Keys to Successful Supplier Relationships
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August 17, 2020A positive supplier relationship builds trust and loyalty – both important foundations when it comes to negotiating new contracts. Building on trust and loyalty with your suppliers can have financial reward such as:
- Avoid overcharges. Suppliers may be understaffed or have inefficient systems leading to charges on supplies or services higher than the agreed-upon terms.
- Recover and avoid duplicate payments. Duplicate payments happen in all health systems, but loyalty with suppliers can help keep them honest and return the duplicated payment before inquiring about it.
- Avoid charges for services not rendered. Purchased services can be complex to manage leading to charges for services that did not take place such as charges for snow removal when the snowfall did not meet the agreed-upon cumulation for services.
- Incentives. Suppliers can provide incentives such as courtesy credits that give health systems the benefit of the doubt by retroactively applying new contract pricings in the event of a lapse.
The benefits of fostering and growing your supplier relationships extend beyond the outcomes mentioned here. Get started improving the relationships with your suppliers now, utilizing the tips below.
How do you improve and maintain supplier relationships?
Streamline Communication
COMMUNICATION CONTROL
Controlling communication with your suppliers is essential to securing a positive ongoing relationship with them. The first step is to appoint one contact in Supply Chain/Sourcing and one contact in AP within your health system to maintain communication with each supplier.
TAG TIP: We typically recommend having a point person in Sourcing/Contracting to manage all top supplier communication. This not only streamlines communication and adds efficiency, but it also helps reduce exceptions.
This one point of contact should be the point of communication representing all negotiations and potential changes to contracts. The only way to make this a success is if there is interdepartmental coordination inside the health system, meaning the end-user, AP, and Supply Chain communicate directly using TAG’s Vendor Communication Model.
COMMUNICATION PREPARATION
As with internal communication or meeting with leadership, it is important that the Sourcing contact is prepared for any meetings, messages, or phone calls with suppliers. Have these items ready:
- Relevant PO numbers
- Contract terms
- Minimum order quantity
- Agreed upon pricing
- Contract expiration date
- Freight agreements
- Product Substitutions and Add-ons
- Lead time for delivery
- Relevant invoices (Sourcing should secure this along with any related questions from your health system’s AP department.)
- A list of questions or concerns
Set a clear goal, including the outcome(s) and information you need, and clarify clear next steps with your personnel and the supplier.
By being prepared, unnecessary back and forth will be greatly reduced, keeping communications and issues from stacking up and a reduction of time spent in meetings will be realized – taking stressors away from your staff.
Set Clear Objectives and Expectations from the Start
When bringing in a new supplier, set the stage for success by clearly identifying and setting expectations. Ensure your suppliers are aware of your payment processes, communication streams, and any other processes that may contribute to hindering your P2P success.
If your health system evaluates your suppliers on a yearly basis, layout the details that suppliers will be evaluated on so that they can aim to meet and exceed your expectations to secure a long-term business relationship such as:
- Quantity Ordered versus Quantity Received
- On-time Delivery
- Email/Call Response Time
- Percent of orders with substitutions
- Ability to comply with legal, manufacturing, and safety requirements
- Status as a valued, low-risk, medium-risk, or high-risk supplier
TAG TIP: Make quality communication an evaluated criterion. Suppliers should be accountable for streamlining their communications with your health system as well.
Address Supplier Concerns
The other half of communication is listening, which will boost your supplier relationships. Your main point of contact should take the time to ask and address any concerns your suppliers may have. Doing so can clear up any bottlenecks that may arise and build up in the future. Afterall, supplier relationships are give-and-take. If you want your suppliers to cooperate and meet your needs, you have to address their needs.
Many parts of the supplier-client process require inputs from both parties. Your health system sends purchase orders to suppliers which are then confirmed on a PO confirmation report. If you don't work that confirmation report and address the issues of the supplier, your health system will in turn inherit problems down the line that either result in lost funds or in lost time through exceptions and invoice holds. Similarly, your AP department makes payments to suppliers referencing their invoices. When the remittance information is not received or is lost in the process, suppliers cannot apply payments properly. While this causes some frustration for the supplier in the form of open AR, it will ultimately create more headaches for AP, as invoices will linger on statements and unapplied payments with complicated account reconciliations. Further, the supplier may ultimately resort to some form of credit or shipping hold.
While your suppliers ultimately work for you, not working with them can only lead to losses for the health system, re-work for staff, and headaches for all.
Involve your Suppliers
A 2017 study on supplier relationship management found that up to 40% of your suppliers already have tailored, industry-specific solutions. That means, they understand that particular aspect of your business and/or needs. They have experience with organizations like yours and can translate that knowledge to your health system. For TAG, that expertise is centered around your end-to-end procure to pay process (P2P), but other suppliers may specialize in areas such as facility management processes or patient experience.
Suppliers you build positive relationships with are likely to share this knowledge to secure ongoing business and meet your organization’s goals. If you have large project goals to meet, consider building a committee to see the project through and offer your most trusted suppliers a seat at the table involving them in strategy and planning meetings.
For example, your organization may have an ERP implementation or update pending. While most healthcare systems bring in a consultant to help with system-wide implementation, bringing in suppliers that specialize in certain areas can be greatly beneficial. This may mean bringing one of TAG’s Project Managers on board to consult on the transition of P2P data and recommend certain ERP controls to implement for error reduction. TAG’s clients that have skipped this opportunity have seen an increase of over 300% in errors after the implementation costing the health system millions. Many suppliers, like TAG, do not charge for such interactions but do so as part of their overall service offering for existing clients.
Price is what you pay, value is what you get.
Remember these words when bringing on new suppliers and proactively work toward improving your relationships in the future.
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