Critical Strategies

Core elements of localizing your spend

Critical Strategies

Core elements of localizing your spend

  • Shift from lowest price to best value
  • Establish local and diverse spending goals and benchmarks
  • Embed local and diverse goals into Requests for Proposals (RFPs) and contracting processes
  • Conduct outreach and education on how to work with the health system

 

Shift from lowest price to best value

Prioritizing lowest price without other considerations may mean overlooking the good or service that could provide the best value overall. An important part of establishing a local and diverse spending initiative is to articulate the other inputs and values that matter. Price is one of these considerations, but so are quality, flexibility of vendors, proximity of high-need goods, alignment of business and hiring practices, and promoting community health. Steve Standley, the chief administrative officer at University Hospitals (UH) in Cleveland, Ohio, described how firms should also be in alignment with a healthcare system’s mission: “What we’re doing here is we’re saying we need to pick vendors that carry out what we’re trying to do ourselves.”1Steve Standley, interview by Ted Howard, October 2, 2016.

Many traditional supply chain practices go against this ethos, and instead value—over all other considerations—lowest price and risk, and aggressive negotiation. As Standley described it: “The old school culture in procurement is to be a ‘tough negotiator’…That’s one of the cultural biases that affects creating value-based partnerships with vendors. There’s the old school buyer beware methodology.”2Steve Standley, interview by Ted Howard, October 2, 2016. In response to this entrenched culture, any initiative should evaluate how to develop new norms and incorporate the broader health system values into the purchasing process.

“What we’re doing here is we’re saying we need to pick vendors that carry out what we’re trying to do ourselves.”

An example of a successful institutional cultural shift in health systems is the environmental purchasing movement. As knowledge about the toxins in healthcare products increased, hospitals recognized the need to buy products free of toxins, carcinogens, and other hazardous material. Environmentally Preferable Purchasing (EPP) is now an established norm within healthcare, and many supply chain actors such as Group Purchasing Organizations (GPOs) have shifted their practices to accommodate this and offer environmentally friendly options.

Even if price is lower for non-environmentally friendly projects, supply chain managers now assess the total cost of materials, from production to disposal. Moreover, given hospitals’ missions to foster health, many see EPP as mission-critical.3For more information about EPP, see: practicegreenhealth.org/topics/epp. The EPP movement provides a model for incorporating values beyond price into supply chains, and demonstrates that lowest price does not necessarily produce the best long-term value

Establish local and diverse spending goals and benchmarks

What gets measured gets valued. New initiatives like local and diverse spending, part of efforts to shift values and cultures, require goals and benchmarks. Supply chain managers are traditionally rewarded for staying under budget, which can remove the incentives for building relationships critical to achieving local and diverse spending. Establishing goals and benchmarks—and then holding managers accountable to these goals—are essential steps for leadership to institutionalize local and diverse purchasing. Doing so sends a clear message to staff that procurement initiatives are not simply one-off projects, but a new way of doing business.

Establishing goals and benchmarks—and then holding managers accountable to these goals—are essential steps for leadership to institutionalize local and diverse purchasing.
Setting goals

Setting goals is not only important from an accountability standpoint, but also from a process standpoint. Establishing realistic and meaningful goals necessitates understanding an institution’s historic and current spend, upcoming contracting opportunities, and the capacity of the local business community to compete for these contracts.

Moreover, it involves examining the supply chain as a system, with interlocking components and processes, and understanding who and what guides purchasing decisions across the institution. It also requires an explicit definition of local and diverse spending so that metrics can be adequately tracked and reported. To review resources for defining these terms, refer to the Big Questions section of this toolkit.

It is not uncommon for this process of research and internal planning to take up to a year. Some institutions, such as Grady Health System (Grady) in Atlanta, Georgia and University of Chicago in Chicago, Illinois, hired outside research groups to help them analyze and understand their spend data.4Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016; Alyssa Berman-Cutler, interview by David Zuckerman and Katie Parker, February 18, 2016. Others, such as UH utilized existing staff expertise.5Steve Standley interview by Ted Howard, October 2, 2016.

Graphic RecordingA graphic recording of the conference panel “Decoding Anchor Supply Chains for Inclusive Economic Growth” at Chicago Anchors for a Strong Economy’s inaugural conference on October 14, 2016. Graphic recording by Sketch Effect, provided by CASE

Regardless of the approach, time and resources should be dedicated to this initial data “scrub.” It is also important to make sure that health system data systems can track and report on metrics—such as location of a vendor—and a standardized process is established about how data will be entered. For example, deciding whether to enter business addresses based on physical address or the owner’s address will make a big difference in an institution’s ability to track whether a business is locally owned or just locally operated.

In addition to historic and current spending, realistic goals also require knowledge of the local business ecosystem. This includes the existing vendor base, local minority chambers of commerce, economic development agencies, business incubators, and other local vendor support organizations. For more information about measuring baseline spend and mapping the local business ecosystem, refer to the Laying the Foundations section of this toolkit.

Communicating goals and creating accountability

To shift the culture of the organization over time and create accountability, it is important that everyone is made aware of new goals and encouraged to take ownership of them. Although many purchasing decisions are decided by supply chain staff, individual department managers can control smaller transactions, such as catering, office supplies, printing, working with staffing agencies, etc. These can be some of the easiest areas to find local and diverse firms, so it is important that these budget holders are also held accountable to the institutional goals.

Robust internal education efforts about purchasing goals will help facilitate both practice and culture change.

“[Those department managers] just go to Google,” explained one supplier diversity professional, pointing out that the departmental budgeting process represents an important opportunity to incorporate local and diverse suppliers. Robust internal education efforts about purchasing goals will help facilitate both practice and culture change. It can also help if internal purchasing systems are modified to at least “flag” electronically who is a local or diverse supplier. Often individuals will respond to these cues, but only if they are readily accessible and visible.

An example of a robust internal education system is at Duke University Health System in Durham, North Carolina. Mary Crawford, Duke’s director of procurement programs, described their process to develop internal awareness: “We have an award-winning program, but there are still people who aren’t aware of our efforts. Some misconceptions exist in this area; we’ve learned that frontline staff who often make daily purchasing decisions have concerns about changing vendors and need some extra outreach and education.”

Her department is working to develop a video presentation that will be shown at all the business manager meetings. The video showcases health system leaders speaking about the importance of supplier diversity goals and features stories from diverse vendors. “The plan is to make this an interactive conversation in small groups—two presentations per month—which will touch a lot of our decision-making staff.  Leadership support is imperative but getting the daily decision makers on board is also needed to drive positive change,” Crawford emphasized.6Mary Crawford, interview by David Zuckerman and Katie Parker, January 21, 2016.

Another best practice for communicating goals is to make them public. Publicly shared goals create a degree of accountability to the community, and can help bring partners to the table. HopkinsLocal, an effort by Johns Hopkins University and Health System in Baltimore, Maryland, employs this strategy to leverage business practices to support inclusive economic development.

The initiative sets out to increase spending on goods and services with local businesses by six million dollars in three years and promised to publicly report on progress on a regular basis. “That’s going to be extremely critical, because we are now going to be held accountable to our words,” explained Kenneth Grant, the vice president of both general services and of the supply chain. Grant explained how the public goals gave the effort greater credibility with stakeholders and marked a change in the overall perception of the institution in the community.

Accountability mechanisms can be created within the institution to ensure that progress is regularly assessed and reported. Many institutions have developed dashboards or scorecards that allow them to report progress to leadership. One best practice is to tie reports to performance incentives for both leadership and program staff.7Howard Elliott, interview by David Zuckerman and Katie Parker, January 15, 2016, Cincinnati, OH.

“It starts at the top with direct alignment,” explained Todd Gray, the director of supplier diversity at Grady. “The CEO is the top champion, and he has been supportive of me implementing department level goals that are measured annually. Different departments have different goals, and achieving goals can lead to increased compensation.”8Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016.

A similar reporting strategy is employed by CHRISTUS Health in Irving, Texas. Manager of Supplier Diversity Contracting Tim Martin, described the development of this reporting process: “Two years ago the decision was made to add supplier diversity to the company operational dashboard. That particular dashboard is published on a monthly basis to all the regional CEOs…Every supply chain associate has a performance evaluation for compensation and they have to meet certain indicators. Supplier diversity is part of that. There’s a goal for each person. As for the CEO dashboard, that is directly tied to their bonus package.”9Tim Martin, interview by David Zuckerman and Katie Parker, February 19, 2016.

Embed local and diverse goals into Requests for Proposals (RFPs) and contracting documents

A key strategy to realize diverse and local spending goals is to embed them within purchasing practices and policies, from soliciting bids to evaluating contract performance. Including local and diversity goals in RFPs provides institutions a formal framework for considering these factors. Moreover, it can help institutions leverage other supply chain actors—supply chain integrators, GPOs, distributors, dining contractors, and other large vendors—to meet local and diverse procurement goals.

Often seen as major barriers to local procurement, it is important to realize that these organizations are providing business services to health systems, and thus have a business need to be responsive to their clients. Building these requirements into RFPs and contracts communicates that these values are a priority.

  • Step one: require participation of diverse and local firms in bidding process
  • Step two: add language around local and diverse procurement to RFPs and contracts
  • Step three: communicate these priorities to supply chain integrators and hold them accountable
Step one: require participation of diverse and local firms in bidding process:

One initial step to ensure that local and diverse vendors are connecting with the institution is to mandate the participation of these vendors in the bidding process. Parkland Health and Hospital System (Parkland) in Dallas, Texas requires that at least one minority- or woman-owned business enterprise (MWBE) participate in every solicitation, provided this is a feasible option.

This ensures that all supply chain managers engage with the Supplier Diversity Department to meet this requirement. “Make sure that every opportunity you have you try to touch at least one diverse supplier to participate in that space,” Indria Hollingsworth-Thomas, director of supplier diversity, tells supply chain managers.10Indria Hollingsworth-Thomas, interview by David Zuckerman and Katie Parker, January 21, 2016. Cincinnati Children’s Hospital in Cincinnati, Ohio has adopted a similar policy.11De Asa Nichols, interview by David Zuckerman and Katie Parker, February 19, 2016.

Setting a minimum requirement in itself is not enough. Partnerships are indispensable; circulating bids through local minority chambers of commerce, local supplier diversity councils, economic development agencies, and business support organizations is a best practice for soliciting bids from diverse suppliers. Another best practice is to post bidding opportunities publicly online, and to post them ahead of time so that vendors have adequate time to prepare.

Step two: add language around local and diverse procurement to RFPs and contracts:

This step allows the supply chain team to evaluate bids based on whether vendors have met these requirements for local and diverse vendor participation. It also requires vendors to report on their performance. Grady used this strategy to encourage large vendors to subcontract with minority firms.

“I partnered with legal and procurement to put goals into our RFP template to achieve tier-two diversity goals,” explained Gray, the director of supplier diversity. “Put the goal in the solicitation and require that plan in the solicitation response, and then work their plan into the contract,” advised Gray. He added, “our contract template includes our supplier diversity goals.”12Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016.

UH wrote the goals of their Vision 2010 project into their contracting language and RFPs. “It can be written into the RFPs on the specific project. One example is our Rainbow Center for Women and Children. In the RFP we required that the vendor offer an internship program and hire interns from the community,” explained Mary Beth Levine, vice president of system resource management at UH.13Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016. For sample RFP and contract language, refer to the More Resources section of this toolkit online.

Some public institutions face barriers to changing RFP and contracting language to require participation of local vendors, as this is perceived as making the bid less competitive. One way to address this is to require documentation in RFPs of what the vendor’s plan for diversity and local purchasing would be. This strategy is utilized by Parkland.

Since Parkland is funded by the county, it cannot give explicit preference to diverse firms. It can, however, require that vendors submit minority-business participation forms, and then evaluate overall performance based on whether goals for minority participation were met. It thus becomes one component of the evaluation of how well a business delivers on diverse and local vendor goals—an evaluation that is taken into consideration when businesses apply for future contracts with the health system.14Indria Hollingsworth-Thomas, interview by David Zuckerman and Katie Parker, January 21, 2016.

Step three: communicate these priorities to supply chain integrators and hold them accountable

Writing local and diverse goals into RFP and contracting documents helps ensure that larger supply chain partners are purchasing in accordance to health system guidelines. It is important to realize that these supply chain partners— GPOs, distributors, dining contractors, and other large vendors—work for the health system, and could work to accommodate purchasing goals and align with the values of the institution. Alyssa Berman-Cutler, director of business and workforce development initiatives at University of Chicago, described how they wrote an increased local spend requirement with local businesses into the RFP for a new dining provider.15Alyssa Berman-Cutler, interview by David Zuckerman and Katie Parker, February 18, 2016.

“Supplier rationalization and group purchasing trends can be prohibitive to local and smaller diverse suppliers at the onset, but they also create one of the greatest areas of opportunity for suppliers to grow their capacity,” explained Gray about their approach at Grady. “They are contracted to us, so we put our goals in up front and have active engagement to ensure they are reviewing all activities for potential supplier diversity opportunities.” However, writing these into RFPs and contracting language only works if an institution is soliciting a new contract. For existing vendors already in long-term contracts, an important strategy is leveraging contract renewals, as discussed below. 

Conduct outreach and education on how to work with the health system

One of the major barriers to local vendors is simply a lack of knowledge of how to do business with a health system. Because of healthcare specific requirements and their sheer scale, health systems can seem daunting to vendors. One key step is to ensure that information about how to work with the institution is readily accessible.

Because of healthcare specific requirements and their sheer scale, health systems can seem daunting to vendors.

For example, a clear vendor portal for interested suppliers that contains contact information, vendor requirements, and other essential information is critical.16Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016. Cleveland Clinic in Cleveland, Ohio has focused on communicating this information to the local minority business community and making key processes, such as response time and the review process, significantly more transparent.17Andi Jacobs, Hermione Malone, Christine Foley, and Neil Gamble, interview by David Zuckerman, Cleveland, OH, January 12, 2016.

In addition to providing information online and to partners, institutions can also host in-person meetings and information sessions to provide more detailed information to vendors. These meetings connect vendors directly to decision makers. CHRISTUS is implementing this strategy by hosting regional diversity summits where local firms are invited to learn more about CHRISTUS and what is required to do business with the institution.

“[We will focus on] how we can assist them in being better businesses. We are collaborating with local minority business councils and local women-owned business councils to plan the structure of each visit,” explained Martin. Although the program supports vendors nationally, local spending and regional events ensure that local, diverse vendors are brought into the initiative.

In-person events also connect local vendors directly to decision makers. Parkland uses this strategy, and hosts forums in which diverse firms can meet directly with that particular department head. Indria Hollingsworth-Thomas described the implementation of this within the Information Technology (IT) department: “For example, we’ll bring in the CIO [Chief Information Officer] or the contract administrator for IT…they will present projected upcoming projects to give those MWBE’s an understanding of what may be coming down the pipeline. The [MWBE’s] then get an opportunity to ask questions and have face-to-face time with the actual decision maker that, under normal circumstances, they probably wouldn’t be able to talk with…The feedback has been very positive.”18Indria Hollingsworth-Thomas, interview by David Zuckerman and Katie Parker, January 21, 2016.

Program Design Strategies

Best practices for establishing a buy-local initiative

  • Focus on “moveable spend”
  • Leverage upcoming projects
  • Align with other initiatives
  • Unbundle contracts
  • Create a full-time coor...

Partnership strategies

Tools to scale local purchasing efforts

  • Develop partnerships with the local business community
  • Leverage long-term contracts with distributors, aggregators, and contractors to achieve procurement goals

 

References   [ + ]

1, 2. Steve Standley, interview by Ted Howard, October 2, 2016.
3. For more information about EPP, see: practicegreenhealth.org/topics/epp.
4. Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016; Alyssa Berman-Cutler, interview by David Zuckerman and Katie Parker, February 18, 2016.
5. Steve Standley interview by Ted Howard, October 2, 2016.
6. Mary Crawford, interview by David Zuckerman and Katie Parker, January 21, 2016.
7. Howard Elliott, interview by David Zuckerman and Katie Parker, January 15, 2016, Cincinnati, OH.
8, 12. Todd Gray, interview by David Zuckerman and Katie Parker, January 25, 2016.
9. Tim Martin, interview by David Zuckerman and Katie Parker, February 19, 2016.
10, 14, 18. Indria Hollingsworth-Thomas, interview by David Zuckerman and Katie Parker, January 21, 2016.
11. De Asa Nichols, interview by David Zuckerman and Katie Parker, February 19, 2016.
13, 16. Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016.
15. Alyssa Berman-Cutler, interview by David Zuckerman and Katie Parker, February 18, 2016.
17. Andi Jacobs, Hermione Malone, Christine Foley, and Neil Gamble, interview by David Zuckerman, Cleveland, OH, January 12, 2016.