exploring the future of vendor credentialing
3rd ANNUAL VENDOR ADVISORY COUNCIL
September 2012
A MODEL FOR BUILDING
VENDOR AND HOSPITAL
RELATIONSHIPS THAT WORK
PRESENTED BY: Dale L. Locklair, Mcleod Health
WE’RE LOST BUT…
We’re making
great time!
– YOGI BERRA
2
TO SUSTAIN THE Why
MISSION,
A
it matters…
HOSPITAL MUST…
…a 6%
minimum margin
is essential
– DR. THOMAS R. PRINCE,
NORTHWESTERN UNIVERSITY
3
PPI SUPPLY CHAIN IS $5B+
ANNUAL PROBLEM
It is waste shared equally by providers and suppliers
$ 3.0 Billon
$ 2.625 Billion
$ 2.725 Billion
Low-Value Sales
Tasks
Loss & Expiration
$ 1.5 Billion
Revenue Leakage
$ 0.75 Billion
Low Inventory
Turns
Loss & Expiration
$0
4
Low Inventory
Turns
Back-Office Labor
Back-Office Labor
Provider
Manufacturer
SOURCES: PNC Healthcare; GHX Quantitative Research Study (Aug 2010; n=136 & n=25)
HEALTHCARE MANUFACTURERS:
SG&A
Three-year weighted SG&A Expense as a % of Revenue
Segment Mean – SG&A for healthcare manufacturers is
6.39 to 15.49% higher than other industries*
Gartner Cross-Industry Supply Chain Top 25
(CP, High Tech, A&D, Auto, Life Sciences, Industrial)
*Cross-Industry Supply Chain Segment Mean 17.51%
5
HEALTHCARE COST SHIFTING
AS WE KNOW IT
» Costs are cut by shifting them to others.
To “win”:
– Physicians must “cut” better deals
with hospitals
– Hospitals must merge into groups
to gain more bargaining clout
– Insurers must restrict services and
reduce reimbursements
– Manufacturers must carry excess
inventories to meet unanticipated
and poorly managed demand
Someone wins only when someone else loses
6
POSITION OF TYPICAL HOSPITAL
SUPPLY CHAIN DEPARTMENTS
» Weak position in the health service delivery value chain
» Low attention/priority from C-Suite
» Pure cost driver only to attain best cost for goods and
services
» Weak trust relationship between buyer and supplier
» Adversarial relationship between buyer and supplier
7
The future of
healthcare
supply chains?
8
OH, WOW!
PARADIGM SHIFT!
9
The pressure
to achieve
effectiveness
and efficiency
is expected
to increase
significantly…
10
…as rates are reduced
for medical treatments
or charges in order
to reduce health
expenditures and
enhance the
competition among the
health care providers
11
HOSPITAL SUPPLY CHAINS
» Must move rapidly toward the adoption
of information and communication
technology in order to improve:
– Effectiveness
– Efficiency
– Quality of health services
– Transparency of economic activities
– Availability of real time information.
12
“Competition is
about profits, not
market share.”
– JOAN MARGRETTA
from Understanding Michael Porter
13
COMPETITIVE ADVANTAGE
SHOWS UP ON THE P&L
“Competitive advantage
is not about beating
rivals; it’s about
creating unique value
for customers.”
– JOAN MARGRETTA
from Understanding Michael Porter
14
Market dynamics and the
implementation of economic
principles are forcing healthcare
providers to optimize cost structures
and the effectiveness of efficiency
of business relationships.
15
Hospital supply chains are
increasingly expected to
contribute to revenue gains
and knowledge acquisition.
To achieve this goal, hospital
supply chain leaders must…
16
BETTER INTEGRATE INTERNAL CONSUMERS
AS WELL AS THE EXTERNAL SUPPLIERS
17
TO LEAD CHANGE, SUPPLY CHAIN LEADERS
MUST EMBRACE THREE KEY CONCEPTS:
18
» Cooperation
» Coordination
(trust and
commitment)
(processes and
standard work
procedures)
» Communication
(Information
Systems)
VALUE CHAIN THINKING BEYOND
THE BOUNDARIES
Envision a larger
value system…
a whole new world
of relationships
19
START THINKING OF VALUE AS A
THREE-LEGGED STOOL
Patient
Suppliers
Physicians
20
Providers
VALUE CHAIN THINKING
Every activity must be
seen not simply as a cost,
but as a step that
must add some
increment of value to
the finished service.
21
“Medical performance tends to follow a bell
curve, with a wide gap between the best and
worst results for a given condition, depending
on where people go for care.
The costs follow a bell curve…But the
interesting thing is: the curves do not match.
The places that get the best results are not
the most expensive places. Indeed, many are
among the least expensive…”
22
“…The pattern seems
to be that the places
that function most
like a system are the
most successful.”
– ATUL GWANDE
(The New Yorker, May 26, 2011)
23
HOW DO WE GET THERE?
There can be no
friendship without
confidence, and
no confidence
without integrity.
– SAMUEL JOHNSON
24
CREATE A COMMON FRAME
OF REFERENCE
Create a common frame of
reference that enables effective
communication, improving the
efficiency of processes used to
acquire goods and services,
manage inventories and
process materials.
25
IMPLEMENT SUPPLIER-FACING
BUSINESS PRACTICES
Healthcare providers must
implement supplier-facing
business practices enabled
by collaborative software,
allowing everyone to work
together for mutual
success and develop
deeper relationships.
26
COORDINATE AT
THREE PROCESS LEVELS
» Business Processes
» Support Processes
» Management Processes
…developing the building blocks
for the implementation of a
cooperation strategy, ensuring
that sourcing activities are
interconnected and virtually
transparent.
27
SUPPLIER RELATIONSHIP
MANAGEMENT
Conceptual Foundations
MANAGEMENTORIENTED VIEW
28
TECHNOLOGYFOCUSED VIEW
• Relationship theory
• Process re-design
• Social network theory
• Transaction cost economics
SOURCE: Tobias Mettler, T. and Peter Rohner (2009). Supplier Relationship Management: A Case Study
in the Context of Health Care (Journal of Theoretical and Applied Electronic Commerce Research)
PERSPECTIVES ON SUPPLIER
RELATIONSHIP MANAGEMENT
Main Focus
MANAGEMENTORIENTED VIEW
29
TECHNOLOGYFOCUSED VIEW
» Proactive development of
relationships between an
organization and its suppliers
» Coordination of procurement
process and monitoring of quality
consistency of different suppliers
» Design, implementation and
control of cross-organizational
relationships to suppliers
» (Technically) Integration of
suppliers in procurement
processes
» Continuous advancement of the
‘lived’ partnership to strategic
suppliers
» Continuous analysis and control
of procurement processes and
supplier performance
» Exchange of improvement ideas
between buyers and suppliers
» Automation of all procurement
activities between the enterprise
and supplier
SOURCE: Tobias Mettler, T. and Peter Rohner (2009). Supplier Relationship Management: A Case Study
in the Context of Health Care (Journal of Theoretical and Applied Electronic Commerce Research)
PERSPECTIVES ON SUPPLIER
RELATIONSHIP MANAGEMENT
Key Objectives
MANAGEMENTORIENTED VIEW
TECHNOLOGYFOCUSED VIEW
» Enhancement of co-operation &
quality of information flows
» Better risk control through better
information flows
» Security of supply and leverage
through negotiation of better
deals from suppliers
» Lean processes and consolidation
of supplier base
» Continuous improvement with
suppliers by encouraging
innovation
» Reduction of cycle times and
process costs and better value for
money (Total Cost of Ownership)
» Improvement of process quality
» Compliance with contracts
and regulations
30
SOURCE: Tobias Mettler, T. and Peter Rohner (2009). Supplier Relationship Management: A Case Study
in the Context of Health Care (Journal of Theoretical and Applied Electronic Commerce Research)
exploring the future of vendor credentialing
3rd ANNUAL VENDOR ADVISORY COUNCIL
September 2012
THE INFORMATION CLOUD
ALIGNING INFORMATION TECHNOLOGY
WITH BUSINESS FUNCTIONS AS A
STRATEGIC ENABLER
Define the strategic needs
Develop standardized processes
and checklists
The hospital’s supplier relationship management, it is important
to examine the processes and the infrastructure, which supports
the achievement of the strategic targets. For an innovation driven
climate in which information and communication technology
becomes a strategic enabler for tangible (e.g., reducing process
cycle-times and costs of sourcing processes) and intangible (e.g.,
improving quality of supplier master data) benefits, the extensive
exchange of ideas between the purchasing and the IT department
is extremely important as well as with external software vendors,
e-marketplace operators etc.
32
WHY COLLABORATE?
» We ALL are being asked in many
ways to make dramatic changes
in care delivery models
» We must breakdown the historic
differences that exist between
hospital supply chains, physicians
and manufacturers
» Physicians, manufacturers and
hospitals must collaborate to
eliminate waste, lower cost and
increase value for the Patient
33
It is not the strongest of the species that survive,
nor the most intelligent,
but the one most responsive to change.
34
Mutual accountability enables teams to perform
at levels far greater than the individual best of
any one team member…
35
“The result of
long-term
relationships
is better and
better quality,
and lower and
lower costs.”
– W. EDWARDS DEMING
36
exploring the future of vendor credentialing