Today’s guest post is from Jennifer Ulrich, an Associate Director and Category Planning Subject Matter Expert at Source One Management Services as well as a contributing author of Wiley & Sons “Managing Indirect Spend: Enhancing Profitability”.
It’s not just vampires that find themselves looking for blood. Healthcare procurement professionals also depend on a consistent stream of the stuff, though they’d define stakeholders quite differently than Dracula. All purchasing is important work, but they can honestly say that their sourcing operations are a matter of life and death. Imagine learning that you couldn’t receive a transfusion because your medical center couldn’t locate a reliable supplier, or failed to plan for a disruption in its supply chain. It’s a terrifying thought.
Human blood ($150 – $180 a pint!) is one of countless commodities Source One’s consultants and I have helped our clients purchase more efficiently. For one organization in particular, it amounted to eight million dollars of total spend. You might think that sourcing a product out of a horror film would present especially grim or bizarre challenges, but the initiative proved straightforward. It essentially came down to a question of vendor consolidation, a question that’s always essential in procurement: Would our client benefit more from a single, or multi-source strategy?
Whether it’s blood or Butterfingers you’re buying, your answer to this question will largely shape your strategy. It’s important to consider the potential drawbacks and benefits of both approaches.
The recent rash of natural disasters have not only underlined the importance of well-supplied healthcare providers, but they’ve also reminded procurement teams around the globe how important it is to assess and mitigate risk across the supply chain. When you’re dealing with a commodity as valuable as blood, the smallest disruption can have deadly ramifications. In theory, a multi-source strategy reduces the risk of shortages by broadening the supply base. Medical organizations that draw blood from a number of suppliers are unlikely to be completely drained if one should come up short.
A multi-source solution also presents the potential benefit of supplier competition. Leveraging this could mean a more agreeable arrangement or sustainable strategy. Though your average individual might know of just one blood supplier (you know the one), the field is actually saturated with a number of emerging regional businesses. Granted a seat at the table, they can drive more competitive pricing while partnering with one another to collectively manage volume concerns.
Sourcing from more than one supplier does not, however, eliminate risk or produce value in every instance. In fact, an organization might find that the strain and uncertainty of managing multiple supplier relationships outweighs its benefit. Consistent communication is essential for maintaining an amicable, respectful, and fruitful relationship with any provider. It’s obviously far easier to ensure open lines of dialogue with a single vendor than with a large group. The right SRM expert can make any arrangement work, but it’s often preferable to consolidate your supplier base for more personalization and collaboration.
In this particular situation, our client found that one trusted supplier could most effectively meet their specifications. With our help, they learned that a close relationship with this provider presented considerable value incentives. In addition to a tiered discount structure, they offered risk management solutions in the form of comprehensive training programs. By educating end users on the proper procedures for transporting, handling, and administering blood they helped foster a sense of teamwork while greatly reducing the chance of lost or wasted product.
There’s no O negative approach when it comes to assessing the market. One company’s life-saving cure could send another into convulsions. That being said, whatever your industry, whatever size your supply base, the same set of principles apply for effectively maintaining relationships and encouraging compliance. The most successful procurement professionals perform a transfusion of sorts. They supplement the foundational techniques of good sourcing with a healthy dose of innovation to determine the appropriate treatment.
In a future post we’ll dissect single and multi-source strategies and discuss which situations favor which approach. Happy Halloween!