Alan S. Kuebler is executive vice president for resource management  at Washington University in St. Louis, MO. He can be reached at alan_kuebler@aismail .wustl.edu
	Deborah C. Deinstadt is senior vice president of Thermo USCS in Brookfield, WI, a business unit of Thermo Electron Corporation, Waltham, MA. She can be reached at deinstadtd@us-cs.com..

As more and more organizations consider implementing an asset management solution to get control of their equipment acquisition and maintenance costs, they are finding out that traditional purchasing processes often introduce unanticipated challenges. Remember those logic questions in school that asked you which item did not belong in the group? Hawk, Plane, Snake, Butterfly. With our current wisdom, we obviously know that snakes don’t fly. But, there was a time, say, second or third grade, when we might have needed a few moments to think through that logic.

 Consider the following choices: Laboratory supplies, office supplies, medical supplies, asset management program. Which of those does not belong with the others? If you answered "asset management program," you probably recognized that most organizations commonly bid the supplies, but you might not have been clear about how one would bid an asset management program. When supplies are bid, there is typically an item or model number with finite specifications, units of measure, delivery requirements and other physical characteristics. Asset management programs are usually customized processes that don’t have those limited characteristics.

Coming to terms
A formal bid process is often used when there is a legal requirement (governmental, bylaws, other regulations) to solicit for bids that usually result in an award based on the lowest bid price by the respondent best meeting the bid criteria. A request for proposal (RFP) is commonly used to invite parties to submit proposals based on a set of products or solutions that are beyond the scope of the guidelines. An award may or may not be made. A request for information (RFI) is intended to seek basic information from providers of products or services. The purchaser then uses that information to determine if a purchase will actually be made. If so, a bid request or RFP may follow. Purchasers occasionally enter into negotiations with suppliers in lieu of utilizing the above-mentioned tools. Of course, negotiation is often employed in conjunction with some of the other tools.

How do these tools fit into the selection of an asset management program? How can one sort through the terminology, processes and decision making to arrive at a conclusion that is in the best interest of the organization looking to implement an asset management solution?

The determination as to which, if any, process is appropriate for the selection of an asset management program is not standard among users of diagnostic, scientific and research equipment.  A "one size fits all" selection model and process do not fit. In certain scenarios, such as publicly owned entities, there are specific legal requirements whereby any purchase over a defined dollar amount must be determined through a stringent bid process. In other scenarios, such as a private school of medicine, the selection is highly preferential with a set of customized criteria. In still other settings, the process for selection of an asset management program is simply one of organizational policy that suggests an RFP process be used to evaluate offerings. Finally, many organizations do not use an RFI, RFP or bid for this type of purchase, preferring to use a negotiation process with one or more companies.

Regardless of the particular scenario, there are specific considerations that, when included in and evaluated as part of the process, can lead to an effective solution. These factors take the decision well beyond price and are presented in the interest of creating a thorough evaluation process. For purposes of illustrating these considerations, the RFP term will be used generically.

Starting from scratch
Initially, the purchaser must determine what its own philosophy is regarding asset management. Why? Because it will make sense to select a solution that closely matches the philosophy of the purchaser rather than expecting companies to rearrange their business and product model to fit one purchaser. If, ultimately, an RFP process is used, the purchaser will want to identify and include only candidates who most closely match the purchaser’s philosophy yet have an appropriate degree of flexibility and customization capabilities. Three widely prevalent philosophies are: 

•Transfer of risk – use of service contracts, insurance, multi-vendor and outsource models fit this philosophy.  

•Management and control – models that deliver a management system based on managed time and materials and complete objectivity.

•Internal management – the organization uses its own personnel to evaluate and repair its assets.

Some areas that will be especially challenging to evaluate through an RFP process, particularly if there is not significant time designated for dialogue between the parties, include:

•Cultural and structural compatibility of the purchaser and the asset management company. For example, if the purchaser is in a highly decentralized structure, the program provider must be able to accommodate that environment with adequate resources. Whereas, in a highly centralized structure, the program provider may have adequate resources but may need to deploy them to match the unique structure of the purchaser.

•Not-for-profit, for-profit and grant-funded environments each have unique requirements. Addressing any issues that would arise with regard to the financial mechanics of a program as a result of these variables can identify and potentially avoid confusion and problems when the program is implemented. 

By incorporating the following considerations into dialogue and negotiation with the selected candidates, purchasers will be better informed to make a decision based on a relevant blend of factors. Those factors include: 

a. Is the savings guarantee realistic? What is the due diligence process for arriving at the savings?

b. What additional revenue streams might create conflicts of interest for the company?

c. What is the level of objectivity with regard to recommended repair solutions?

d. How does the company interact with repair vendors or other parties involved in the management of equipment?

e. Who makes the decision as to selection of repair vendor and repair practices?

f. To what extent will equipment users have to make changes within their own operational structure?

g. What is the financial condition of the company?

h. What documentation and reporting are provided as part of the management system? Who owns and has access to the repair data? How is that access delivered? 

i. What procedures exist and how are they communicated to the client?

j. How are improvements identified and communicated?

k. To what extent can the company assist beyond the management of the installed base of equipment?  

2. Marketplace reputation of each company. Can the purchaser assess the reputation based on each company’s model, practices and financial condition regardless of the condition of competitors? It is important that purchasers be aware of business models that aren’t successful and equally important not to attribute one company’s failure to the particular model that the failed company used.  

3. Group purchasing organization (GPO) endorsements. In many cases, the purchase belongs to a GPO that has thoroughly evaluated options relative to the business models and practices of companies. Members and shareholders of GPOs pay the GPO to perform this function and can incorporate the GPO findings into their own analyses with confidence.  

4. Cost stability. In the management of equipment maintenance, each philosophy, and various models within those philosophies, has a different approach to determining the ultimate cost to the purchaser. This is an area where clarity can easily evaporate. In light of the variety of program models and company practices available in the marketplace, the ability to achieve absolute understanding and clarity through an RFP document is challenging at best. For example, the purchaser should call for a clear explanation of the approach and process used to benchmark existing costs, determine future cost guarantees and subsequent years’ cost increases or decreases. Understanding how the cost model is influenced from year to year is key. Some models base subsequent years’ costs on outside influences over which the purchaser has no control.

 Others base it on each customer’s unique results. Still others use a generic price increase model from year to year. Unless there is dialogue between the purchaser and program provider, with the client probing to capture a thorough understanding in order to evaluate compatibility with their organization’s culture and goals, there is almost assuredly going to be misunderstanding through written explanation in an RFP. Why? Because every scenario cannot be addressed in an RFP response and, usually, the best outcomes result from the buyer and seller collaborating to customize a program to fit the client’s needs.

Other considerations that can influence the ultimate long-term success of a program and benefit from an ongoing series of discussions that lead to clarity and understanding include:

1. Cost management – what evidence can be gathered to prove that the program provider can achieve cost-management outcomes?

2. Income – how does the program provider realize an income? The ideal model will be aligned in the purchaser’s best interest.

3. Flexibility – how flexible is each of the candidates with regard to unique needs of the purchaser? The degree of flexibility is almost impossible to quantify in an RFP response. 

4. Qualifications – what experience does the program provider have? This might include types of customers, breadth of equipment models, experience of staff, historical results, and customer references. 

5. Company history – a look at the historical progress of the company and its program will create a picture of whether the program provider has stability and continuity in management and philosophy, or jumps from one trendy model to another. 

Most organizations will find that RFP responses will not lead to a simple spreadsheet type of comparison. The reason for this is the degree of customization from one company to another and the degree of uniqueness from one client to the next. Unlike other commodity purchases, the deliverables of most asset management programs are customized to meet the understood needs of the purchaser.  The respondent cannot thoroughly customize within the requirements of an RFP when they cannot ask the types of questions leading to answers that allow them to fully understand the objectives and goals of the organization.

Making the case
In one recent case, a buyer requested an asset management RFP response from eight different companies. Thinking that this would provide a good cross-section of options, they attempted to develop a matrix for the responses.

After several weeks of evaluating responses, trying to both match the responses to the matrix and redesigning the matrix, the buyer realized that the responses and options were fundamentally different in philosophy, deliverables and goals. In essence, what they had received were eight different business models, none of which closely matched the original RFP. The responding companies had strived to customize their response to include their distinct capabilities and ideas without the benefit of collaborating with the buyer. The RFP process actually set the buyer back by several weeks.

Had they used an RFI, however, they could have created an initial exchange of information and possibly eliminated some of the candidates who did not measure up to their basic requirements.  Beyond that, customizing a long-term solution is better served through intense and focused discussions on the elements presented.

So asset management is, from a procurement process perspective, very different from lab supplies, office supplies and the other commodities. Finding vendors that can match the purchaser’s philosophical approach is critical. That matching process is best determined by gathering information, evaluating that information and talking with candidates who offer a solution. Armed with the knowledge of how closely vendors’ models match the purchaser’s philosophy, the purchaser can then ensure the best outcome by serious and diligent negotiations with the candidate who most closely matches the buyer’s criteria and can customize within their model.

The collaborative process enables the brightest ideas to result from the give and take of negotiating and customizing and thereby achieve a sustainable outcome that benefits both parties over time. Bid, RFP, RFI, collaboration? Requirements can best be met through the collaborative process that engages participants in the development of a customized solution. HPN