Carefully constructed RFPs are key to successfully addressing purchased-services costs and quality of service, according to those with whom we spoke for this month’s article on purchased services. This makes the Strategic Marketplace Initiative’s executive briefing, “RFP Activity: A Contributor to Industry SG&A Costs” particularly relevant today. (See related article in this month’s issue.)
For years, SMI has brought together manufacturers, distributors, service companies and supply chain executives to tackle problems of mutual interest. SMI’s fundamental belief is that the actions of one member of the supply chain have an effect – either positive or negative – on the other members. By working together, we can reduce costs for all. So it is with RFPs.
SMI found, through a survey in 2014, that the majority of hospitals, IDNs and regional alliances had increased their volume of RFPs 10 percent or more in the preceding 12 months. Not surprisingly, SMI’s industry partners (vendors) reported that the volume of RFPs received from their customers had increased in the same period.
Here’s the rub: It is growing increasingly expensive for vendors to respond to providers’ RFPs. That’s due to a lot of things, not just the sheer number of RFPs, but their complexity, duplication, overlapping and “a lack of clarity in language, bidder requirements and conditions,” according to SMI. “Special arrangement” requests, which require contractual relationships to be managed outside of the standard process, were also cited by many suppliers as being especially resource-intensive and problematic, says SMI.
Greater costs for vendors, of course, ultimately mean greater costs for providers. SMI estimates that a supplier’s total cost to respond to a single RFP can range from $5,000 to $9,000. That’s why it’s in the best interest of both suppliers and providers to take another look at the RFP process.
Some vendors are developing new processes to minimize the costs associated with responding to RFPs, such as increasing staff, centralizing response processes, creating and centralizing maintenance of response materials, and using standard terms and conditions. But the SMI team found that supply chain executives can do their part too, by reducing overlapping and duplication of RFPs, reducing unannounced RFPs and special requests, providing longer response times, minimizing requests for additional information, and a lot more.
SMI wants to “encourage both buyers and sellers to take actions to reduce and control these [SG&A] costs through more efficient behaviors.” It’s a laudable goal. Easier said than done, perhaps, as the industry has learned with vendor credentialing. But, as with vendor credentialing, continuing dialogue about RFPs among providers and suppliers can ultimately benefit both.
Mark Thill
