Navigating Through the RFP/PO Process
Is automation the only answer?

Striving to simplify a convoluted request-for-proposal and purchase order process polluted by financial and legal straits, as well as a "sacred cow" mentality, can be a monumental task for even the most seasoned materials management professional.

Ask anyone in this technocentric era for tips on how providers can reform and simplify their PO and RFP structures without sacrificing any financial and legal protections and still get the information they need to make an effective buying decision and you’ll likely hear the same refrain: Automate the process and do them electronically. Not that there’s anything inherently wrong with such a logical response but it’s akin to the whimsical doctor’s advice of "take two aspirin and call me in the morning."

To an extent, Holman’s right, but she acknowledged that there may be no way around the detailed nature of the content needed. "I think society drives the complexity," she noted. "Everyone has to have all the bases covered for their own protection, whether I am selling the product or buying it."

Using electronic data interchange (EDI) or online capabilities via the Internet or the World Wide Web certainly can speed up an otherwise mundane process but it does very little to justify all the content included in the RFP and PO documents that seem to make them as complicated as the federal tax code.

Diagnosis: The challenges and complications
Admittedly, providers and suppliers alike are hamstrung by a host of legal and financial requirements (read: terms and conditions) designed to protect one another from fraud and abuse, as well as ensure that service level commitments are met.

"The whole point of an RFP is to make sure there’s nothing funky going on with a supplier and to make sure that supplier has the best interests of the customer in mind," said Joe Colonna, president and CEO of Strategic Initiatives in Healthcare (Jackson, NJ). "Really, it’s so the facility doesn’t get sued. What we really need is a strong ethics policy. Once you have that why do you need all the bells and whistles on the RFP and PO?"

Nearly two years ago Michael Bohon, director, Perigon LLC (Chicago) worked on a project for a hospital to redesign and standardize the RFP and contracting process. "The result of the project demonstrates the absurdity of the process," he said. The committee developed an instructional document that was 67 pages long. But Bohon recognizes the reason why you can’t simplify the process too much. "You have to make sure you’re covered on the financial and legal side," he said. But he criticizes the lack of consistency. "You have to have a defined method on how it’s to be done but you have to have some flexibility built into that process."

Facilities eliminate that flexibility when they overemphasize the RFP data and process in order to demonstrate that the process was conducted in an objective, rigorous and scientific manner, according to Eileen McGinnity, president, Aspen Healthcare Metrics (Englewood, CO). Such process-driven decisions take place at the expense of what they’re trying to accomplish.

Bohon acknowledged, however, that RFPs and POs probably need to be fairly deep and complex. "The problem is when you make them too complex to be valuable," he added.

Theories abound but they generally involve some interwoven threads. "People don’t understand the importance of it," Bohon noted. "When you explain to them how it should be done then they tell you they don’t have time to do all the work."

Nick Gaich, vice president of materials management and customer service at Stanford (CA) Hospital and Clinics, attributes the current practices to habit. "There is a part of me that feels that the old adage of ‘That’s the way it’s always been done’ holds true," Gaich said. "Historically our industry has not been quick to move towards change and to some degree I believe this plays out here as well. Add to this the real need and concerns relative to audit, compliance and the inherent responsibilities of overseeing a significant cash component of an organization and it proves to be very strong motivator for those of us who shoulder the opportunity."

"When a provider is faced with making a business decision that will have a big impact on a key business practices – choosing a new GPO, identifying a capital equipment company as a strategic partner in a new heart hospital, selecting mission-critical IT systems, choosing strategic vendors for physician preference items – providers will often use a consultant," she said.

"The hospital may be looking for the specialized clinical or business practice expertise the consultant brings to the selection process," she continued. "In other cases, the hospital simply doesn’t have the resources; the consultant is a ‘sophisticated temp’ to help accomplish the selection process expeditiously. In still other cases, the culture of the hospital may be to rely on outside consultants in any major business process change.

"In any case, consultants are relied upon for what they bring – analytical tools, proven processes – and what they know – industry knowledge, familiarity with suppliers/products in a sector, etc. That the consultant brings a particular methodology is to be expected. It speeds things up and prevents the hospital from reinventing the wheel to get a good result," she said.

Diagnosis: The potential solutions
One way to approach streamlining the RFP and PO process is to focus on them separately. After all, they are different documents designed to achieve different outcomes.

"The RFP is an invitation to prospective sellers to extend an offer to sell certain of their products or services at a price," said Lynn Everard, a prominent Florida-based healthcare supply chain consultant and strategist. "Acceptance of the seller’s can occur in two ways: The issuance of a PO or multiple POs over time or joint agreement to create a contractual relationship and both are legal documents. An RFP can be considered a legal document but the seller in extending the offer has the right to qualify pricing, terms and conditions. For example, he can state that the pricing is good for a certain time period or he can state a termination date for the offer if unaccepted by the buyer by that date."

On the other hand, the PO serves a different purpose. "The PO is a legal document and binds the buyer to the terms and conditions stated on the face of the PO and in the boilerplate," he noted.

Gaich noted that he wouldn’t necessarily revise the PO process from a structural perspective. "Keeping in mind that the PO becomes the binding document of exchange, maintaining its discipline is essential," he said. "From a transactional perspective, moving towards uniformity in design, (one look, one feel) would be one of my first pushes towards simplifying the system.

One way to look at refining the RFP and PO process is to treat it like a job search that involves due diligence and detailed background checks, according to Colonna. Spot strategic connections and exclude any bidding information in much the same way you don’t put salary demands on a resume or discuss it in an initial interview.

The RFP represents a detailed job description of what’s needed, he continued. You display the skills or specifications you are looking for and what expectations you have. "It’s a chance for the customer and the supplier to outline their expectations." It’s not about whether a vendor can deliver a product or service at the lowest price or the vendor telling you how great it is, he added.

Colonna admits that POs may be harder to change because they require so many financial and legal elements for an organization’s protection. Still, the PO, which he likens to the paycheck in the job search example, should be treated separately from the RFP.

Ironically, Bohon contends that RFP and PO process reform should include three steps. He calls for a pre-qualification questionnaire that asks open-ended essay questions in order to help facilities weed out prospects. He also argues that the RFP itself needs to be more generalized and not tied in any way to the PO. "Sometimes when you make the RFP too specific you drive away certain companies from participating," he said. Bohon frowns on the idea of reworking RFP information into the PO. "I’ve seen it happen where people literally take the wording out of the RFP and turn that into the PO," he noted. The third step of the process involves final negotiations and a signed contract.

Bohon also recommends that facilities contact companies like MD Buyline (Dallas), which offers market research and product evaluation services, as well as contractual consultations.

Currently, more than 3,200 hospitals work with MD Buyline, according to Mike Clemens, vice president and COO. The company offers RFP templates that member facilities can download and customize for their use. "Typically, hospitals have told us they can spend about 40 hours doing their own RFPs," Clemens said. "With our template, they can cut that down to two hours."

McGinnity offers five tips for providers to streamline the RFP process and make it more realistic.

5. Specify the provider’s position on confidentiality of the RFP response. "Accept no unreasonable limitations on the use of information that will be returned in the RFP. A current fashion is for vendors to seek to expand traditional limitations on confidentiality of their bid information, including their proposed pricing. This appears to be designed to prevent information sharing among hospitals within an IDN. Some vendors specify that their information cannot be shared with consultants hired by the provider to help facilitate the selection process – a demand that hurts the hospital’s ability to conduct its business. The provider may, however, agree to treat bid information such that it will not be shared with the vendor’s competitors."