Materials Management Director Discovers New Approach to Vendor Negotiations: An HCE Original Report (Part 1 of 2)

by webadmin on May 11, 2016

healthcareix-itunes-artworkTim Ingram has been director of materials management for five years at Longmont United Hospital in Longmont, Colo. However, he brings to the table 35 years of experience in this field, beginning when he was 18 and serving in the United States Air Force.

Over time, he has learned that negotiating with vendors left him with three distinct impressions:

  1. 1.    “You always felt that you’re at a disadvantage.”
  2. 2.    “Whatever the price was, you basically didn’t have any negotiating powers.”
  3. 3.    “You just loaded it in and went on with your work.”

According to Ingram, “…that’s basically how everything was dictated.”

When he transitioned to the civilian side of materials management in 2002, Ingram realized the process had basically been stagnant for over two decades. He and his colleagues at other organizations were essentially going into contract negotiations blindly.

“You can sit there and negotiate based on volumes and market shares and all those things that you knew about yourself, but what you didn’t know was the market itself,” he recalled. “What were other people paying for the exact same product or service?”

He added, “There’s not a worse feeling than [when] you think you did a great job on a contract, you sign it, you get it in place, and all of a sudden, you read somewhere or a friend tells you they’re paying a lower price than you.”

Ingram knew there had to be a more efficient way, a way that would enable him to be aware of what other organizations were negotiating.

In short, he needed smarter information upfront before he even sat down to negotiate with vendors.

Understanding what motivates vendors

Ingram understands that vendors are largely motivated by profit margins, and the greater these profit margins, the better. It doesn’t take an MBA to figure that out.

However, the question for him, and no doubt for his colleagues around the country, is, Are these vendors willing to achieve this profit margin honestly and transparently?

“You can tell when someone comes and they really want to be honest with you,” he said. “They’ll usually ask, ‘Okay, Tim, let’s just be completely honest with each other. What are you looking for?’”

Of course, dealing with multiple types of vendors—national, regional, “mom-and-pop”—means that materials management directors are encountering different motivations beyond simply profit margins.

“I think what we take for granted [is] that all levels of manufacturing or even vendors understand how logistics or supply chains operate in the healthcare organization. I think sometimes I get offended maybe too much, but they like to compare us to retail and how Walmart works or something like that, and I…say, ‘Listen, we deal with lives. And retail and wholesale just doesn’t really pare up to us the way you think it does.’”

Unfortunately, mastering the negotiations process, Ingram said, comes down to data. The process is simply data-driven. For example, Longmont may not have high volume, but it has market share, which always gives it leveraging power in negotiations.

Using technology to inform negotiations

For Ingram, the other side of the coin in vendor negotiations was the time factor. The negotiating process, especially under Group Purchasing Organizations (GPOs), can be long and drawn out, he said.

“All of a sudden, you’re looking at 60 to 90 days before you actually see the value hitting your shelves. And that’s a lot of money to any hospital or organization, especially these days when you’re trying to find more value. You don’t want to wait 90 days for something that you signed and agreed to.”

Transparency, a fair advantage, speed of value, efficiency, and of course, data.

Ingram needed all of these in order to take his vendor relationships to the next level, and he found his answer in technology, specifically technology based upon investigated data.

On Friday, we’ll take an in-depth look at the technology that Ingram discovered and how it has lifted the burden of vendor negotiations from his shoulders and how it can possibly lift that same burden from your shoulders.

-by Pete Fernbaugh

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