Savings

KEY BENEFITS TO YOUR BOTTOMLINE
  • Create a more efficient and resilient supply chain
  • Decrease community need for and use of uncompensated care
  • Leverage philanthropic and public resources

Create a more efficient and resilient supply chain

Variables to measure
  • Cost savings from new contracting opportunities
  • Vendor response time
  • Vendor evaluation and performance records
  • Emergency procurement plans for critical items
Ways to increase impact
  • Create a full-time staff position to oversee diverse, local sourcing that reports directly to supply chain leadership

The data analysis and research processes required to launch local and diverse purchasing initiatives will not just benefit local purchasing, but also the entire supply chain. Although local and diverse purchasing initiatives do not require much in the way of additional capital expenses, they do require careful evaluation and redesign of supply chain processes. All aspects of purchasing, from program budget to bid solicitation, to vendor payment, to evaluation, should be assessed for opportunities to facilitate diverse and local spending. This investment in time and staff resources should not be viewed as a loss since it will illuminate opportunities throughout the supply chain to make processes more efficient and cost effective.

Another benefit of increasing local sourcing is a more responsive and resilient vendor base. Ken Grant, vice president of general services and supply chain at Johns Hopkins Hospital and Health System (Johns Hopkins) in Baltimore, Maryland noted that local vendors are often more flexible and willing to adapt to the institution’s need—and many times at lower cost. Since health system contracts are often among the largest contracts in the region, local vendors put a lot of energy into satisfying these customers.1Kenneth Grant, interview by David Zuckerman and Katie Parker, Baltimore, MD, February 5, 2016.

Localizing the supply chain also increases resiliency. Steve Standley, chief administrative officer at University Hospitals (UH) in Cleveland, Ohio, explains that localizing distribution of medical equipment ensures that the hospital system can maintain critical functions even when weather emergencies compromise interstate transportation. Using local vendors can decrease transportation time and ensure a more accessible stock of goods if unexpected needs arise.2Steve Standley, interview by Ted Howard, October 2, 2016.

 

Decrease community need for and use of uncompensated care

Variables to measure
  • Living wage jobs (with health insurance) created from increased business with the health system
  • Insurance enrollment of patient base
  • Decreases in costs of uncompensated care for health system
Ways to increase impact
  • Include provisions around better wages and health benefits in Requests for Proposals (RFPs)
  • Provide technical assistance to local vendors on how to provide healthcare benefits to their employees

“Sourcing locally provides a benefit to the community. An inclusive sourcing process can reach uninsured patients,” explained Todd Gray, the director of supplier diversity at Grady Health System (Grady) in Atlanta, Georgia. Inclusive, local sourcing facilitates job creation, which not only improves the local economy, but also increases community members’ access to health insurance, as more residents are hired into positions that include health benefits. By channeling procurement dollars to local businesses, hospitals and health systems can help increase the number of insured patients, which in turn benefits the entire health system.

Tom Serafin, the director of food services at Concord Hospital in Concord, New Hampshire, explained the hospital’s commitment to working with local producers: “What is so essential to be successful in healthcare is to have a strong local economy. Who pays our bills? Insurance companies. Who pays [insurance companies]? Employers. Or the government. But [hospitals] can’t survive on what Medicaid pays. We are surviving on revenue from local insurance companies…We cannot afford leakage. It’s a circle that’s essential.”3Tom Serafin, interview by David Zuckerman and Katie Parker, October 29, 2015. Working with local businesses that employ people who utilize hospital services can reduce the “leakage” Serafin refers to.

 

Leverage philanthropic and public resources

Variables to measure
  • Value of services provided by partner organizations
  • Philanthropic and public funding for vendor development
  • Grants available for community economic development efforts
  • Increased donor interest in supporting nontraditional programming and supports
Ways to increase impact
  • Develop partnerships with organizations focused on inclusive, economic development

Another benefit to health systems adopting local sourcing initiatives is that they can attract and leverage philanthropic and public funding to do so. Mary Beth Levine at UH, described how their focus on creating economic opportunity brought more resources to supplier diversity efforts. “It certainly opens up access to national foundations and national funding…Local is one thing but if you combine local with job development and economic opportunities, and raise up communities that historically have been underserved, then I think it really resonates.” Specifically, Levine said that their work with Evergreen Cooperatives, a network of worker-owned businesses that hire from these same underserved neighborhoods, helped open up the hospital donor pool.4Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016. While philanthropic and public resources should flow to community-based groups leading the efforts, health systems can play a convening role, or even write letters of support for community grantees. Public and philanthropic investments in the local business ecosystem will necessarily benefit the hospital’s supply chain.

Some communities already have a strong ecosystem of organizations working to support inclusive, local businesses. Health systems can help anchor such development. For example, business support organizations often provide technical assistance to vendors working with the hospital or health system. Collaboration between the hospital and these organizations can help make technical assistance programming more effective, as business owners are able to prepare for and apply their recently acquired knowledge to actual contracting opportunities. The hospital is then able to leverage the expertise and business acumen of the organization providing technical assistance, and benefit from a more qualified vendor base.

Additional Benefits

A MORE EXPANSIVE NOTION OF ROI

  • Improve overall community health and well-being
  • Become a provider of choice
  • Meet other strategic goals, such as sustainability

References   [ + ]

1. Kenneth Grant, interview by David Zuckerman and Katie Parker, Baltimore, MD, February 5, 2016.
2. Steve Standley, interview by Ted Howard, October 2, 2016.
3. Tom Serafin, interview by David Zuckerman and Katie Parker, October 29, 2015.
4. Mary Beth Levine, interview by David Zuckerman and Katie Parker, May 10, 2016.