Suppliers in the healthcare industry often incur significantly higher sales, general and administrative (SG&A) costs than suppliers in most other industries. The industry’s approach and use of the request for proposal (RFP) process is a significant contributor.
That was the finding of a team of healthcare supply chain executives from the Strategic Marketplace Initiative (SMI®), who researched publicly available information. SMI is a consortium of healthcare supply chain executives – providers and suppliers – who are united to reengineer and advance the future of the healthcare supply chain.
SMI industry partner members – manufacturers, distributors, and service companies – were surveyed about the practices associated with managing RFPs. Through this survey data and research collected over the past year, the SMI team created an executive briefing entitled “RFP Activity: A Contributor to Industry SG&A Costs.” It is intended to increase awareness of the impact that RFPs contribute to industry SG&A costs as well as promote industry actions that could potentially lower SG&A costs for providers and suppliers.
SMI’s survey (and follow-up interviews) of suppliers show that two RFP-related factors are largely responsible for causing SG&A costs to rise:
- Increasing numbers of RFPs. Suppliers identified the provider community’s increasing need to reduce cost as the major factor.
- Rising costs for suppliers to respond to RFPs. Using data collected in the survey, SMI estimates that a supplier’s total costs to respond to a single RFP can range from $5,000 to $9000. Many contributing factors beyond the proliferation of RFPs were cited by suppliers for this cost increase, including the increasing complexity of RFP response requirements, duplicate/repetitive/overlapping RFPs, and a lack of clarity in language, bidder requirements, and conditions. “Special arrangement” requests that require contractual relationships to be managed outside of the standard process were also cited by many suppliers as being especially resource-intensive and problematic.
While some suppliers have made significant strides in reducing their RFP response costs, the SMI team concludes that much can still be done by both suppliers and providers to reduce costs, including:
- Increasing the use of standard terms and conditions.
- Simplifying legal language.
- Implementing more reasonable response times.
- Aligning GPO and regional collaboratives to eliminate duplicate RFP efforts.
- Aligning provider sourcing specialists to harmonize the issuance of RFPs.
The SMI Executive Briefing, “RFP Activity: A Contributor to Industry SG&A Costs,” includes strategies that enable suppliers to achieve process improvements and ideas for providers to help lower costs. It is available on the SMI website, free of charge, at: http://www.smisupplychain.com/tools/smi-executive-briefings
What can providers do?
Strategic Marketplace Initiative supplier and provider members explored a number of ideas for providers to support industrywide efforts to lower the increasing costs to respond to RFPs, including:
Establishing and enforcing provider policies for the judicious use of the RFP process, including:
- Reducing the overlap/duplication of RFPs with improved coordination among alliances, national GPOs, IDNs, regional alliances, etc.
- Reducing unannounced RFPs and special requests.
- Executive monitoring of RFP metrics, including volumes of RFPs issued.
- Providing longer periods for supplier response preparation.
- Minimizing requests for additional information.
- Removing questions for suppliers where public information is available.
- Re-evaluating RFP templates to ensure that questions being asked are meaningful and will influence the final decision process.
- For incumbent suppliers, consider an abbreviated RFP focused on pricing and value-adds.
Create a quality review process to promote high quality RFPs, including:
- Accurate product usage data.
- Accurate identification of which organizations will be eligible to purchase via any resulting contract.
- Accurate product identification and cross reference lists.
- Clear specifications of expected sales support activities.
- Clear and reasonable deadlines.
- Expected terms and conditions.
- A two-way communication/dialogue mechanism.
- Avoidance of last minute negotiations and changes to an agreement. A Health Industry Distributors Association (HIDA) 2011 survey revealed that more than half of the contractual changes that were made in the month prior to a contract’s effective date resulted in some form of pricing inaccuracy.
Source: “RFP Activity: A Contributor to Industry SG&A Costs,” Strategic Marketplace Initiative