40 percent of your salary based on hitting five major goals and one of those goals is local and diverse sourcing, that’s hard to ignore.”8Steve Standley, interview by Ted Howard, October 3, 2016.

Communicate with community partners about contracting opportunities and supply chain needs

Ensuring that communication channels are accessible to the local vendor community is a quick first step to localizing procurement. A common best practice is to create an online vendor portal that clearly provides all the necessary resources a potential supplier would need, including open bidding opportunities, and a specific institutional contact vendors can reach out to with questions. Bids can also be circulated with community organization partners, such as local or regional chapters of supplier diversity councils, minority chambers of commerce, and small business development centers. These organizations can, in turn, provide lists of qualified and certified vendors to the health system partner.

MD Anderson's HUB & Gederal Small Business Program websiteAbove: Webpage for MD Anderson’s HUB & Federal Small Business Program
Examples of successful web platforms
MD Anderson Cancer Center, based in Houston, Texas

MD Anderson maintains a website that vendors can access even before they have registered with the institution. All bids over $50,000 are listed publicly, ensuring that all local vendors may access bids and review requirements. The website also includes historical information, which local small business development centers can use to create mock bids with businesses to help them learn about the Request for Proposal process. The website also includes details on how to make an appointment with MD Anderson staff members and features important resources for Historically Underutilized Businesses (HUBs), including: information on how to becomes a HUB, templates for the required HUB subcontracting plan, along with an instructional video, and state goals for HUB spending.

Above: Webpage for Johns Hopkins Health System Purchasing DepartmentAbove: Webpage for Johns Hopkins Health System Purchasing Department
Johns Hopkins Health System and Johns Hopkins University, HopkinsLocal, Baltimore, Maryland

Another example of a successful health system website oriented to serving vendor partners is HopkinsLocal, an initiative of Johns Hopkins Health System and Johns Hopkins University. The main webpage includes public goals and information about the specific categories of goods and services the initiative is prioritizing. It then links to each institution’s purchasing department website. What is unique about this resource is that it links to a Vendor Guide, which lists local firms by vendor category. This helps not only staff members at the institution, but also other vendors interested in working with diverse suppliers. In addition, vendors are able to email staff at BuyLocal directly to share information about their business and capabilities. This direct communication pipeline increases the likelihood that interested vendors will connect to the appropriate staff member.

Simple Policy Fixes

  • Create department and staff positions dedicated to inclusive, local sourcing
  • Require that local and/or diverse vendors are considered in Request for Proposal (RFP) pool
  • Make inclusive, local sourcing an explicit goal...

Readiness Checklist

Do a basic assessment of where your institution is at, and identify the steps you need to take to implement an inclusive, local sourcing initiative

 

References   [ + ]

1, 6. Tim Martin, interview by David Zuckerman and Katie Parker, February 19, 2016.
2. Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016.
3, 5. Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016, transcript.
4. Mary Crawford, interview by David Zuckerman and Katie Parker, January 21, 2016.
7. Howard Elliott, interview by David Zuckerman and Katie Parker, Cincinnati, OH, January 15, 2016.
8. Steve Standley, interview by Ted Howard, October 3, 2016.