Supply Chain System Innovation
Global Healthcare
Exchange Canada
Trade Exchange Adoption
Team 8: Brigitte Allaire, Tamara Burnham, Yilan Zhang, Jackie Derhak
Outline
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Organization
Organization Strategy and Business Model
Organizational Problem
Information Aspect of Problem
IT/IS impacts
GHXC’s approach
Recommendations
Messages for Modern Leader
Where is the GHXC today?
Organization
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Founded in 2000, GHXC operates as a subsidiary of Global
Healthcare Exchange, LLC
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GHX Founded and owned by health-care manufacturers
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Internet-based trading exchange - hospitals can purchase
medical and non-medical products
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Provides single-source ordering and tracking for medical and nonmedical products
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Provides B2B procurement solutions for the healthcare industry
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Offers supply chain solutions, market intelligence, and pharma
solutions
Organization (cont’d)
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Connected hospitals, suppliers, distributors, GPOs in order to
improve accuracy, speed and effectiveness of the purchasing
process.
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“Open” exchange, GHXC encouraged participation from any
buyer/seller in the health industry and as “neutral” exchange it
contrasted other companies that facilitated competitive bidding
environment.
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As of June 2002, GHXC had secured a solid foundation of
participants
The GHXC’s Strategy
 “Automating
operations”
 “An
 “A
and improving supply chain
E-commerce facilitator”
technology company” providing a
customized solution for improved
management information
The GHXC’s Strategy (cont’d)
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Customized solution
 Provided
range of connectivity options to integrate
into back-end systems:
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Browser-based solutions
Existing EDI channels
Software to facilitate direct connectivity to exchange system
 Standard
catalogue
 Reliable, secure and scalable platform
 Reporting tools
 Professional services
GHXC’s Business Model
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Establish widespread adoption of its solution by
hospital and suppliers
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Charge subscription fee to each trading partner in an
exchange.
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Suppliers paid 0.125% of their annual revenues in the hospital
supplies sector
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Attract hospital to e-commerce -> free trial period as
incentive to join
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Survey showed that hospital were willing to pay fees if
there was value in the solution
GHXC’s Business Model (cont’d)
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Improving relationship between health-care providers and
suppliers, resulting in reduced costs and better patient
care
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Goal of hospital supplies purchase market at 50% by
2004, 80% by 2006
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Intended to break even in 2004
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Once membership target reached, sales and marketing
costs could be reduced
GHXC’s Business Model (cont’d)
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Hospital with ERP and MMIS, with EDO and
connectivity software to be internet-enabled
would not incur cash cost to connect
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Older IT system needing upgrades ranged
from $1,000 to $20,000
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Other costs were time and resource
management
Organizational Problem
Operations
Organizational Problem
Operations
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Adoption & Communication Value
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Convincing stakeholders that GHXC would bring value to the
supply chain operations
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Persuading industry decision-makers to change their
behaviours and adopt GHXC’s solution
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Overcoming cultural barriers within the hospital purchasing
functions
Need Quicker Cost Recovery
Organizational problem (cont’d)
Operations
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Adoption
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Existing strong purchasing relationship
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Long term contracts
Price protection
Afraid of commoditization of products
Achieving critical mass of buyers/suppliers -> fine balancing act
Existing EDI vs New Exchange Solution
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Point-to-point with hundreds of dedicated lines vs Hub-like
connectivity platform
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EDI architecture
One-to-one
communication
between
computers
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Exchange architecture
Multiple
computers
within an organization
connecting to many
different suppliers
Organizational problem (cont’d)
Operations
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Cost Recovery
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Unlike most companies, GHXC focussed on cost recovery
instead of profit maximization
Sustainability:
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Considerable R&D costs
Important sales & marketing efforts
Bills had to be paid
Free buyer participation to build critical mass
Couldn’t indefinitely rely on supplier’s membership fees
Information Aspect of Problem
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Establish connections
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Understand the marketplace
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Health-care industry in Canada
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Understand the supply chain process
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Identify clients
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Purchasers
Suppliers
Distributors
The Marketplace
Health-care industry in Canada
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Of the total $90 billion health-care expenditure in 2001, $28.6
billion was attributable to hospital spending, of which 15% was for
supplies that could go through the GHXC system.
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Canadian health-care was coping with rising costs, struggling to
modernize hospital organization and administration
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Industry had underinvested in information technology
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Poorly integrated ERP and MMIS legacy systems -> “siloed”
information pockets and poor data management practices
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Supplier reach through existing EDI capabilities limited to ~15%
The Marketplace (Cont’d)
Health-care industry in Canada
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Legacy culture (Faxes, telephone calls)
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Lack of managerial operating information among participants
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Variability in price and service
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High purchasing search, transaction, and workflow costs
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Multi-levels and jurisdictions of Canadian health-care system
obstacle
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Canada fragmented, geographically dispersed market
Identify Clients
GHXC Targeted Buyers
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Primary focus: hospitals due to concentrated supplies spending
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Hospitals also tiered and fragmented
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75% of medical supply-spending came from ~150 hospitals (out of
1,000)
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Hospital operations departmentally driven, poor cross-department coordination
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Largely manual purchasing process with limited standard
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80% government funded -> behaviour towards budget preservation
Identify Clients
The buyers - what’s in it for them?
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Connectivity -> major driver in purchasing process efficiency
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GHXC allowed multiple transactions with more than 100
suppliers through one connection
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Customized technology solution and industry catalogue could
provide standards
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Automatic feedback on price, availability and shipping status
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Continuous real-time updates
Identify Clients
GHXC Targeted Suppliers
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Manufacturers and distributors
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Operating efficiencies a key priority
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Just-in-time delivery and supply chain management services
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Also tiered and fragmented with few supply chains among them
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Range from multibillion-dollar corporation to small privately owned
operations -> different levels of system sophistication
Identify Clients
The suppliers - what’s in it for them?
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Better access to purchasing behaviour and improved customer service
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Easy to provide product updates
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Moved to a demand-based model
For the Distributors:
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Benefited from updated pricing and payment information
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Reduced delays in payments; reduced errors
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Better inventory management
IT/IS Impact
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Technology obstacles inhibiting adoption
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3 different IT options available
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Browser based solution
Utilization of existing EDI to connect to ERP systems
Direct connectivity software between exchange and ERP
system
Browser Based Solution
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Software application for retrieving, presenting and
traversing information on the web
Pros:
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Used to access information and display resources
Easily accessible
Inexpensive for users
Control remains with consumer
Cons:
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Security of information
Existing EDI
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Transfer of data, automatic order process
Pros:
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Efficient for maintaining inventory
Reduction of order error
Customers able to acknowledge, modify, track orders
Cons:
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Expense
Customers require necessary technology
Perceived loss of control in ordering process
ERP
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Aims to integrate corporate systems by providing a single set of
applications within a single database
Pros:
 Manages and coordinates all functions and data
 If successful, improves internal operations
Cons:
 Complete system/process change
 Expensive
 Change in culture
 Complicated / risky
Organizational Problem
Marketing
Market place
Financial
Client needs
Operations
Supply chain
Web Browser
EDI
ERP
GHXC on the right track
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Some understanding of clients, processes and marketplace
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Marketing
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individual sales representatives
 Message had to be strong & clear
 Improve care-giving capabilities
 Reduce operating costs
 Sales included technology & organizational processes
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Flexibility in IT/IS implementation
Additional thoughts?
Our Recommendations
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Adoption strategy: Capturing connections
 Communication
is personal, not mass market
 Customer contact is interactive, not broadcast
 The customer service time frame is theirs, not yours
 The culture is bottom-up, not top-down
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Faster cost recovery directly linked to
clients realizing Value of GHXC services
Messages for Modern Leader
Moving Forward is about people
 Understanding users
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 “Technology camel”
Messages for Modern Leader
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The importance of Change Management should not be
underestimated
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Increasing executives’ understanding of IT => Champion
Where is GHXC today?
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As a subsidiary of GHX, limited information available
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In 2006, GHXC:
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296 Providers
57 suppliers
Compared to a strong Canadian competitor
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In 2009, CareNET:
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~ 500 providers
~ 100 suppliers
Where is GHX today?
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More oriented towards to US and Europe markets:
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Over the past five years, GHX saved the healthcare industry over $1.3
billion in labor costs alone
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Over 3,800 hospitals are connected to the GHX exchange in North America
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In Europe, over 1,000 healthcare providers and 200 suppliers are trading
electronically through GHX
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Enables over 7,200 healthcare providers and 2,400 suppliers in North
America to conduct business electronically
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Transaction volume on the GHX exchange has increased 1,500% since
2001, approaching $24 billion in 2008
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Now has 20 equity owners
QUESTIONS ?
Sources:
 www.carenet.ca
 www.ghx.com
 McNurlin, Sprague, & Bui (2009)
GHX grew from 15 to 20 owners
since 2002
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Equity owners of GHX include:
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Abbott Exchange, Inc.
AmerisourceBergen Corp.
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Baxter Healthcare Corp.
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B. Braun Medical Inc.
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Becton, Dickinson & Company.
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Boston Scientific Corp.
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Cardinal Health, Inc.
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Covidien
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C.R. Bard, Inc.
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Fisher Scientific,.
Inc.GE Healthcare
HCA Inc.
Johnson & Johnson Health Care Systems Inc.
McKesson Corp.
Medtronic USA, Inc.
Owens & Minor, Inc.
Premier, Inc.
Siemens Medical Solutions, USA, Inc.
University HealthSystem Consortium
 VHA Inc