3 rd ANNUAL VENDOR ADVISORY COUNCILSeptember 2012 exploring the future of vendor credentialing A MODEL FOR BUILDING VENDOR AND HOSPITAL RELATIONSHIPS THAT.

3rd ANNUAL VENDOR ADVISORY COUNCIL September 2012

exploring the future of vendor credentialing

A MODEL FOR BUILDINGVENDOR AND HOSPITAL

RELATIONSHIPS THAT WORK

PRESENTED BY: Dale L. Locklair, Mcleod Health

WE’RE LOST BUT…

We’re making great time!

– YOGI BERRA

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Why it matters…TO SUSTAIN THE MISSION, A HOSPITAL MUST…

…a 6% minimum margin

is essential

– DR. THOMAS R. PRINCE, NORTHWESTERN UNIVERSITY

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$ 3.0 Billon

$ 1.5 Billion

$ 0.75 Billion

$0Provider Manufacturer

$ 2.725 Billion$ 2.625 Billion

Back-Office Labor

Loss & Expiration

Revenue Leakage

Low Inventory Turns

Back-Office Labor

Low Inventory Turns

Loss & Expiration

Low-Value Sales Tasks

SOURCES: PNC Healthcare; GHX Quantitative Research Study (Aug 2010; n=136 & n=25)

PPI SUPPLY CHAIN IS $5B+ ANNUAL PROBLEM

It is waste shared equally by providers and suppliers

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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%

HEALTHCARE MANUFACTURERS: SG&A

Three-year weighted SG&A Expense as a % of Revenue

Someone wins only when someone else loses

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

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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

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The future of healthcare supply chains?

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OH, WOW! PARADIGM SHIFT!

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The pressure to achieve

effectiveness and efficiency

is expected to increase

significantly…

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…as rates are reduced for medical treatments or charges in order to reduce health expenditures and enhance the competition among the health care providers

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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.

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“Competition is about profits, not market share.”

– JOAN MARGRETTA from Understanding Michael Porter

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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

Market dynamics and the implementation of economic

principles are forcing healthcare providers to optimize cost structures and the effectiveness of efficiency

of business relationships.

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Hospital supply chains are increasingly expected to contribute to revenue gains and knowledge acquisition.

To achieve this goal, hospital supply chain leaders must…

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BETTER INTEGRATE INTERNAL CONSUMERS AS WELL AS THE EXTERNAL SUPPLIERS

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TO LEAD CHANGE, SUPPLY CHAIN LEADERS MUST EMBRACE THREE KEY CONCEPTS:

» Cooperation (trust and commitment)

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» Coordination (processes and standard work procedures)

» Communication (Information Systems)

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VALUE CHAIN THINKING BEYOND THE BOUNDARIES

Envision a larger value system…

a whole new world of relationships

Physicians

Providers

Suppliers

START THINKING OF VALUE AS A THREE-LEGGED STOOL

Patient

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VALUE CHAIN THINKING

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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.

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“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…”

“…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)

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HOW DO WE GET THERE?

There can be no friendship without confidence, and no confidence

without integrity.

– SAMUEL JOHNSON

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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.

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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.

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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.

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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)

SUPPLIER RELATIONSHIP MANAGEMENTConceptual Foundations

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• Relationship theory

• Social network theory

• Process re-design

• Transaction cost economics

MANAGEMENT-ORIENTED VIEW

TECHNOLOGY-FOCUSED VIEW

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PERSPECTIVES ON SUPPLIER RELATIONSHIP MANAGEMENTMain Focus

MANAGEMENT-ORIENTED VIEW

TECHNOLOGY-FOCUSED VIEW

» Proactive development of relationships between an organization and its suppliers

» Design, implementation and control of cross-organizational relationships to suppliers

» Continuous advancement of the ‘lived’ partnership to strategic suppliers

» Exchange of improvement ideas between buyers and suppliers

» Coordination of procurement process and monitoring of quality consistency of different suppliers

» (Technically) Integration of suppliers in procurement processes

» Continuous analysis and control of procurement processes and supplier performance

» 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)

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MANAGEMENT-ORIENTED VIEW

TECHNOLOGY-FOCUSED VIEW

PERSPECTIVES ON SUPPLIER RELATIONSHIP MANAGEMENTKey Objectives

» Enhancement of co-operation & quality of information flows

» Security of supply and leverage through negotiation of better deals from suppliers

» Continuous improvement with suppliers by encouraging innovation

» Compliance with contracts and regulations

» Better risk control through better information flows

» Lean processes and consolidation of supplier base

» Reduction of cycle times and process costs and better value for money (Total Cost of Ownership)

» Improvement of process quality

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)

3rd ANNUAL VENDOR ADVISORY COUNCIL September 2012

exploring the future of vendor credentialing

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.

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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

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but the one most responsive to change.

It is not the strongest of the species that survive,

nor the most intelligent,

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Mutual accountability enables teams to perform at levels far greater than the individual best of any one team member…

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“The result of long-term

relationships is better and better quality, and lower and lower costs.”

– W. EDWARDS DEMING

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exploring the future of vendor credentialing