Category Archives: Healthcare

Sanguine Strategic Sourcing

Today’s guest post is from Jennifer Ulrich, an Associate Director and Category Planning Subject Matter Expert at Source One Management Services as well as a contributing author of Wiley & Sons “Managing Indirect Spend: Enhancing Profitability”.

It’s not just vampires that find themselves looking for blood. Healthcare procurement professionals also depend on a consistent stream of the stuff, though they’d define stakeholders quite differently than Dracula. All purchasing is important work, but they can honestly say that their sourcing operations are a matter of life and death. Imagine learning that you couldn’t receive a transfusion because your medical center couldn’t locate a reliable supplier, or failed to plan for a disruption in its supply chain. It’s a terrifying thought.

Human blood ($150 – $180 a pint!) is one of countless commodities Source One’s consultants and I have helped our clients purchase more efficiently. For one organization in particular, it amounted to eight million dollars of total spend. You might think that sourcing a product out of a horror film would present especially grim or bizarre challenges, but the initiative proved straightforward. It essentially came down to a question of vendor consolidation, a question that’s always essential in procurement: Would our client benefit more from a single, or multi-source strategy?

Whether it’s blood or Butterfingers you’re buying, your answer to this question will largely shape your strategy. It’s important to consider the potential drawbacks and benefits of both approaches.

The recent rash of natural disasters have not only underlined the importance of well-supplied healthcare providers, but they’ve also reminded procurement teams around the globe how important it is to assess and mitigate risk across the supply chain. When you’re dealing with a commodity as valuable as blood, the smallest disruption can have deadly ramifications. In theory, a multi-source strategy reduces the risk of shortages by broadening the supply base. Medical organizations that draw blood from a number of suppliers are unlikely to be completely drained if one should come up short.

A multi-source solution also presents the potential benefit of supplier competition. Leveraging this could mean a more agreeable arrangement or sustainable strategy. Though your average individual might know of just one blood supplier (you know the one), the field is actually saturated with a number of emerging regional businesses. Granted a seat at the table, they can drive more competitive pricing while partnering with one another to collectively manage volume concerns.

Sourcing from more than one supplier does not, however, eliminate risk or produce value in every instance. In fact, an organization might find that the strain and uncertainty of managing multiple supplier relationships outweighs its benefit. Consistent communication is essential for maintaining an amicable, respectful, and fruitful relationship with any provider. It’s obviously far easier to ensure open lines of dialogue with a single vendor than with a large group. The right SRM expert can make any arrangement work, but it’s often preferable to consolidate your supplier base for more personalization and collaboration.

In this particular situation, our client found that one trusted supplier could most effectively meet their specifications. With our help, they learned that a close relationship with this provider presented considerable value incentives. In addition to a tiered discount structure, they offered risk management solutions in the form of comprehensive training programs. By educating end users on the proper procedures for transporting, handling, and administering blood they helped foster a sense of teamwork while greatly reducing the chance of lost or wasted product.

There’s no O negative approach when it comes to assessing the market. One company’s life-saving cure could send another into convulsions. That being said, whatever your industry, whatever size your supply base, the same set of principles apply for effectively maintaining relationships and encouraging compliance. The most successful procurement professionals perform a transfusion of sorts. They supplement the foundational techniques of good sourcing with a healthy dose of innovation to determine the appropriate treatment.

In a future post we’ll dissect single and multi-source strategies and discuss which situations favor which approach. Happy Halloween!

Thanks, Jennifer!

Top 12 Challenges Facing India in the Decades Ahead – 06 – Health Care

As per our post on poverty, health care is a substantial problem in India. Not only does India have the 9th lowest life expectancy among the 16 countries outside of sub-saharan Africa that are poorer than it is, but is also has the 10th lowest infant and under-5 mortality rates and the second worst proportion of children under 5 who are undernourished! Then, as per our last post on education and opportunity, at leaset 93% of the workforce has no health insurance in a country leaning heavily towards privatized health care.

And this is just the tip of the iceberg. Almost 40% of all deaths in India are still due to infections! (Source: Health and Health Care in India) The majority of the remainder are due to non-communicable conditions such as cardiovascular diseases, chronic respiratory disorders, and cancers. (Compared to the developed world which manages most chronic respiratory disorders and some of the cardiovascular diseases so well that the patients often die from other causes.) In comparison, the only type of death due to infections to break the top 10 in Canada is death due to influenza and pneumonia which strike down 1.6% of the population to grab the 9th spot. In other words, the number of deaths in India due to easily treatable infections is at least 20 times higher than it should be!

India currently spends about 1.2% of GDP on publicly funded healthcare, an amount considerably less than most other comparable countries. In comparison, health care spending clocks in at 5.1% of GDP in China and Russia and 9% in Brazil! (Total spending on health care, including all private spend, is about 4%, but the private spending is mainly by the rich.) Due to this limited funding, and the substantially insufficient funding allocated to the National Rural Health Mission (NRHM) (as outlined in our post on Poverty), 400 Million to 600 Million of the poorest Indians do not get access to the essential medicines they need. When you also consider that India is now the worlds 3rd largest producer of medicine by volume, the absurdity of the situation really comes into the spotlight.

And progress is slow. Even if the extension of the Government’s National Common Minimum Programme, announced by Prime Minister Manmohan Singh on the country’s 66th Independence Day achieves its goal and provides access to free public health care to over half of the population by 2017 (as opposed to the fifth who currently have access) via the country’s 160,000 sub-centers, 23,000 primary health care centers, 5,000 community health centers, 1,000 sub-district hospitals, and 600 district hospitals, that will still leave hundreds of millions of Indians without access to even the most basic of health care services. (Furthermore, the proposal that the Federal Government would directly fund 75% of the relatively limited cost of extending the generic medicines supply to the public health service doesn’t go far enough. At least one third of the population cannot afford to pay even 25% of the cost of generic medicine, which, as it is produced in India, represents relatively little cost to the Government.)

And even though 160,000 sub-centers might sound-impressive, the requirements for a sub-center is one Auxiliary Nurse Midwife (ANM) and one Male Health Worker. That’s it. Not even a full nurse. You only find those in Primary Health Centers, Community Health Centers, and Hospitals. In addition, the primary health centers (PHC) also tend to be minimally staffed. They are only required to have one medical officer (doctor) who is supported by an average of 14 paramedical and administrative staff, in total, and, at current numbers, support a population base of 50,000 people! Furthermore, a community health center, which has to serve approximately 200,000 people on average, typically only has four medical specialists (a surgeon, general physician, gynaecologist, and paediatrician). Plus, per capita, the number of physicians is quite low. Right now, India clocks in at roughly 6.5 per 10,000 people (and many of the doctors are in the hospitals), while Canada has 20.7 and the United States has 24.2. (Source, KFF) Also, while India has roughly 1,600 hospitals to serve 1,237 Million people, the United States has almost 6,000 to serve 314 Million people. In other words, there are 15 times as many people per hospital in India as there are in the United States. (770,000 citizens per hospital in India vs 52,000 per hospital in the United States)

Health Care is a huge problem and one that desperately needs to be solved. After all, if your population is not healthy, how can you expect to give it a good education if it’s worrying about being well enough to study? And if you cannot educate it, how can you ready it to take advantage of any opportunity that may give it the hope of lifting itself out of poverty, something which must be done to increase the tax base enough to build the required infrastructure to support the fierce competition of today’s global economy?

BravoSolution’s Business Center 2.0 – A Complete Category Solution for Transportation, MRO, Temporary Labour, GPO Category Management, and Retail: Part I

Two years ago, we reviewed BravoSolution‘s Business Center Category Sourcing Solution that took e-Sourcing to a new level for nine common categories that provided the average Supply Management organization with a considerable sourcing challenge. In order to maximize savings in each of these categories, the organization needed to construct category-specific RFQs/RFBs for the category, collect extensive amounts of detailed data, build a tailored model, and/or analyze the impact of each possible sourcing decision. And if the RFXs were designed wrong, the data was incomplete, or the model missed key trade offs, the solutions were sub-optimal at best, and not even as good as the current supply management situation in the worst case.

That’s why BravoSolution built a solution that, capturing the years of experience and knowledge built-up by their global sourcing and solutions teams (who work out of offices in ten different countries on four different continents), that would allow a buyer to:

  • define an event of the supported type with the click of a mouse,
  • dynamically determine appropriate, and minimal, data requirements,
  • send the appropriate RFXs to the chosen suppliers with just a few clicks of the mouse,
  • push the data into the optimization engine,
  • add or remove (default and pre-defined) constraints with a few mouse clicks, and
  • select the award scenario and generate a contract template with a click of the mouse.

It was a great leap forward in e-Sourcing technology for the average buyer who was not an expert in e-Sourcing, and definitely not an expert in the chosen categories. But it had limits — specifically, out-of-the-box, it was limited to the categories that it supported or to categories for which repeatable methodologies could be identified and for which appropriate workflows could be implemented (as long as the buying organization was willing to work with the BravoSolution team to build a new category solution).

Knowing this, and knowing that certain industries had needs that were different than other industries, BravoSolution decided that what was needed was an equally simple solution that could be applied company wide (to all significant categories) for buyers in industries that needed extra support (either due to the complex nature of the problems, the time intensiveness of the categories, or the average level of e-Sourcing sophistication of the buyer in an industry where the average organization is arriving late to the advanced sourcing party). This is because BravoSolution realized that the reality of the situation is that if e-Sourcing is easy to use for some categories, but hard to use for other categories, the organization will continually favour the easy categories in their sourcing efforts, to the detriment of the organization’s cost savings or value generation goals. If a sourcing event is appropriately designed and effectively executed, and the organization has Procurement policies and systems in place to insure that the identified and negotiated savings are appropriately captured, most of the savings are going to be identified in the first event and the incremental return on subsequent events, especially in an economy where costs are going up and the supplier has more bargaining power, will be minimal. Meanwhile, more and more dollars will flow down the drain as savings-rich categories get continually ignored.

But if the sourcing team is presented with a solution where every souring event is as easy as every other sourcing event, intelligence is built in for all of the common categories, and existing data (such as supplier locations, contract transportation pricing, production constraints, etc.) can be re-used and propagated from one event to the next, then every category is going to be given equal consideration for the strategic sourcing treatment. And BravoSolution’s new and improved business center solution makes this a reality for the Transportation (3PL), MRO, Temporary Labour, GPO Category Management, and Retail industries.

In the remainder of this series, we will discuss BravoSolution‘s new business center solution, built on collaborative sourcing capabilities (that were covered in these posts on Collaborative Sourcing, High Definition Sourcing, and Category Excellence) for MRO, GPO Category Management, and Retail. Stay tuned. (We’ll be back at the same KaT time on the same KaT channel.)

It used to be that Doctors made Life and Death Decisions. Now Supply Managers do too!

This recent CSR briefing over on the CPO Agenda on when good procurement can be a life and death factor is great food for thought as it points that not Supply Management is more then just sourcing and procuring, it’s also also sustaining and securing — in more ways than one!

Focussing on how the early 2000s saw several incidents where hospital patients inadvertently received excess doses of their drugs that resulted in fatalities, the article pointed out how a poor selection of IMDs (Interactive Medical Devices) that didn’t do anything to prevent common human errors was the reason that a premature baby died after receiving 10 times the required dose of diamorphine and a person lost their life after receiving a dose 24 times too high after a daily dose was miscalculated as hourly when it would have been trivial to code in a dosage check that asked a nurse or doctor are you sure before administering a dose outside of the range. After all, it’s easy to mistype a decimal point and then 13.5 ml becomes 135 ml, or click the hourly instead of daily button if you’re in a rush (and what health-care professional isn’t overworked these days)?

Now, you could say that the real problem was lack of training, as better training could have minimized the possibility of human error, but in each case sourcing was involved. In each case, a wide range of IMD devices were in service in each of the hospitals. And in each case, each time a procurement exercise took place, a different machine was chosen as the most cost effective. The factor that should have been last on the list was placed first and people died. Remembering that Supply Management’s ultimate goal is value (creation), not cost (reduction), and in this case, the value was procuring the best IMD for the hospital, not the cheapest one today, where the best IMD was one that was easy to use, programmed with easy range checks, reliable, fault tolerant, long lasting, and safe and reasonably priced with respect to these requirements. Considering the inherent value in human life (and the cost of the lawsuit or settlement that the hospital is going to have to pay as a result of a preventable death), if that means spending 20% more, so be it.

If instead of sourcing IMDs as one-off sourcing events when a need arose, Supply Management put security and sustainability first and foremost and redefined IMF sourcing as a multi-year master contract agreement, negotiated against projected demand over the next 3-5 years, lives might have been saved as there would likely not be more than two types of IMDs at any one time (the ones sourced during the last contract, and the ones being sourced during the current contract, where the contract length is defined to insure all of the old machines are replaced before a new contract is negotiated with the possibility of switching vendors) and the amount of training the health care staff would need would be minimal.

And the reality is that medical device sourcing is not the only area of Supply Management where lives are at stake. Supply Managers also source food and beverage categories, and melamine in the milk, diethylene glycol in the toothpaste, salmonella in the spinach, bovine spongiform encephalopathy in the beef (which can cause Creutzfeldt-Jakob disease), and botulism in the chili sauce can all result in death, and if not caught in time, can be as deadly as a plague or coronavirus (SARS).

And Food & Beverage is just one example. The chemical sector is another. What if the chemicals are hazardous and the storage units are poorly made and leak? Cyanogen chloride is colourless, and deadly, and used in the production of Chlorosulfonyl isocyanate which is used in medicine in the production of Beta-lactams, which form the foundation of antibiotics (including penicillin).

Another is heavy machinery. Carbon monoxide (CO) is regularly produced by internal combustion engines in enclosed spaces. If the exhaust system is not airtight and properly insulated, CO could leak into the factory and poison (or kill) your workers before they even know it’s there as it is an odourless colourless gas.

The point is, where physical products are concerned, almost anything you source could be a hazard to human health, and even life. (We still have problems with led in the paint and asbestos in the insulation when sourcing from overseas.) This doesn’t mean that you don’t have to worry about services — it just depends on what you’re sourcing and what products and materials the service providers have to use in the performance of their jobs. For example, Janitorial Services could be a problem if the company is contracted to provide the cleaning products and they consistently use cleaners with too high a borax concentration which is not properly cleaned up.

So, next time you source, get out that corporate social responsibility scorecard; make sure safety, security, and sustainability play a prominent role, and remember that, indirectly, you could be responsible for someone’s life.

Your job just changed, didn’t it?

The New Technology Elite

Coming out in hard-copy form next Tuesday, March 27, The New Technology Elite is the next must-read book on your list (and is already available in The Kindle Store for those of you who want an early start). Vinnie Mirchandani’s latest release on how great companies optimize both technology consumption and production, it is a great follow up to The New Polymath, which chronicled profiles in compound-technology innovations (and which was reviewed here on SI in The New Polymath’s Ten Rules for Success), this book looks at “consumer” (tech) companies that have better technology in-house at a larger scale than most (IT) enterprises. With case studies ranging from the media poster child, Apple, through UPS to Valence Health and Taubman Shopping Centers (yes, shopping centers), it is a fascinating read on how the best product and service companies embrace technology at their core, and utilize it to do whatever they do better, and even innovate upon it in ways that even the big IT shops, who are supposed to be innovating this technology, miss. (For example, UPS had enterprise-ready PDAs [Personal Digital Assistants] long before such technology was generally available in the small business and consumer markets. And, in some ways, they out-innovated shops like Palm and Blackberry.)

The supply chain elite know Apple’s story all too well: optimize the supply chain, optimize the cost, and maximize the profit as the high quality items sell for a premium over competitor’s products. And many of us know about HP’s Quest for a “10 Out of 10″ supply chain. And the logistics professionals will know about the decades of technology innovation at UPS, but how many of us know Valence Health, chronicled in Chapter 11?

The US health care system is flawed. As Vinnie astutely points out in Chapter 11 (which is an appropriate location for these factoids as Chapter 11 is a short-form reference to the US Bankruptcy code, and that is the path many traditional health care providers seem to be on), the average cost of health care in the US in 2007 was $7,290 — nearly two and a half times the OECD average of $2,984. And yet, U.S life expectancy, child mortality, and other health metrics are significantly worse than those of other developed countries. Plus, the number of medically uninsured in the US grew 16% from 39.8 Million in 2001 to 46.3 Million in 2008, which left almost 15% of the country uncovered despite record levels of spending. Three of the biggest flaws, according to Stockard (a co-founder of Valence Health) are:

  • Fee-for-service reimbursement
    Providers have no incentive to focus on improving the quality of care to bring costs down as they get paid per service, not per outcome.
  • Lack of population management
    There is no one party responsible for the health of the population as a whole with a focus on keeping people healthy.
  • Inability to measure quality of care
    Lack of comprehensive data across health-care providers and disagreement as to how to measure quality has created a void in measuring the quality of care and outcomes by individual providers.
    There is a lack of evidence as to the impact of different treatment patterns.

To combat some of these issues, Valence Health created an analytics-based product portfolio that provides a turnkey HMO solution capable of administering the financial, actuarial, data analysis, claims payments, customer service, and medical management functions of provider-sponsored health plans across the U.S. This allows groups of doctors and hospitals to come together in a clinical integration practice that allows them to collectively negotiate enhanced reimbursements from healthcare plans, something the FTC won’t allow them to do on their own. This provides a foundation for doctors to negotiate reimbursements based on quality of service and outcomes (instead of having to rely on the quantity of services to reach a profitable reimbursement level). This makes much more sense than a strictly-defined per-service fee as a cured patient will not generate future healthcare costs and is more beneficial to the insurer than a provider who keeps treating the patient indefinitely to cover the costs of having a patient. In addition, the meaningful data that can be pulled from the disparate information systems of various healthcare providers allow these providers to not only define a standard quality of care, but measure it against the benchmark. For the first time, many of these doctors and hospitals can move away from a fee-for-service reimbursement mindset, monitor their population, and measure the quality of care — which is a first step to overcoming many of the flaws of the current U.S. healthcare system. Using technology, Valence Health not only mastered the use of technology in its operations, but disrupted the health-care market.

And this is only one of the many examples of the innovative uses of technology that Vinnie chronicles in his latest tome. Many disrupted and made new markets, when the companies weren’t even looking, and all of them improved operations and customer service. If more companies followed the practices described in this book, maybe it wouldn’t be the case that I’m lamenting that, for the most part, Customer Service Has Gone To Hell in the average organization.

Vinnie starts the book off by quoting Led Zeppelin who always said that this is a song of hope before they performed Stairway to Heaven and it really is a book of hope. It shows that, with dedication and perseverance, companies can use technology to innovate products and operations and take themselves, and their customers, to a new level. Let’s hope that more than a handful of company leaders pick up the book and actually read it — cover to cover — as it is filled with insights well beyond the dozens of deep case studies and hundreds of success story references that it contains.