Keep Calm and Carry On: Consolidating Vendors in Times of Change

Introduction

Of all the non-scientific issues your laboratory must deal with, none is more pressing than your approach to services procurement and consolidation – particularly in multivendor environments. Whether you’re consolidating facilities due to a corporationwide rightsizing effort or incorporating laboratories into your infrastructure in response to a merger or acquisition, the way you go about establishing and maintaining a high-value vendor relationship can be critical to your success.

Q&A with Chris Strom, former service procurement manager at Bristol-Myers Squibb

To better understand what creates a successful vendor relationship, how to decide on a procurement model, and some of the benefits and pitfalls of each model, Chris Strom, Bristol-Myers Squibb’s former service procurement manager, shares his experience. His comments are interesting, insightful, as well as informative – and even a little surprising.

• There is a lot of consolidation happening in the industry today. When you hear you're merging with another company, what’s top of mind for procurement in terms of the impact on services?
  
  "My experience of the consolidation that my previous company went through – it wasn't a merger, but it was definitely a consolidation of services – we did have to work to understand what our whole services infrastructure looked like. It’s pretty straightforward: you need to have a basic understanding of what your services are, and who your providers are, and that’s very difficult to do in a multi-site large company. This issue is consistent across the industry, often people don't understand what their baseline services are. If a services company could add value in providing that understanding with their customers, that would be of great value.
  
  We had a full-time MBA graduate student working for us one summer whose sole responsibility was to understand our maintenance spend – and he was unable to determine that baseline number. And that's very common, because it's challenging with all the supplier consolidations happening in the industry, and the many different, fractured ways of delivering services over different geographies. It’s a challenge to manage multiple vendor relationships in a single company – and the complexity significantly increases if you’re merging two.
  
  Getting a real handle on the scope would be the logical first step. You need to first create an accurate asset inventory to be able to establish a baseline. Creating the supporting processes to maintain that inventory is also critical, because in today’s large pharma environment, that data is incorrect within weeks of completing the inventory. Once your baseline is established and cost is clearly understood, an analysis of how to manage and optimize the spend is possible."

• After a merger or acquisition, how would you go about harmonizing existing vendor relationships?
  
  "Dealing with a smaller number of vendors is always preferable. So, when you're harmonizing, look at the number of suppliers you're working with and identify any duplication of services. By doing this you can minimize the number of conversations, contracts, and agreements you have in place. Understanding the various services different companies can offer is critical here." 
  

• Having been through several consolidations, would you have made any decisions differently?
  
  "I would have liked to have a vendor in to do an evaluation of our current state of services so they could better understand how they could help us. We tried to figure this out ourselves and then have the service vendors come in – and in that situation, there's something lost in translation. We ended up having prolonged conversations attempting to understand the value that service providers bring to the engagement. In addition, I would try to integrate the service provider in a big-picture way. It's a competitive market, and asking service providers to perform that evaluation without the guarantee of a contract is a big risk for them. Having our suppliers develop a deeper understanding of what our internal challenges are would be incredibly useful to deliver the right program to meet a customer’s needs. That would be a decision I would make differently."

• How do you align your vendor models with the organization’s strategic direction? Is that relevant?
  
  "In the program I implemented and managed, we shared quite a bit about our corporate culture, and the service provider gave us insights into its culture as well. That atmosphere of openness helped us align the model. We also tried to implement a level of transparency that’s usually not found in the supplier-client relationship. Effectively, the client needs to open its books and say, here's what we're doing now, help us. But here’s where it gets even more challenging: Service providers should be open and transparent as possible about various pricing models available to potential clients. Honesty and transparency run both ways, and without the give and take, the relationships become less like a partnership and more contentious and even adversarial."

• So, what are the drivers behind consolidating vendors in times of change?
  
  "Cost saving is always mentioned first, but I don't know that it’s the primary driver behind consolidation. A lot of companies are first trying to ensure they're doing the work that’s relative to their core competencies – research and science. It's certainly not managing assets or facilities, and it's not having internal calibration organizations! It's science and discovery. I believe streamlining business processes probably would be the number one driver, although a lot of people would say cost, as well."

• Now let’s get down into these multivendor type relationships. Do you want to describe what an ideal partner or vendor relationship is like?
  
  "Again, achieving a level of transparency is key. We had a good governance structure in place, and as you go into the partnership, you should ensure that your vendor has a demonstrable internal governance structure in place, too – including an escalation path. A multivendor service vendor must understand the unique needs and challenges of our business. For example, we courted a major services provider for an engagement. This company was really good in hospitals, and they definitely had business in pharmaceuticals, but they weren't used to managing pharmaceuticals from a multivendor-service point of view as much as other companies."

• How did you sense that?
  
  "In this instance and to their credit, they went halfway through the RFP process with us and realized themselves that they were not set up to manage an engagement of this magnitude or this type. I appreciated their candor. One specific challenge is that they didn't have the field service-engineer expertise that other companies did."

• How do you know when a relationship with an existing vendor is going south? What are the telltale signs?
  
  "Unfortunately, I can speak with direct experience on that topic! We knew we had challenges when we were having too many meetings, processes weren’t set up correctly and were being circumvented, timelines slipped, and deliverables weren’t clearly defined, creating unapproved scope-creep. When you don't have the visibility into the work or the correct metrics to measure that work, then you know it's not working well. And there was clearly a lack of alignment within the vendor’s organization including gaps in levels of management where the effectiveness of making changes or addressing issues was low."

• What are the top drivers influencing a decision to disengage with a vendor versus renegotiating?
  
  "The relationship needs to remain very energetic, and you need to have continuous improvement. You need to be looking at ways to make the most out of the relationship, for both the supplier and client. Again, from direct experience, we knew bringing in a multivendor program was a brand new paradigm, so we had unrealistic expectations as to how much time it would take to embed a program of such large scope. A periodic evaluation with candid feedback and mechanisms to effect change are needed to be in place to make a determination of whether you should renegotiate or move in a different direction. Sitting down, refocusing, establishing realistic objectives and successfully delivering on those objectives will happen. How a company responds to that exercise is important when deciding to move forward or not. In addition, ensuring that there is financial transparency and information being provided to make data-driven decisions is an imperative."

• How do you navigate the political climate when you elect to disengage with a vendor? Is it something that everybody seems to come to an agreement on at the same time? Or does consensus ever happen?
  
  "With some engagements, not everyone sees a lot of the pain, especially if you're in a lab and you happen to have a good service engineer who knows your equipment, or you've gotten information you've requested in a timely fashion.
  
  So as a procurement person, you're often the decision maker, but you do need to make sure you objectively measure the problem and demonstrate why change is being considered. Typically, it's all about numbers. People are going tell you that their service levels are great, they’ve had no issues, or there have only been a few problems – and that’s why metrics and analytics are key, to be able to come back and say, here's exactly why we're having to change. And it’s important to socialize on all levels – senior leaders, lab managers and directors, and users. It’s beneficial to socialize the need for change well in advance as well."

• What are the top challenges facing procurement today as they manage multivendor relationships in the lab environment?
  
  "As I mentioned, it's analyzing all the information about the services and spend associated to those services can be a challenge. Your job is to procure these services for the best value, but again, establishing that baseline could be difficult to measure. It's not just the vendor, it's developing all the tools and analytics you need to determine your actual spend. There are things that multivendor service providers do that are very difficult to measure that don’t affect the bottom line as well – it’s called cost avoidance.
  
  Let’s take a simple example: escorting vendors into your facility. This is something that a lot of researchers have to do, taking them away from their mission-critical tasks. Some companies allow you to register a service engineer at the front door, and then they're okay to walk through the building themselves, thus avoiding having to ask researchers to leave their tasks. This activity is measurable, so I would call that real savings, but it's hard to quantify. Other examples of cost avoidance in the laboratory environment could be creating POs, maintaining individual asset inventories, creating metrics, follow-ups with service suppliers for field service reports, managing quality documentation, and so on."

• How do you weigh the risks and benefits of the more consolidated lab vendor model versus a diversified model?
  
  "When it comes to the delivery of services, you have to balance speed and cost, so whether you have an onsite multivendor service engineer or an internal in-house team, the question is, how quickly can they get your lab back on its feet? They have to understand the criticality of instruments, where these systems are in the whole discovery or manufacturing process. And you have be able to say, we need to spend top dollar on a provider, or, we really need to have someone onsite to respond to that, because if an instrument has significant downtime, it's going to affect your overall process. So, you must get into the nitty gritty. It’s important to understand the details of the science and the process for each of your different organizations to implement the most effective model."

• Are you able to quantify what the benefits are when consolidating vendors? If so, what does that calculation look like?
  
  "In multivendor environments, there are financial and service metrics to consider. Service metrics obviously include response time, equipment down time, how long service tickets remain open, how quickly service paperwork is delivered – these are just a few of the key SLAs. Financial metrics could include overall program costs, metrics to optimize service levels and YOY savings. The “voice of the customer is important as well. These are just a few of many key performance indicators that help quantify program benefits.
  
  You also want to be able to measure continuous improvement. One of the things we did in a program I was involved with was to mandate the number of continuous improvement initiatives that were created by our supplier. It was their job to say, “okay, this is where you guys can improve the processes, save some money, and streamline processes”. Whether we chose to actually implement them or not was up to the client and not part of measurement or metrics."

• What's the one piece of advice you would offer procurement managers when consolidating services and making this change?
  
  "If you're talking about multiple service providers, I think a well-designed RFP is key in measuring suppliers in a consistent way. There are procurement managers who have a disposition to go to one vendor over another, and you have to throw that idea that out the window and give everybody a level playing field.
  
  I’d also mention again that it would be important to bring someone in-house to document the existing processes. One of the seemingly simple yet biggest challenges across the industry is tracking assets. Companies have their own way of moving assets internally, and my personal experience was that ours was unbelievably poor. We didn't know how bad it was until we brought in a multivendor provider to manage this activity. Under the best of circumstances and conditions, they could do that work effectively. Our processes and systems created challenges that were not understood until our supplier attempted to engage in the process. Suppliers typically promise they can track assets without knowing how bad the client’s internal systems are. Make sure that the vendor understands and realizes what they’re getting into."