5 ways to improve the RFP process for providers and suppliers
The Request for Proposal (RFP) process is often seen as a complex and demanding task, primarily aimed at driving down costs and securing contracts. However, a more relational approach can transform this process into a strategic opportunity for building strong, collaborative partnerships. By fostering open dialogue and mutual trust between providers, suppliers and internal stakeholders, the RFP can achieve more than just cost savings. It can enhance service, improve operational efficiency and align long-term strategic goals. Exploring the various aspects of the RFP process, including setting realistic expectations, understanding the costs involved and getting creative with solutions, will reveal how developing and fostering a relational approach can create a mutually beneficial partnership for all parties involved.
Process expectations: What can we accomplish?
A wise colleague of mine referenced the RFP process as a relationship-building effort with the additional result of pricing and contracts. Providers often consider what is the desired or expected outcome of an RFP exercise and lean on achieving savings targets based on benchmarking. While this is an important goal, further building trust and fostering relationships with suppliers and physicians also can produce meaningful long-term and strategic value.
Going to market and expecting double-digit savings percentages or reaching an extreme benchmark target is not as easily achieved in the current environment. Providers should begin the RFP process by setting realistic expectations, and asking questions like:
- Can we limit suppliers within the RFP category?
- What value will the supplier offer in exchange for returned value?
- Do we have the internal support or leverage for a more aggressive approach?
Relational versus transactional: Which approach is best?
The RFP process is strewn with relationships between hospital supply chain, executives, physicians and clinical staff and suppliers. As a consultant, recent experience suggests a relational approach produces better outcomes, both financially and experientially, because it sets a more casual tone and allows for partnership and open dialogue between providers and suppliers throughout the process. A couple questions providers should ask prior to an RFP include:
- Is our goal to just lower prices and secure contracts, or are we looking to partner with suppliers and internal stakeholders?
- Do we want to strengthen supplier relationships or are we truly open to supplier realignment?
- Do we have the internal relationships necessary to support our desired outcome?
Cost to RFP: What does it cost providers and suppliers?
Conducting an RFP comes with many costs and time constraints, including resources devoted to analytics, communication between entities, legal engagement with executing contracts and time spent negotiating with stakeholders. Providers should consider these costs in relation to the desired outcome and determine whether it makes more sense to pursue an RFP or simply negotiate locally with key suppliers to reduce these RFP costs on both sides. Being conscious about this decision can result in improved supplier value offered and speed to value.
Cost to serve: What are our supplier partner’s costs?
As a provider or hospital supply chain department, take into consideration the cost for a supplier to serve your account — such as the size of the supplier support team needed, the amount of product and instrument inventory required for surgeon preference and case demands, and the costs associated with bringing materials into the organization.
I recently facilitated an RFP for spine implants where the provider required 24/7 clinical representative coverage from two suppliers — both of which were required to maintain trauma-related products and salaries for that timeframe, increasing their costs and the provider’s. By aligning the provider’s surgeons with one primary supplier, it enabled the awarded supplier to improve coverage and lower their costs while returning hospital value in the transaction.
Cost of choice is another consideration. The more suppliers there are in a category to maintain physician preference and choice, such as with the spine RFP, the more costs there are due to supplier operational redundancy. Reducing suppliers will have a positive impact on converting these costs into customer value as economies of scale are realized.
Getting creative: What value can we offer?
I once heard a successful negotiator tout, “Win-win means I win twice.” But it’s best to strategize a mutual win-win — a value-for-value exchange. Typically, a provider’s RFP goals are to get price concessions, while the supplier looks to grow revenue or market share. Getting creative to provide supplier value may be necessary to attain a provider win.
Here is a list of strategies a provider may consider in returning value to suppliers if growth is elusive:
- Shelf space: Availability of product and instruments improves a supplier’s chances of being used. Guaranteeing a percentage of shelf space may improve use of the supplier’s products and reduce costs or lack of product availability caused by shipping and delivery.
- Low-risk contracting: Instead of the traditional arrangement where better pricing is offered with the intent or “hope” that conversion will happen, consider future savings in the form of a rebate once the commitment level is achieved. After that period, new permanent pricing can go into effect. Suppliers frown upon anticipating revenue on the “hope” that the growth is realized. Reducing risk and adding teeth to an agreement will give them a better incentive to return meaningful value.
- Guaranteed product demo/trial: Guaranteeing a product trial for smaller suppliers can work in two ways: First, by giving them the opportunity to win business while pressuring incumbent suppliers who see potential threat in physician exposure to quality and second, in providing value from alternative products and supplier teams.
Other factors to consider in returning supplier value are:
- Cross category bundling, such as identifying other categories to grow a supplier’s revenue.
- Capital investment and enabling technologies (e.g., robotics, niche procedures) that open shared growth opportunities.
- Provider-owned inventory (with protections against obsolescence) to reduce supplier cost to serve.
- Prompt PO and payment processing to reduce delays and help improve financial performance.
Though the RFP process can be a daunting exercise, there’s a lot of relational and financial opportunity to realize when managed well. Thinking outside the traditional RFP box could lower costs for both providers and suppliers — and may even lead to a mutually beneficial long-term partnership.
Learn more about Physician Preference Item Spend Management.