Supply Chain Management: The Risks of Reactive Sourcing and Procurement
Your supply chain management activities determine your ability to obtain the products and services you need for successful business operations, but true success in supply chain management is about more than stocking shelves with inventory or choosing which services you need from providers. It also requires a proactive approach to evaluating potential suppliers before they begin product or service delivery.
By avoiding a reactive procurement strategy, you’ll not only save time and money, but you’ll also find more continuity of service and product delivery.
What Is Supply Chain Management and Why Is It Important?
In simple terms, supply chain management comprises the processes an organization uses to handle the flow of goods and services needed for daily operations. An organization’s supply chain management can be blamed for equipment shortages, but it can also be a top contributing factor in a high-performing procurement function.
Effective supply chain management is critical for the success of any business because it gives you access to the tools and processes you need to maintain smooth operations. From possessing enough personal protective equipment (PPE) in a healthcare environment to having quality background screening services to keep the hiring process moving, an effective supply chain management program impacts your organization’s performance and competitive advantage.
The Risks of Reactive Sourcing and Procurement
An overwhelming majority of companies function reactively—they struggle to address shifts in supply and demand, and they remain at the mercy of late or unavailable products and services.
By attempting to operate a “just in time” or purely reactive purchasing model, you can end up both short-staffed and short on products and services you need to operate. Here are just a few of the specific complications your organization can experience when you lack a proactive supply chain management program.
It’s no secret the pandemic has caused a shortage of several products your organization needs to function, including everything from PPE to toilet paper. By taking a reactive approach and waiting until you are short in supply to replenish your inventory, you can find yourself without the products and services you need to keep your business moving.
For example, healthcare organizations lacking medicines and equipment can be forced to delay or cancel medical procedures. Similarly, any organization lacking in comprehensive, quality background screening services can run into delays in the hiring process, and positions may go unfilled for longer than they should.
Uneven Supply Across Company Locations or Departments
Being reactive in sourcing and procurement can also lead to excess supply in some areas while others run out of supply. For example, a health system with multiple hospitals taking a reactive approach can risk having one hospital running with excess products while another experiences shortages.
In another example, organizations working with a background screening provider who doesn’t understand the nuances of varying state laws, such as “ban the box,” marijuana laws, and salary history bans, can end up with a hiring process that is efficient and legally compliant in one state, but out of compliance and fraught with delays in another state.
Simply buying what your organization needs “just in time” works great when there are no shortages anywhere in your supply chain. But taking a short-term view of procurement can result in wasting money, particularly if you have to overpay for products and services or work with a high-cost provider out of desperation.
Waste in your procurement process can not only be avoided, but it can make up a considerable portion of your organization’s overall expense load. For example, according to research by Guidehouse, the healthcare supply chain makes up 30 percent of total operating expenses. However, by reducing waste and improving procurement processes, the industry could save nearly $26 billion in supply chain costs.
How to Be More Proactive in Sourcing and Procurement
During the COVID-19 pandemic, almost no industry has been immune to shortages in products, services, or both. As a result, many organizations are looking for ways to improve procurement processes and get better control over their supply chain. In a recent McKinsey survey, 93 percent of supply chain executives said they planned to make their supply chains more flexible and resilient.
If your organization has suffered any of the effects of reactive supply chain management, you’ve already seen how disruptive it can be to the customer or patient experience. Therefore, take the following actions to become more proactive in the management of your organization’s supply chain:
1. Conduct due diligence at the start of the request for proposal (RFP) process.
It’s difficult to improve your procurement process if you’re not working with the right providers to begin with. To make sure you’re operating with a diverse set of the best possible providers for your organization, do some due diligence as early as before you even begin the RFP process.
For example, to determine if a product or service provider is right for your organization, check out more than which products and services they provide. Also look at their experience with your industry and their customer reviews. In the case of background screening companies, you should also investigate their legal and compliance record before inviting them to an RFP.
2. Ask the right questions during the RFP.
A robust RFP process asks for more than price quotes and delivery times. It should also ask in-depth questions to help you develop a complete picture of whether a provider will be able to support your organization, even in times of uncertainty.
For example, in addition to questions about industry experience, turnaround times, and verification processes, among others, it’s also critical to ask a background screening provider about processes for quality assurance. A proactive screening provider will be able to demonstrate the processes they have in place to deliver quality background checks, even amid unforeseen delays at the state or federal court level.
3. Involve critical stakeholders.
Getting feedback and support from internal stakeholders can boost your procurement process and help you conduct a more comprehensive evaluation of potential providers. Moreover, when you build a strong partnership with key stakeholders, you benefit from their insights regarding what to look for in an ideal product or service provider. Once you make the final selection, the stakeholders can also provide the necessary support to make the new relationship a success.
Advance from Reactive to Proactive Procurement Management
Your modern supply chain must be strong enough to withstand the challenges brought by shipping delays, changing regulations, and even an ongoing global pandemic. Furthermore, to achieve your goals for more proactive supply chain management, you’ll need to develop RFP processes that look beyond the hard costs.
To determine which product and service providers will be additive to your supply chain strategy, you’ll need to conduct thorough due diligence early in the RFP process. You’ll also need to ask RFP questions to incorporate stakeholder insights about quality, soft costs, and processes to help you meet patient and customer needs. And when you seek services to help you hire more effectively, you also need to understand each provider’s track record in compliance with today’s employment laws. To get started and see where your organization stands, use our “Healthcare Background Screening Compliance Checklist.”