How much purchasing power do you really have? Know the difference between internal and external influence

Your unique amount of purchasing power is made up of two elements: Internal power and external power. But before you can wield your external power you need to understand just how much internal power you have. Internal power is a measurement of how much real power you have in your organization. Real power has nothing to do with position, title or rank. It has everything to do with your own ability to influence, how you use that ability mid how your colleagues view you.

In order to gauge your internal power I invite you to ask yourself these questions. All questions are 'yes' or 'no,' and because they are for your own benefit please be completely honest in your assessment.

1. Do my colleagues and customers respect my knowledge of my own job?

2. Do my colleagues and customers trust my ability to consistently meet their supply needs?

3. Does my senior management believe that I am qualified and competent to do my job?

4. Does my senior management regularly solicit my opinion in important supply or equipment related decisions?

5. Do my colleagues and customers regularly seek my input on capital or budget decisions?

6. Do I know enough about the supplies and equipment used in my hospital to give good purchasing advice to my colleagues and customers?

7. Do my colleagues and customers believe that I care about their success?

8. Does my senior management believe that my department provides essential support to my hospital's clinical staff?

9. Do key physicians respect my abilities and speak to me when we meet in the hallways?

10. Are my employees treated with respect by the clinical staff?

If you answered yes to six you are on your way. If you answered yes to eight you are almost there. If you answered yes to all 10, don't stop now.

As director of materials management you negotiate with suppliers to get the best deal you can. In that negotiation you are forced to make promises that you do not have the power to keep. The people who really have the power are your internal customers. So if you want them to keep your promises and protect your reputation as a skilled negotiator you need to be sure that you are able to influence their behavior. That means that they must be able to oust and respect you. If they don't, you will fail and you need not spend a lot of time trying to figure out why you failed.

External purchasing power starts with internal power. If you don't have it you are unlikely to have much external purchasing power.

The impact of non healthcare supply chain managers

Non healthcare supply chain managers know that strong market competition is an essential ingredient in their success. So how do they insure that they will have a competitive market?

Here are a few of the things that non healthcare supply chain managers do to insure a high level of competition and ward off the potential negative effects of too little competition.

1. They invest in supplier development They know that anytime a supplier be comes so powerful that they can dictate price, their own buying power is greatly reduced. Supplier development is a conscious effort to split volume between two or more suppliers. Often one supplier will be given up to 80 percent of the volume for a single part or product. The remaining 20 percent is given to suppliers in development to give them revenue to stay" in business while the buyer and his company work with that supplier to help him improve his quality and production capabilities. Supply chain managers realize that a 90 or 95 percent commitment of volume is great for the supplier receiving that volume but is ultimately a move that will reduce competition in then market. As long as the supply chain manager is developing suppliers he greatly minimizes the risk that a single supplier would be able to destroy his company's ability to compete in its market by sharply raising its prices at will.

2. They take on the role of sheriff of their own supply chains. If the supply chain manager is doing his job effectively the sales activities of supplier representatives are under control (this does mean that no one gets to see the reps.) and buying of favors with purchase influencers is held to a minimum. The supply chain manager also is constantly on the lookout for supplier practices that could be viewed as antitrust or collusive in nature and they take swift action to address those issues when they find them.

3. They are singularly focused on doing what is best for their employer. They are not middlemen but rather agents acting exclusively on behalf of the companies they work for. They receive compensation only from their employer and aggressively seek to avoid any potential conflicts of interest.

4. They avoid bundling and over aggregation of volume. Bundling is a sales tactic and not a purchasing strategy. A bundle offers a small price break up front but could erode competition and severely damage the buyer's flexibility and leverage later on. Suppliers don't offer bundles just because they are humanitarians and you can be sure that behind every bundle offered there is a competition thwarting reason. It is not wrong to accept a bundle. It is a breach of fiduciary responsibility to accept a bundle without a thorough understanding of the effects of the bundle on your flexibility and leverage.

5. They know that putting out an RFP is only a competitive act if there is already strong competition in the product category they are bidding out. Without strong competition a bid is almost a meaningless exercise.

Managing a supply chain is huge challenge and requires many more skills than we are often given credit for having. But if you do it well, it may be one of the hardest and most rewarding jobs you will ever have. Are you and those who are doing your contracting committed to robust competition?

Lynn James Everard, C P.M., is a healthcare supply chain strategist and consultant with experience in local, regional and national materials management positions at hospital, long-term care, home healthcare and medical supply distribution organizations. Contact Everard at [email protected].

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