Category Archives: Guest Author

Don’t Wait for the Burning Platform (Start Your Procurement Transformation Now)

Today’s guest post is from Robert A. Rudzki, a former Fortune 500 senior executive of supply management who now advises other companies through Greybeard Advisors LLC, a strategic management consulting firm. Bob has authored several business books including the critically acclaimed Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise and Straight to the Bottom Line. Bob also writes the Transformation Leadership blog for the Supply Chain Management Review. Bob can be reached at rudzki <at> greybeardadvisors <dot> com.

 

A few years ago, US financial institutions were making so much money that their procurement departments were having great difficulty. They could not get any serious time commitment from their executive staff to discuss procurement and supply management opportunities.

I know that’s true, because I heard it directly from several chief procurement officers at insurance companies and banks, who approached me after I made a presentation on the West Coast. These CPOs were, to state it mildly, very frustrated in their jobs and with their senior management. They had a sense that there was real opportunity, but couldn’t get their senior management’s attention.

Today, the executives of many of those same companies probably wished that they had started paying attention to procurement and supply management back when they did not NEED to. In fact, the best advice for senior management, including senior supply management, is this: don’t wait until you are standing on a “burning platform”. Start the procurement transformation process now.

It may be easier, in some corporate cultures, to tee up a business case for change when things are going poorly; for example, when your company is on a “burning platform”. It’s a real sign of good leadership, and forward-thinking management, however, to decide to transform when you have no immediate urgency to do so.

One of the implicit challenges in building a case for procurement transformation in financial services is the atypical cost structure. Where are the direct materials (other than people) – that typically occupy center-stage in strategic sourcing? To a manufacturing eye, the banking industry cost structure appears strange – essentially all people and the so-called indirect spend. But, as some of you may know, indirect spend offers a larger percentage cost reduction opportunity – often well above 15% – when addressed with a robust strategic sourcing and negotiations management process (“SSNM” in Greybeard Advisors’ parlance).

Several of my colleagues at Greybeard Advisors have deep experience applying strategic sourcing in the financial services industry. The benchmarks from their experiences confirm the enormous potential to impact the bottom line at financial services companies.

Similarly, we have applied strategic sourcing in numerous “non-traditional” areas of spend at manufacturing companies, including spend for financial and marketing services. There are sizeable percent cost reduction opportunities – again, if approached with a genuine SSNM process.

Opportunities abound – but they don’t just happen by putting numbers and analyses on a PowerPoint chart. It takes real leadership, and a carefully thought-out transformation roadmap.

Thanks, Bob!

 

Supply Risk – Seize the Initiative!

Today’s guest post is by Brian Daniels (brian <dot> daniels <at> cvmsolutions <dot> com), VP of Strategic Marketing at CVM Solutions (acquired by supplier.io), a sourcing and procurement content and application solution provider to mid-market and large enterprise companies, including half of the Fortune 500.

In 2007, North American companies began to wake up to the dangers of supply risk. From the bankruptcies of a number of “big name” tier one automotive companies to the scandals of lead painted toys and tainted eels – just to name a few items – hitting the North American shores from China, supply risk changed from theory to reality for many companies. But twelve months later, are they any better prepared to manage supply risk? In many cases, the answer is no. Many companies are just beginning to think about what putting a supply risk management program into action means. In my view, this requires stepping back from some of the news headlines to better understand the specific types of risk which could have the greatest impact on your particular organization.

For example, while quality and labor issues dominate the news when it comes to China-sourced products, in many cases, it is total cost risk and supplier performance risk which should be of greater concern for companies doing business in the region. Consider how the chance of a change in currency value or tax/tariff/import regulations could create significant risk in the savings models that led to a global sourcing decision in the first place. Perhaps the most common risk we see in global – and even local – sourcing initiatives comes down to on-time performance. To this end, on-time performance is not just when an item leaves a factory, but when it arrives at your loading dock. On a global basis, there’s a lot that could go wrong in the weeks this process takes. But in my view, building visibility into past supplier performance – including on-time delivery – is critical to predict and model future supply chain performance – both locally and globally.

Another risk many companies fail to fully consider is their suppliers’ overall financial and corporate stability. Checking a Paydex score or third party credit rating alone is insufficient to develop a complete perspective into whether or not a supplier will be able to stay in business to meet your organization’s continuing needs. Taken alone, these analyses represent a point-in-time snapshot based on information which may or may not be accurate (and timely). These approaches should never replace expert-driven analysis and the direct verification of financial and other information with your suppliers. In my view, it’s essential to conduct customized and expert financial risk assessments based on metrics which matter most to your organization prior to contracting with a supplier. Furthermore, risk assessments should be part of ongoing monitoring and risk forecasting.

In addition, if supply risk information is managed and analyzed within silos inside a procurement organization, it’s critical to insure that this information is available to the rest of the company – or at least to those individuals who need it the most – whether it is via a portal-based system that provides proactive alerts and insights to front-line managers, who can develop mitigation strategies and approaches, or some other mechanism. Some companies and providers might call this supply risk “dashboarding”, but the name is not important. The key is to make sure that these information sources provide the right level of information to the specific individuals who can make a difference if they’re brought into the supply risk loop in time to intervene before a preventable risk rears its ugly head.

Are Your International Procurement Skills Up to Snuff?

the doctor is pleased to welcome Dick Locke of Global Supply Training back to Sourcing Innovation.

My guest post on the issue of keeping talent mentioned a ten-question quiz on global supply management skills. After the post, there was a surge of people who took the quiz. I have to say the results were disappointing. I graded the first thirty answers that came in after my guest posting. The average number of correct answers was 1.5 out of 10. Two people tied for top score with six correct answers. The average number of questions that were answered at all was 5 out of 10.

If I assume that the answers largely came from readers of this blog, I suggest some training is in order before you source outside your home country.

The quiz had questions on cultural differences, legal issues, customs and logistics, foreign exchange risk management and sourcing techniques. I’ll be the first to admit that it’s not a perfect quiz. Two of the questions are US-centric, and one has some wording that misled a few people. However, there were many areas where basic knowledge was obviously lacking.

  • Two people out of 30 recognized my description of the U.N. Convention on the International Sale of Goods.
  • Two people out of 30 knew that forward contracts were the standard way to protect future exchange rates.
  • Five people out of 30 knew that the buyer has the in-transit risk of loss under the CIF Incoterm.
  • Estimates of the time it takes a container vessel to travel from Japan to the US West Coast ranged from 5 hours to 56 days. The average and median were about 18 days. Only one person came within 5 days of the correct answer (9 days for a Panamax or post-Panamax vessel). OK, that one is US-centric.
  • On the brighter side, twenty out of thirty recognized that Japan is a country where people have difficulty saying “no” or giving bad news directly. That question had the best result.

At the risk of appearing self-serving, I think it’s obvious that the people who took this quiz need a skill upgrade on global issues before they work outside of their home country.

As a final note, Dick’s company, Global Supply Training offers training on international procurement issues.

Onegai shimasu, Dick.

Why do Hospitals Struggle to Run like a Business?

Today’s guest post is courtesy of Andy Monin, President and CEO of VendorMate (acquired by GHX, acquired by Thoma Bravo) and fellow blogger over on Vendor Compliance.

I’ll join Michael Lamoureux et al. in opining that of all industries, healthcare has the greatest opportunity to benefit from e-Procurement.

In my opinion, Healthcare Materials Management professionals have the toughest job in all of supply chain management. These professionals could only wish that their job was merely to find the best products at the best prices. Unfortunately, they have many more pressing factors that dictate their daily activities and purchasing decisions, and it’s the combination of these factors that would make the centralization and automation of e-Procurement particularly beneficial. Here are just a few of the complicating factors that trouble hospital materials managers.

#1 Compliance

Hospital Materials Management professionals have a myriad of regulatory and compliance requirements that put a strain on their operations, staff and resources.

To start with, unique government regulations burden hospital materials management professionals by requiring extensive data collection and process modifications.

  • Stark Law/Anti Kick-back Statute
  • OIG Medicaid/Medicare Fraud/Sanction List
  • OFAC (Patriot Act)
  • FDA/USDA Recall Management
  • Pandemic/Epidemic Readiness

Few other industries have to deal with these uncoordinated requirements. Each one is an independent initiative. On top of that, these and other regulations begin to impact not just who the hospital does business with but also who can come into the facilities.

For example, vendor representatives that have access to procedural areas are required to provide immunization documentation, product competency information, HIPPA/privacy policy acknowledgements and Operating Room safety documentation prior to gaining access. Failure to capture and monitor these thousands of documents from hundreds of representatives that are coming and going from year to year puts the hospital at risk of failing internal/external audits that can jeopardize Medicare/Medicaid reimbursements.

#2 Reimbursement Dependency

Do not underestimate the importance of Medicare/Medicaid reimbursements. Hospitals across the nation are suffering from revenue that does not keep pace with the rising cost of service. Increasingly stringent and flat levels of reimbursement from Medicaid, Medicare and insurance companies continue to erode hospital revenues and jeopardize the solvency of many health systems; however, the vendors selling to hospitals continue to report rising revenue and earnings year-over-year.

The documentation — of compliance, of diagnostic codes, etc. — means that the inflows and outflows of cash are not as simple as the typical procurement flow from purchase order to invoice to payment. A slip in any one of these steps leads at best to a dispute with Medicaid, Medicare and insurance companies. At worst, it’s a legal issue.

#3 Taking Advantage of a Fragmented Space

There are over 5,000 hospitals in the United States. This means that a large percentage of a hospital’s supplier base and subsequent spend is with vendors that are significantly larger than the hospital. Individual hospitals have little negotiating leverage for pricing or service. Add to this the fact that many medical devices and drugs are sole sourced due to the proprietary nature of these technologies, hospitals are beholden to the suppliers despite the fact that hospitals are the largest distribution channel for those same suppliers.

Group Purchasing Organizations (GPOs) have stepped in to play a role in reducing costs. Hospitals are typically members of at least one GPO. Just as the name suggests, these GPOs reduce hospital costs by aggregating the spend of their participating hospital members. However, these organizations have squeezed the suppliers and most GPOs are realizing that you can only squeeze so much blood out of a turnip. Therefore, they are now attempting to deliver value tools to enable hospitals to more efficiently manage their operations. Time will tell if GPOs can morph their place in the hospital supply chain and deliver on the promise of being a trusted advisor rather than just a middle man for band aids and gauze pads.

#4 Physician Preference Items

Managing the complexity of physician preference items where patient care can be impacted is a restriction that is unique to healthcare purchasing. Frequently, Physician preferred items take precedence over cost savings, innovation, and efficiencies. Unfortunately, these items may be tied to conflicts of interest that are difficult to uncover and monitor. Is that same “more senior physician choosing to continue to use plaster casts because it is in the best interest of patients and quality of care? Or has the physician neglected to take on more innovative products from other vendors because the existing vendor of plaster casts takes him to elaborate “education sessions” in Lake Tahoe every year? Who knows?

#5 And a Mint on the Pillow

A few months back, I heard from one doctor that said his hospital is moving away from calling patients “a patient” and using the term “customer”. Wow!!!! That is a change of philosophy that might not be the in the best interest of patient care. Sure, individuals have to take charge of their healthcare and become educated consumers of these services. But the phrase “the customer is always right” doesn’t jive when dealing with patient care issues. Physicians are making life and death decisions based on years of experience and education and shouldn’t have to debate with a patient’s “WebMD, Google search, Super Bowl ad self-diagnosis and prescription”.

Vendors are a necessary and critical extension of the health system and therefore place a delicate balance on vendor/buyer/doctor/patient relationships that require greater scrutiny. If e-Procurement can eliminate some of the distractions — by holding down costs so that more people can receive quality care, by documenting compliance and sniffing out conflicts of interest — then the benefit of moving to this model cannot be denied.

Thanks, Andy!

Healthcare – Three Way Matching

Today I’d like to thank Vinnie Mirchandani of Deal Architect and New Florence. New Renaissance. for allowing me to re-post his thoughts on Healthcare – Three Way Matching as part of Healthcare Week.

At the HiMSS conference a couple of weeks ago, I had the privilege of having an industry veteran – Dave Watson – as a tour guide through the exhibit hall. He has years of experience at Baxter and Kaiser and is now CTO at MedeFinance, and it was a joy to hear his commentary on the technologies on display.

But at one point, he mentioned “three way matching” and I had to do a double take. Why was he talking about an age-old accounts payable concept of matching invoice with purchase order and receiving report?

The concept has been adapted in healthcare to reduce medication error with some slick new technology. The three-way match is across patient, prescription and care giver (whether certified to administer the medication) information. It involves all kinds of RFID and other sensors, bar codes, software to check on conflicts, and drug dispensers with their own controls built in.

How bad is the medication error problem? A recent study reported “One in every 10 patients admitted to six Massachusetts community hospitals suffered serious and avoidable medication mistakes”

So we saw the Motion C5 tablet.

Look at all the capture and communication technology it integrates:

wireless connectivity: to access patient information and physician’s order.

RFID: to identify patients, medications and assets

integrated bar code reader: to manage medicines or costly supplies

integrated digital camera: to take pictures and capture video for patient education and sealed design: wipeable for quick cleaning and disinfecting

bluetooth: to help capture patient vital signs

security: integrated fingerprint reader, hardware based encryption

Then on to smart pumps like Hospira’s Symbiq which delivers precise amounts of fluids, medications, blood, and blood products.

More safety checks – this time between the patient code, the IV bag bar code and the pump bar code. A wireless link connects both the pump and the bar-code scanner to the main database, which matches patient, order, and pump. If correct, the order is checked against the hospital drug library that contains formulation and dosing guidelines. Once verified, the pump is automatically programmed and the infusion can begin.

For pills, there are other smart dispensers such as this Medicine Cabinet developed by Accenture.

At the show we also saw various voice recognition products from Nuance. Doctors are notoriously poor scribblers so dictating prescriptions can also reduce other medication errors.

Of course, as with accounts payable, you can also have a 4 way match by introducing cross-check with an inspection report. My wife who works part-time at a hospital tells me about the four-way match in health care: The patient who asks “how come my pill today is pink. It was blue yesterday”. Inspection report indeed.