4 Ways Directed Buying Can Help You Achieve Your ESG Goals

• Marlin Doner, VP of Product Management

Your health system or hospital leaders have set environmental, social, and governance (ESG) goals for your organization. It’s easy to say at a high level, “these are our priorities,” but how do you take steps to achieve them and demonstrate your impact? 

In the first blog post of this series, I explained why supply chain is uniquely positioned to drive measurable ESG improvements in 2024 and beyond. Read it here: ESG: A Critical Priority For Healthcare Supply Chains in 2024.

In this post, I delve deeper into directed buying through GHX Marketplace, including how supply chain leaders can leverage it to direct spend to environmental and socially responsible sources and generate metrics to measure progress toward ESG goals.  

Table of contents

1. What is directed buying and how does it work?
2. How directed buying supports ESG goals
3. How does directed buying influence cost and quality?

What is directed buying and how does it work? 

Directed buying at its core is about making it easy for every requisitioner to do the right thing – purchase the right item, from the right source, at the right price.  

Within GHX Marketplace, a single, online purchase gateway for all clinical and non-clinical supplies, supply chain managers establish prescribed item formularies for end-users based on organizational objectives.

They can also prioritize search results that are returned to users by weighing the value and/or ranking the order in which items are displayed in results. In this way, they can influence the thousands of purchasing decisions being made each day across their organization.  

 GHX Marketplace has an intuitive interface with simple and smart search capabilities, enhancing user satisfaction and improving contract adoption while making it easy for users to find and order the supplies they need.  

How can I use directed buying to support ESG objectives? 

GHX Marketplace allows you to direct ESG priorities from the front end of the procurement lifecycle by informing and influencing the purchasing choices your requesters make each day. Here are some basic steps to get started.  

1. Establish ESG priorities 

A great first step is to determine what ESG factors you want to influence through directed buying. Does your healthcare organization want to reduce its carbon footprint, increase its supplier diversity (e.g., minority-owned, women-owned, veteran-owned companies) or direct more spend to local suppliers to simultaneously shorten its supply chain and improve the socioeconomic benefits to its community? 

2. Define and measure 

Next, establish your baseline and set a meaningful target for improvement. What percentage of supply spend does your organization want to align with ESG goals – 5%, 10%, 20% of spend? To make your work measurable, put in place a mechanism for tracking progress toward the ESG purchasing volume target and reporting on your impact.  

GHX Marketplace automatically captures metrics on purchasing activity, including buying in ESG categories. With its rich analytic dashboard and key performance indicators (KPIs), the solution makes it easy for supply chain managers to set and measure clear and concise metrics for voluntary and mandatory ESG initiative reporting. 

3. Identify suppliers and products 

Once you have these foundational elements in place, it is time to identify suppliers with practices and/or products aligned with your organization’s ESG objectives. You don’t have to reinvent the wheel when it comes to identifying, evaluating, and scoring suppliers for sustainability and diversity. There are many resources available online, such as the Practice Greenhealth Sustainable Procurement Guide and National Minority Supplier Development Council. 

4. Prioritize preferred suppliers and items to direct users  

Lastly, use GHX Marketplace intelligence to tag and prioritize suppliers and products according to ESG category so when each user searches for a specific item, those identified as aligning with your organization goals will rank higher with more visibly in search results.   

Another way to direct buying to preferred suppliers and products is to visually label them according to their ESG properties. We’ve found that by simply informing GHX Marketplace users of environmentally and/or socially responsible options, many will self-select these items because they want to do the “right thing.” 

Let’s say a user is searching for patient bed linens and the health system wants to direct purchases to suppliers who use recycled materials in their linen production. When GHX Marketplace presents the results of their search, not only do preferred suppliers and products in the recycled category appear at the top of results, but they are also clearly labeled with a recognizable tag icon (such as a green recycling symbol) as supporting the organization’s ESG initiatives.  

In some cases, directed buying can enable a healthcare organization to drive improvements in multiple ESG areas simultaneously. Just think about an ESG effort where a hospital is prioritizing purchases from diverse suppliers in its community, as opposed to suppliers manufacturing products somewhere across the globe.  

Not only is that organization contributing to its community’s socioeconomic status by supporting local companies and their employees, but it’s also reducing its carbon footprint with fewer emissions as goods have a shorter path to travel from manufacturer to point of use and lowering its shipping costs.  

What about issues of costs and quality? 

Even though healthcare organizations in general want to achieve measurable improvements in their ESG standing, and regulators and other stakeholders (e.g., ESG advocates, investors, patients) are pushing them to do so, costs and quality are critical factors that cannot be ignored. 

In an ideal world, a hospital could procure high quality/low-cost items from sources that advance their ESG impacts. But in some cases, supplies that are environmentally friendly or socially responsible cost more than standard products. Hospitals have a responsibility to deliver cost-effective care to their communities, and payers are squeezing them to reduce expenses. It can seem impossible to “do the right thing” with margins remaining below historical levels.

For example, a hospital identifies a local supplier of sterilization wrap but the price is double that of their usual supplier with no quality improvement. What’s more important, the ESG benefits of buying local and shortening its supply chain/lessening its carbon footprint with regards to transport/delivery, or the cost implications to the organization and its patients? It is a delicate balance and healthcare organizations are faced with these tough challenges. 

Because GHX Marketplace integrates supplier and group purchasing organization (GPO) contract and pricing data, supply chain managers can use it to identify products that can help meet ESG objectives, without adding significant costs. For example, they can direct buyers to on-contract items that meet ESG criteria, helping maximize and sustain cost savings. 

Supply chain managers can also leverage GHX Marketplace to direct buyers to products that can reduce waste and disposal costs, such as supplies with less packaging. Other opportunities for simultaneous cost savings and ESG impact come from energy efficient infrastructure (e.g., HVAC) and equipment designed to use less water (e.g., instrument washer/disinfectors and steam sterilizers, etc.). 

As healthcare organizations increasingly embrace ESG initiatives, the role of the supply chain becomes pivotal in driving measurable improvements. Through directed buying, GHX Marketplace empowers supply chain managers to align purchases with ESG goals, track progress, and report impact.  

Through integration with GHX's industry-leading procure-to-play platform and its collection of enriched and validated supplier and GPO product and pricing data, you can use GHX Marketplace to create a win-win scenario, where responsible ESG practices coexist with cost-efficient and high-quality healthcare delivery.  

Marlin Doner

VP of Product Management