Critical Strategies

Core elements of building local capacity

Strategies

  • Leverage the expertise and purchasing power of existing vendors
    • Require majority-minority contracts and subcontracting to local, diverse vendors
    • Facilitate Mentor-Protégé Program
  • Promote business incubation and expansion
  • Provide technical assistance and capacity-building training

Leverage the expertise and purchasing power of existing vendors

Health systems can utilize the expertise and purchasing power of their network of larger vendors to help grow the capacity of local, diverse businesses. This can take two forms: encouraging or requiring vendors to subcontract to local and diverse businesses, or leveraging the expertise of vendors by facilitating mentor-protégé relationships. Both of these approaches can be implemented through the Request for Proposal (RFP) process and included in contracting documents.

Require majority-minority contracts and subcontracting to local, diverse vendors

Requiring existing vendors to subcontract to local, diverse businesses can provide an entry point for vendors who might not yet have the capacity to take on the full contract for a particular good, service, or capital project. One strategy is to encourage majority-minority contracts, in which a prime vendor subcontracts a portion of the contract to a minority-owned firm. The impact of this strategy is greatest when the intent is to eventually “flip” the contract to the minority-owned vendor over some period of time.

Requiring existing vendors to subcontract to local, diverse businesses can provide an entry point for vendors who might not yet have the capacity to take on the full contract for a particular good, service, or capital project.

With this strategy, the ownership structure and geographic location of the prime contractor, or tier-one vendor, becomes less important because they are partnered with the minority-owned (and ideally locally owned) vendor that becomes a sub or tier-two vendor. This strategy provides a means for increasing the capacity of the tier-two vendors in an environment that mitigates risks to the hospital and prime contractor. The tier-two vendor does not take on too much too quickly, which helps to ensure they can complete contracts successfully.

This approach is most common with construction and capital projects, in which a situation often exists that health systems only contract with vendors that have extensive hospital construction experience. This practice often precludes local and diverse vendors that have more recently entered the industry and makes it difficult for them to demonstrate their ability and secure a stand-alone contract. Majority-minority partnerships allow the smaller vendor to gain expertise over time, beginning with lower-risk projects and assuming more medical-specific construction projects as they go. This strategy also helps smaller vendors participate even if they are unable to access bondage or retainage requirements—often a pressing issue—as tier-one vendor will meet these requirements.

The primary way health systems facilitate these types of partnerships is to include tier-two supplier diversity goals in RFPs. Todd Gray, director of supplier diversity at Grady Health System (Grady) in Atlanta, Georgia, explained that his department partnered with the legal department to put tier-two diversity goals into RFPs. “You can’t do it last minute,” he said. “Put it in the solicitation and require that a plan is due in the solicitation response, and then work that into the contract,” Gray explained. Grady provides a contract template for potential vendors that includes supplier diversity goals.1Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016. Another strategy is to require prime vendors to report on their local, diverse spend, which can then become a metric for assessing their performance on the bid.

A graphic recording from the panel “Leveraging Partnerships to Accelerate Small Business Impact” from Chicago Anchors for a Strong Economy’s (CASE) inaugural conference on October 14, 2016. Graphic by Sketch Effect and provided by CASE

An important component of this strategy is that it recognizes major vendors as purchasers, as well as suppliers, and leverages their procurement power for local impact. These large vendors—some of which are referred to as supply chain integrators—can also connect hospitals to diverse vendors. Mary Crawford, director of procurement programs at Duke University Health System in Durham, North Carolina, explained, “when a small or diverse vendor is not at capacity or able to provide for all our needs in a specific area, we often connect them with our first-tier vendors, who we rely on for second-tier supplier diversity support.”2Mary Crawford, interview by David Zuckerman and Katie Parker, January 21, 2016.

The approach Crawford described is also strategic in framing supplier diversity as a means to improve overall vendor performance, rather than as competition. Tim Martin, manager of supplier contracting at CHRISTUS Health, headquartered in Irving, Texas, explained it this way: “I promote our tier-two program first. I don’t want my large suppliers to think that I want to take business away from them. We want to work with those companies, and I am always encouraging my suppliers to help employ smaller contractors…That is an expectation. I consider it a good business practice.”

CHRISTUS has taken this approach a step further by creating a “diversity supplier council” made up of fourteen significant suppliers. Some of the suppliers on the council are leading contractors and others are up-and-coming, women- and minority-owned business enterprises (MWBE). “The leading contractors are on there because they themselves have great supplier diversity programs,” explained Martin. The council achieves a number of strategic goals: it provides the health system with expertise on best practices in supplier diversity, encourages the institution to commit to growing their diverse spend, and provides the vendors with access to information about financials and upcoming opportunities with CHRISTUS. Each participant signs a nondisclosure agreement, which facilitates a more in-depth sharing between companies.3Tim Martin, interview by David Zuckerman and Katie Parker, February 19, 2016.

Facilitate Mentor-Protégé Programs

Another strategy to leverage the expertise of existing vendors is to facilitate a mentor-protégé program. More commonly employed in construction, mentor-protégé programs help build capacity across the supply chain, as protégés receive coaching around important business practices, such as putting together bids and organizing the back office. Programs can take the form of informal mentorships, which encourage relationships between tier-one and tier-two vendors (as noted above), or formalized programs where the health system acts as a matchmaker and facilitator.

Mentor-protégé programs help build capacity across the supply chain, as protégés receive coaching around important business practices, such as putting together bids and organizing the back office.

Particularly in construction, subcontracting can be viewed as a form of mentorship, even if there is not a formal mentor-protégé program. This sentiment exists because the expertise required to successfully work together in this capacity is so precise and high-touch. University Hospitals (UH) in Cleveland, Ohio states this explicitly to its vendors: “The goal is for businesses to mentor other businesses by working with UH,” explained Mary Beth Levine, the vice president of system resource management. “Hospital construction can be complicated, so it’s not like putting up a commercial building or administering some office space. We look for and are hoping to develop additional expertise with smaller contractors,” she added.4Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016.

One hospital has also used this approach with construction. Their supplier diversity coordinator described the relationship between a large architectural firm and an emerging firm: “there’s a great mentoring opportunity even if it’s back office operations or learning new technologies.” They explained that since the established firm already had significant market share, it did not view mentorship as training their competitors. In cases where there is perceived market competition, companies can be paired across sectors. “You can pair a pharmaceutical company with a staffing company because backroom business operations are similar across industries.”

Other institutions operate formalized mentorship programs to cultivate long-term relationships. This can expand this opportunity to vendors who have not yet secured a subcontract. Moreover, the formalized structure can ensure that technical assistance is more intentional than if the protégés were simply subcontractors. Grady operates a mentor-protégé program outside of their subcontracting opportunities. A year-long program, small businesses are paired with larger corporation mentors. Subject matter experts across the health system teach participating businesses about specific components of the supply chain. Businesses are also connected to networking services and local resources that provide further technical assistance. Grady enters into confidentiality agreements with the mentoring organization to facilitate information sharing, explained Gray, supplier diversity manager.5Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016.

MD Anderson Cancer Center (MD Anderson) in Houston, Texas takes a similar approach, actively facilitating long-term partnerships. Their program has catalyzed over forty relationships in its twenty-one year history. Protégés must be certified as Historically Underutilized Businesses (HUBs) to ensure the program helps meet their supplier diversity goals.6Marian Nimon, interview by David Zuckerman and Katie Parker, February 11, 2016. For more information about this program, see: the MD Andersen Cancer Center Case Study.

Cleveland Clinic also operates a construction-focused, mentor-protégé program. The program was created to help improve the quality of bids. “We weren’t getting to the heart of the matter and building the pool of healthcare qualified vendors…We started looking at how we can build the pipeline,” explained Neil Gamble, senior director for facilities planning, design and construction. Particularly, Cleveland Clinic found that vendors had inefficient and antiquated back office functions, and did not have the capacity to manage overhead and paperwork. Rather than matchmaking, Cleveland Clinic solicits mentors and has them locate and interview potential mentees. They require that if the mentor has a contract with Cleveland Clinic, their protégé has to have a presence in the job and has to be part of the leadership of the project. The minimum commitment to the program is three years. The program now has six mentors.

Although protégés are not guaranteed contracts with Cleveland Clinic by participating in the program, they receive many opportunities to build capacity and their network. In addition to gaining technical expertise, protégés gain access to supplier and business development events. Cleveland Clinic extends invitations to exclusive forums on topics from supplier diversity to raising capital and attracting investors. Gamble noted that mentors also benefit, as it helps them meet their tier-two goals and gain access to those same events and forums. Because of the difference in scale between the mentors and the small businesses, there is little concern over direct competition, which allows collaboration to flourish.7Andi Jacobs, Hermione Malone, Christine Foley, and Neil Gamble, interview by David Zuckerman, Cleveland, OH, January 12, 2016.

Connect vendors to technical assistance and capacity-building training

Expanding vendor access to technical assistance and training opportunities, by offering them directly or through partnerships, is another critical strategy for building local and diverse business capacity. Additionally, this service helps improve the quality of bids and supply efficiencies by increasing the pool of competitive bids and market competition. Capacity building includes interventions in a number of critical areas: broad business development, doing business with a particular institution, or more generally, doing business within the healthcare sector.

A major barrier for potential local and diverse vendors lies in their ability to write competitive proposals. Even if they have the capacity to meet the contract requirements (i.e., they can “do the work”­), they may not have staff dedicated to finding the best contracting opportunities or the software to generate bid estimates. Linking vendors to technical assistance to build this capacity can help improve bid quality, not only by assisting the vendors themselves, but also because it will increase quality competition in the marketplace.

When discussing the challenges working with diverse vendors, Indria Hollingsworth-Thomas, supplier diversity director at Parkland Health & Hospital System, based in Dallas, Texas, explained, MWBEs “might not have the same ability to produce the same type of a proposal, because they don’t have a team to do it. You can tell when MWBEs don’t have the staff of four or five people to work specifically on proposals. [Smaller firms] are focused on doing the business at hand.”8Indria Hollingsworth-Thomas, interview by David Zuckerman and Katie Parker, January 21, 2016.

“The intent of the entire program is to help build capacity and provide participants with additional skills so that they will have success, not just at my company, but at any other similar organization with whom they might do business.”

To address this capacity gap and improve the quality of the bidding pool, health systems offer vendor education that goes beyond simply how to do business with the hospital. MD Anderson offers an annual “Supplier Capability Development” training where they provide a comprehensive overview of the sourcing and procurement processes within the health system, and share best-practice resources. Attendees receive information about human resources, back office support, and contracting.

MD Anderson also works to brings external partners to the training to present workshops on subcontracting and RFPs. “The intent of the entire program is to help build capacity and provide participants with additional skills so that they will have success, not just at my company, but at any other similar organization with whom they might do business,” explained Marian Nimon, associate director and small business liaison officer of the HUB and Federal Small Business Program at MD Anderson. This model allows local vendors to get hands-on experience in preparing a healthcare specific bid. And, since the proposal they review is a case study, it does not generate conflicts of interest for the hospital.9Marian Nimon, interview by David Zuckerman and Katie Parker, February 11, 2016.

Promote business incubation and expansion

One advantage of working with local vendors is greater supply chain flexibility. Business incubation takes this a step further, as local firms can be expanded or created to fill supply chain gaps or meet strategic goals, such as sustainability. Business incubation encourages local job creation and wealth building, and works best when it taps into the existing small business development ecosystem.

Business incubation encourages local job creation and wealth building, and works best when it taps into the existing small business development ecosystem.

Often, public and philanthropic resources can be mobilized to support business incubation initiatives. Aside from financial resources, in-kind resources such as commercial space, technical information, or even just communication about future contracting opportunities can help considerably. Health systems can also provide grants or leverage their investment portfolios to provide resources for business incubators, or to provide start-up, working, and expansion capital to new, local, diverse businesses.10For more information about this type of investment, see: the Place Based Investment Toolkit.

At the core of all these strategies are commitments to supporting local and diverse vendors and building relationships. At Concord Hospitals in New Hampshire, Tom Serafin, director of food services, has worked with local producers and vendors to adapt products specifically for the hospital. He shared the story of the growth of a local salsa company. Serafin tasted the salsa at a vendor fair and wanted to sell it in the hospital cafeteria, but packaging had not yet been developed for individual servings. He worked with the producer to find a cup that would work, and the producer developed four-ounce individual packages. The hospital became one of the company’s biggest customers, and eventually what was a one-man business grew to employ over ten people and built a local production facility. In this case, the relationship between Serafin and the producer allowed them to co-develop the product that would meet dining service needs, while giving the company greater access to the wholesale market.11Tom Serafin, interview by David Zuckerman and Katie Parker, October 29, 2015.

Program design strategies

Best practices for growing your supply chain

  • Support inclusive business structures
  • Promote investments in infrastructure
  • Provide in-kind support, including space, expertise, and access to information
  • ...

Partner Strategies

Finding the right supply chain partners

  • Leverage large vendor contracts to encourage inclusive, local hiring
  • Collaborate with other anchors around shared demand

 

References   [ + ]

1, 5. Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016.
2. Mary Crawford, interview by David Zuckerman and Katie Parker, January 21, 2016.
3. Tim Martin, interview by David Zuckerman and Katie Parker, February 19, 2016.
4. Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016.
6. Marian Nimon, interview by David Zuckerman and Katie Parker, February 11, 2016. For more information about this program, see: the MD Andersen Cancer Center Case Study.
7. Andi Jacobs, Hermione Malone, Christine Foley, and Neil Gamble, interview by David Zuckerman, Cleveland, OH, January 12, 2016.
8. Indria Hollingsworth-Thomas, interview by David Zuckerman and Katie Parker, January 21, 2016.
9. Marian Nimon, interview by David Zuckerman and Katie Parker, February 11, 2016.
10. For more information about this type of investment, see: the Place Based Investment Toolkit.
11. Tom Serafin, interview by David Zuckerman and Katie Parker, October 29, 2015.