Key strategies employed
- Connect to existing inclusive economic development efforts and partnerships
- Support inclusive business structures
- Leverage large capital projects
- Establish local and diverse spending goals and benchmarks
- Leverage contracts with large vendors and Group Purchasing Organizations (GPOs) to achieve procurement goals
- University Hospitals
- Employees: 24,000
- Average Annual Spending on Goods and Services: $832 million
- Average Annual Construction Spending: $100 million
“University Hospitals is firmly committed to supporting minority; women; lesbian, gay, bisexual and transgender (LGBT) and local business enterprises, contracting with firms that share the same commitment and provide the best quality, value-added products and services at the most competitive cost.”1“Supplier Diversity,” University Hospitals, accessed July 2016, www.uhhospitals.org/about/diversity-and-inclusion/supplier-diversity.
University Hospitals (UH) in Cleveland, Ohio is committed to both local and diverse sourcing and includes working with local vendors as part of their overall supplier diversity strategy. Local is defined as Northeast Ohio, which mirrors UH’s patient base. UH’s supplier diversity program employs many strategies to facilitate inclusive, local sourcing, including the development of a robust tier-two supplier program. With a goal of spending 80 percent of the construction budget with local firms and increasing spending on local goods and services by 15 percent each year, UH understands local sourcing as a new way of doing business rather than as an add-on project.
UH’s commitment to local and diverse purchasing originated from their 2005 strategic planning process, called Vision 2010. This five-year growth plan involved the construction of five new medical facilities, representing $1.2 billion in spending. Recognizing the potential to leverage this construction spend for economic growth in Cleveland, UH set ambitious goals through Vision 2010 for diverse and local purchasing: 80 percent of spending should be with local and regional firms in Northeast Ohio, 15 percent with minority-owned enterprises, and 5 percent with woman-owned enterprises. Verified through independent third-party monitoring, UH exceeded these goals and has integrated these processes into their overall supply chain practices, setting a new standard for how large institutions should do business in Cleveland.2Farzana Serang, J. Phillip Thompson, and Ted Howard, The Anchor Mission: Leveraging the Power of Anchor Institutions to Build Community Wealth, College Park, MD: The Democracy Collaborative, 2013, community-wealth.org/sites/clone.community-wealth.org/files/downloads/UH-composite-online.pdf.
Program set-up and staffing
A critical element of UH’s strategy is holding supply chain leadership accountable for meeting local and diverse spending goals, rather than having a separate position or department manage supplier diversity or local spending. Chief Administrative Officer Steve Standley, who oversaw this evolution at UH articulated this vision: “It’s not just the right thing to do, it’s going back and revisiting the mission of the hospital. The hospital is originally here to respond to healthcare needs.”3Steve Standley, interview by Ted Howard, Cleveland, OH, October 2015. Under this logic, it becomes everyone’s job at UH to ensure that their work is aligned with this mission—supply chain included. All contracts over $20,000 must include at least one local minority- or woman-owned business enterprise (MWBE) in the bidding process, and progress on purchasing goals is reported regularly to the Board of Directors.
Key strategies employed
Connect to existing inclusive, economic development efforts and partnerships
One of the core tenets of Vision 2010 was to “produce lasting change in Northeast Ohio by pioneering a ‘new normal’ for how business should be conducted by the region’s large institutions.”4Farzana Serang, J. Phillip Thompson, and Ted Howard, The Anchor Mission: Leveraging the Power of Anchor Institutions to Build Community Wealth, College Park, MD: The Democracy Collaborative, 2013, community-wealth.org/sites/clone.community-wealth.org/files/downloads/UH-composite-online.pdf. This commitment to working with other regional institutions is also reflected in UH’s participation in the Greater University Circle Initiative (GUCI), launched by the Cleveland Foundation in 2005, concurrently with Vision 2010. The Greater University Circle is a geographic area in Cleveland housing three major institutions: UH, Case Western Reserve University, and Cleveland Clinic.
GUCI’s goal is to foster collaboration among the anchor institutions so as to leverage their economic power for inclusive economic revitalization in the surrounding neighborhoods.5For more about the Greater University Circle Initiative, see: democracycollaborative.org/greater-university-circle-initiative and the More Resources section of this toolkit. Participating in GUCI ensures that UH’s local development work is connected to a larger vision of neighborhood revitalization; coordination between anchors allows for greater scale and impact of the overall initiative. Participation in GUCI also enables UH to direct additional philanthropic resources to the same neighborhoods UH serves, increasing the impact of their own efforts.
Another important aspect of UH’s connection to GUCI is the ability to amalgamate demand with other area anchor institutions. “How can we get more cooperation among the different institutions to leverage additional purchasing power?” posed Vice President of System Resource Management Mary Beth Levine when describing this approach. By identifying shared needs, area institutions can make investments in business incubation that help make their supply chains more efficient while simultaneously promoting job creation.
This logic led to the creation of the Evergreen Cooperatives (described in more detail below) in 2009, a set of worker-owned businesses established to meet anchor supply chain needs. Each of the participating anchor institutions identified sustainability as a core value and an area where additional vendors were needed. As such, Evergreen Cooperatives has been able to focus on this market niche and create “greenest in class” businesses that met institutional supply chain needs at competitive prices. The demand of UH alone would not have been sufficient to support Evergreen’s businesses, however. Evergreen was feasible because the anchors worked in concert as part of a larger economic development initiative, aggregating demand and investing in business incubation.
Support inclusive business structures
UH’s commitment to local sourcing goes beyond simply working with businesses in their footprint or diverse vendors in general. UH is specifically focused on local and inclusive economic development initiatives that will improve community health. They are committed to working with businesses owned by and/or employing residents facing barriers to employment and offering wealth-building opportunities to their employees.
This commitment is evident in UH’s relationship with the Evergreen Cooperatives, which hire from the same zip codes that the GUCI prioritizes. Evergreen includes a nonprofit incubator for worker-owned cooperatives with the mission to “promote, coordinate and expand economic opportunity for low-income individuals, through a growing network of green, community-based enterprises.”6“Mission and Vision,” Evergreen Cooperatives, accessed July, 2016, www.evgoh.com/mission-vision/. The Evergreen Cooperatives have an explicit goal to hire individuals with the greatest barriers to employment, including the formerly incarcerated, who might otherwise be considered ineligible for a position in the health system. UH not only purchases from the Evergreen Cooperatives but also invested directly in their initial development; it contributed $1.25 million as seed funding and leadership co-chaired the organization’s founding board of directors.
UH maximizes its purchasing impact through the business ownership structure of the cooperatives. As worker-owned enterprises, employees at the Evergreen Cooperatives can become part owners of the company, gaining opportunities to participate in decision-making and build wealth through profit sharing. Furthermore, since ownership of the business is split between the employee-owners and the nonprofit incubator, the enterprises will remain in the neighborhood, where employees and the incubator are based.
This intentional design ensures the cooperatives’ continued presence as local economic engines, strengthening the community over time. Seeking to expand economic opportunity for their workers, the cooperatives also connect their employees to other wealth-building opportunities. Most notably, Evergreen operates a homebuyer program that assists worker-owners in purchasing homes within GUCI neighborhoods. Participating employees receive financial education, property tax abatements, and payroll deductions that help pay the home off. Employees who otherwise would be unable to afford homes are able to generate equity. Worker-owners and entire neighborhoods benefit as greater stability emerges from higher levels of homeownership.7For more information about the homebuyer program, see: Yessenia Funes, “Own a Home in Just Four Years? This Co-Op Program Keeps Workers in the Neighborhood,” Yes! Magazine, August 24, 2015, www.yesmagazine.org/issues/the-debt-issue/own-home-four-years-evergreen-cleveland-20150824. Thus, UH is able to channel procurement dollars to businesses that employ residents in these areas and augment their ability to build wealth and neighborhood and community strength.
Central to Evergreen’s success is the fact that the businesses were designed to meet the supply chain needs of nearby anchors. Evergreen is currently composed of three businesses: a commercial laundry facility, an environmental construction and retrofit firm, and an urban greenhouse. UH’s support for Evergreen has been multifaceted. Their agreement to participate in GUCI and share data around supply chain needs ensured demand for the businesses. UH’s commitment to procure from these businesses allowed them to create robust business plans and work from realistic and informed budgets.
UH has adjusted its supply chain practices significantly to work with Evergreen. Initially, UH’s existing contract with a large national vendor posed a barrier to working with the Evergreen laundry cooperative. This might have prevented UH from giving the laundry cooperative business for three years, risking the business’ viability. UH leadership negotiated a solution: UH leveraged the prospect of future contracts to bring the vendor to the table, and the vendor agreed to subcontract four million pounds of laundry to Evergreen. Standley described how the major vendor came to see this arrangement as advantageous to them. Working with Evergreen allowed them to better meet UH’s sustainability goals, since Evergreen provides “green laundry” services. Moreover, Evergreen laundry was able to specialize on specific items, leading to a higher quality of service.
Leverage large capital projects
UH has a particularly robust local and diverse vendor initiative for construction. This began in 2005, with the Vision 2010 process that developed many of the policies and procedures that have since been institutionalized across the supply chain. UH’s construction program not only looks to build within the local vendor base, but also requires vendors to hire from the neighborhoods targeted by UH’s own workforce development programs. This link between UH training local and diverse contractors, and contractors hiring local residents, ensures that all stages of the construction process are leveraged to maximize impact.
Healthcare construction is a specialized and highly regulated field, making it a difficult space for smaller firms to enter. Thus, a major focus of UH’s program is in linking local and diverse contractors to larger vendors who already work on healthcare construction projects. “We look for and hope to develop additional expertise with smaller contractors so that they can hopefully grow and hire, and then train others,” explained Levine. Even if the firm who wins the bid is not local, UH requires that this firm subcontract with a local firm.
These efforts are also linked to local job creation. “On the support team side of what we did at Vision 2010, we required companies who didn’t have a local office to open a local office here… If they weren’t willing to do so we decided to go with someone else,” explained Levine. UH specified that these local offices must be more than a token desk in an office: They must entail meaningful commitments to local work and the creation of local jobs. Another strategy by which UH fosters local job creation is to include local hiring and internship requirements into Requests for Proposal (RFPs). Vision 2010 also established a requirement that vendors institute an internship training program to hire and train individuals from the surrounding neighborhoods.
UH’s commitment to Vision 2010 led to a shift in practices citywide. In 2013, the Mayor of Cleveland Frank Jackson issued a Memorandum of Understanding outlining community benefit provisions, many of which reflected practices implemented during Vision 2010. The result has been a new standard that Cleveland institutions adopt a Community Benefits Agreement (CBA) before beginning new development. As a result of UH’s leadership, the potential impact for the local economy and health of local residents has been scaled citywide.8The full Memorandum of Understanding outlining the community benefits agreement, and letter of endorsement from participating anchors including University Hospitals, can be found at: clecityhall.com/2013/09/16/mayor-jackson-welcomes-10-cleveland-businesses-and-institutions-to-city-hall-as-they-endorse-historic-community-benefits-agreement/. The memorandum is also in the more resources section of this toolkit.
Establish local and diverse spending goals and benchmarks
A critical factor in UH’s success is their willingness to set clear goals, hold staff accountable to meeting them, and reward staff for exceeding them. Standley described this as a shift from setting ceilings to setting floors. “It’s the way you have to do business,” he emphasized. To perform satisfactorily, managers must show progress on goals for local and diverse sourcing, just as they would other performance metrics. Goals around diverse and local purchasing are included in management goals. Leadership is similarly accountable to these goals, and their compensation is tied to success.”
Reports to the Board of Directors are another mechanism driving accountability, with efforts to work with diverse suppliers tied to UH’s larger diversity initiatives. The board receives quarterly updates on diversity within human resources, supply chain, board diversity, and clinical operations. Standley described the crucial effect this has had: “What really changes the organization’s culture is that we report it out to the board, and expectations are clearly documented and integrated with management priorities.”
2015 Procurement figures
- Total spend: $832 million in goods and services
- Total spend with MWBE vendors: $62 million
- Total spend with vendors in Cleveland: $199 million
- Total spend with vendors in Ohio: $363 million
Leverage contracts with large vendors and Group Purchasing Organizations (GPOs) to achieve procurement goals:
Another strategy UH uses is leveraging contracts with existing vendors to encourage them to subcontract to local vendors or relocate to Cleveland. In the construction space, this involves writing local hiring provisions into the RFPs. All construction RFPs include language about commitment to the community, and require such elements as local hiring, internship programs, and subcontracting. After Vision 2010, Levine explained, this became the “new normal” for doing business with UH.
This practice has also taken root in the goods and services space. Standley described how vendors should operate with the same goals as UH. “We want vendors to create jobs in our community. We’re going to commit to them long-term if they do that.” To bring vendors on board with this vision of local hiring, UH has leveraged access to long-term contracts. In the case of Owens & Minor, a medical distribution company, UH was able to negotiate with them to relocate a facility to Cleveland and to hire from designated zip codes starting at a certain wage.
This approach ensures that UH’s procurement strategy is linked to real job creation in the neighborhoods of focus. UH is currently conducting similar negotiations with other vendors. “We want to create an environment that says ‘we’re going to prioritize companies that are committed to our region,’” explained Standley.9Steve Standley, interview by Ted Howard, Cleveland, OH, October 2015. UH has approached their GPO in a similar manner. Articulating local spending as a priority, UH has asked the GPO to shift to local products and seek vendors willing to relocate to Cleveland.
Corporate Director Contracting & Strategic Sourcing
University Hospitals Health System
Steve Standley, interview by Ted Howard, Cleveland, OH, October 2015.
Mary Beth Levine, interview with David Zuckerman and Katie Parker, May 10, 2016.
More Purchasing Case Studies
References [ + ]
|1.||↑||“Supplier Diversity,” University Hospitals, accessed July 2016, www.uhhospitals.org/about/diversity-and-inclusion/supplier-diversity.|
|2, 4.||↑||Farzana Serang, J. Phillip Thompson, and Ted Howard, The Anchor Mission: Leveraging the Power of Anchor Institutions to Build Community Wealth, College Park, MD: The Democracy Collaborative, 2013, community-wealth.org/sites/clone.community-wealth.org/files/downloads/UH-composite-online.pdf.|
|3, 9.||↑||Steve Standley, interview by Ted Howard, Cleveland, OH, October 2015.|
|5.||↑||For more about the Greater University Circle Initiative, see: democracycollaborative.org/greater-university-circle-initiative and the More Resources section of this toolkit.|
|6.||↑||“Mission and Vision,” Evergreen Cooperatives, accessed July, 2016, www.evgoh.com/mission-vision/.|
|7.||↑||For more information about the homebuyer program, see: Yessenia Funes, “Own a Home in Just Four Years? This Co-Op Program Keeps Workers in the Neighborhood,” Yes! Magazine, August 24, 2015, www.yesmagazine.org/issues/the-debt-issue/own-home-four-years-evergreen-cleveland-20150824.|
|8.||↑||The full Memorandum of Understanding outlining the community benefits agreement, and letter of endorsement from participating anchors including University Hospitals, can be found at: clecityhall.com/2013/09/16/mayor-jackson-welcomes-10-cleveland-businesses-and-institutions-to-city-hall-as-they-endorse-historic-community-benefits-agreement/. The memorandum is also in the more resources section of this toolkit.|