Negotiating and managing an exclusive or near-exclusive beverage partnership is complicated and hard work. Even experienced supply chain and financial executives at large, sophisticated hospital systems are surprised at how complicated and hard this work can be.
But, all agree that the financial pay off is worth it. This is especially true if you hire Enliven to do all this work!
There are eighteen basic steps involved in negotiating and managing an exclusive or near-exclusive beverage partnership. I covered the first nine steps in a previous blog post. These steps all lead up to the decision to choose Coke or Pepsi.
I will cover the last nine steps here, which focus on securing the beverage partnership contract and managing the partnership for the entire term.
10. Ensure that the contract with the beverage company truly establishes a direct partnership.
This is a critical point. We have seen some exclusive beverage contracts that seem to establish a direct partnership and buying relationship between a hospital system and a beverage company, but, in fact, they do not. In fact, they preserve the GPO or a cafeteria operator as a key intermediary player between the hospital system and the beverage company.
Whenever this is the case, rest assured that that intermediary is continuing to receive some portion of the rebate funding that should rightfully be directed toward the hospital system itself. This intermediary funding may be called out in the agreement, but often it is not, or at least not completely.
11. After the contract is executed, coordinate the implementation of exclusivity at all facilities.
Exclusive and near-exclusive beverage contracts can take anywhere from several weeks to a full year to execute. It’s best to spell out key contract terms in the RFP that the winning beverage company should expect to agree to if they are selected. If this is done, the contracting time period can usually be completed in 1-3 months.
While the contract is being finalized, on a parallel path, work should be done to coordinate the implementation of the exclusive or near-exclusive beverage partnership. It’s imperative that no actual cafeteria equipment be removed or added until the contract is fully executed.
But planning for implementation should be done ASAP. The winning beverage company will have to order new equipment, schedule installs, re-arrange delivery routes, etc. It’s a big deal, and it takes time.
Some of the implementation issues that will need to be addressed include a) coordinating the sell down of existing inventories of the losing beverage company’s product, b) coordinating with the current vending services company—or a new such company if needed—to ensure that snack and food vending operations continue unabated when the new exclusive or near-exclusive beverage company takes over beverage vending, and c) developing and executing a communication plan to explain to staff what’s happening and why.
12. Establish regular monthly, quarterly and annual data exchanges and account management meetings with the beverage company.
It is critically important that regular data exchanges and account management meetings are established between the hospital system executive in charge, the facility-level food & beverage directors and the beverage company account team.
Every patient, visitor and staff member at the hospital system will be impacted by this agreement. When things go wrong, or when operational changes are about to be implemented, open and candid communication is imperative. Proactive planning must be done regularly to avoid surprises or service disruptions of any kind.
Enliven handles all of this work. It is part of what we do for all of our clients, and it is covered by our standard performance-pay compensation plan.
13. Engage in detailed volume tracking, rebate projections and price monitoring.
This is critical work. It takes time and it requires expertise and experience in this particular supply chain & food service niche to do well.
All departments and entities on every hospital campus that currently buy, receive, distribute or sell beverages will have accounts already set up with Coke and Pepsi and with some of the other beverage business intermediaries that currently serve your campuses (GPOs, cafeteria operators, broad-line distributors and vending service companies). All of these accounts have to be shifted or re-coded or somehow attached to your new contract with the beverage company.
Once this is done, the winning beverage company must then supply detailed volume reports every month. This raw data must then be sorted, consolidated and ported into proprietary, customized volume tracking reports for the entire system.
These customized tracking reports should not only track actual volumes, but they should also forecast annual volumes and associated year-end rebate payments based on year-to-date actuals.
Enliven handles all of this work. It is part of what we do for all of our clients, and it is covered by our standard performance-pay compensation plan.
14. Monitor, audit and allocate all payments from the beverage company.
This, of course, is another critical component of your ongoing partnership management & monitoring work for the entire term of the exclusive or near-exclusive beverage contract.
You’d be very surprised by how often payments can be missed by both the beverage partner and the hospital system.
If we did not vigilantly monitor everything—beverage volumes and mix and pricing, annual fixed funding, annual volume-based rebates, monthly vending commissions, payment due dates, etc.—then all of our clients would certainly miss out on much of the value of their agreement with their beverage partner.
This is not due to any real negligence or willful intent on the part of Coke or Pepsi. Rather it is due primarily to the normal vicissitudes of long-term business partnerships. People change jobs. The new people don’t always get the full briefing on accounts they inherit. Stuff falls through the cracks all the time.
In fact, to the credit of both Coke and Pepsi, whenever we point out errors that have been made in calculating or making contractual payments, both companies are very good at admitting mistakes and making amends. Both Coke and Pepsi are very good partners in this respect.
With almost all of our hospital system clients, Enliven is usually the most constant party over time involved at every level and at every stage of the partnership, especially toward the end of the contract term.
And because we compare all client data against a set of metrics that we have developed over the years by tracking over 332 hospitals nationwide, we know when something doesn’t seem right. We flag it and dig into the data and figure it out.
As a result, our clients get every penny that they are owed.
Enliven handles all of this work. It is part of what we do for all of our clients, and it is covered by our standard performance-pay compensation plan.
15. Amend contract and adjust tracking as needed based on facility additions or deletions during the contract term.
Our clients are large healthcare systems. All of them buy or sell or build new facilities during the term of their exclusive or near-exclusive beverage agreements.
When this happens, the beverage agreement morphs in some way. It gets more or less lucrative, the beverage service area grows or contracts, etc.
Adjustments need to be made in all the tracking spreadsheets and net savings forecasts.
Enliven handles all of this work. It is part of what we do for all of our clients, and it is covered by our standard performance-pay compensation plan.
16. Amend contract and adjust tracking as needed based on beverage company developments or changes to facility or system-level operating models.
In the last six years, both Coke and Pepsi have bought their largest bottling affiliates. These were not small acquisitions. These bottling affiliates were all large, publicly traded companies.
In the last two years, both Coke and Pepsi have started to divest their bottling operations. Again, these are not small transactions.
These corporate moves have complicated and comprehensive impacts on how Coke and Pepsi manufacture, distribute and service their products and equipment. The impacts vary greatly depending on the region of the country.
Sometimes exclusive and near-exclusive contracts between hospital systems and these evolving beverage companies need to be adjusted accordingly.
Enliven handles all of this work. It is part of what we do for all of our clients, and it is covered by our standard performance-pay compensation plan.
17. Proactively educate new system-level executives, facility executives, food & beverage directors, and beverage company account people who become involved in any aspect of your beverage business for the entire term of the partnership.
During the course of any long-term business partnerships, people come and go. As they come, as they get hired or promoted or transferred, they need to be briefed on the particulars of your particular exclusive or near-exclusive beverage agreement.
Most new hires will be coming from a very different set of circumstances with respect to how beverages are bought, sold and distributed on hospital campuses. If they are not fully briefed on the unique aspects of your beverage agreement, they will understandably assume that the industry-wide status quo applies.
18. Proactively educate and monitor new team members at all beverage eco-system intermediaries for the entire term of the partnership.
Just as people at your hospital system and your beverage partner come-and-go, so too do people at the intermediaries come-and-go.
They, too, will be coming from a very different set of circumstances with respect to how beverages are bought, sold and distributed on hospital campuses. If they are not fully briefed on the unique aspects of your beverage agreement, they will understandably assume that the industry-wide status quo applies.
If certain intermediaries forcefully assert their status quo model, there could be very negative financial consequences.
Enliven does the monitoring and the briefing of these parties on your behalf.
