e-Procurement technology also provides benefits to group purchasing organizations (GPOs). Many hospitals turn to GPOs in an attempt to aggregate purchasing volume and use that leverage to negotiate discounts with manufacturers, distributors and other vendors. This concept is most often used for low-dollar, high-volume commodity spending. Where healthcare organizations can effectively use e-procurement with a GPO is to ensure that users are purchasing on-contract and, in turn, that the procurement department has visibility into the success or failure of the relationship as a whole.
Competitive Advantage from Automated Procurement
Healthcare organizations are gaining cost savings by putting more spend under management, whether through a GPO or not. In addition, they are investing more time in building better relationships with their suppliers. They are accomplishing these benefits with e-procurement solutions that provide a comprehensive catalog of contracted suppliers' goods and services enabled through an electronic shopping marketplace. With a decentralized, managed purchasing environment, clinicians and their staff gain the ability to see preferred or contracted products often not listed in today's traditional item master inventory (an older inventory management technology currently used by many hospitals). To ensure they are selecting the appropriate product, they also can review detailed comparisons of products via specific attributes to help them better understand product idiosyncrasies. Empowered with product, contract and pricing details, all purchasers are more likely to not engage in rogue buying and select the most affordable product from the e-procurement system.
With e-procurement, user adoption builds once clinicians and staff realize they have more variety and product information than is possible in an item master. As e-procurement delivers the ability to aggregate transactions in one place, purchasing professionals gain the spend insight they need to negotiate with suppliers for the best products and pricing.
Hosted e-procurement delivers a cost-effective approach to building more value into the healthcare supply chain. The purchasing automation gained through e-procurement also changes the landscape of the healthcare purchasing department. e-Procurement systems have the power to synchronize both item master data and supplier catalog content, thereby reducing the volume of special orders. This removes a burden placed on the time and resources of the procurement team, as well as increases spend under management. With procurement automation, healthcare organizations can more easily enforce purchasing policies and procedures.
With rules-based workflow and approvals, purchasing departments can become a strategic partner, focused on getting the most out of the supply chain. The benefits do not stop there. Purchasing departments can automate just-in-time inventory and their control over rogue purchasing. Through strategic negotiation of supplier contracts, they can ensure savings are realized, and they can gain greater price control to ensure that the same item purchased in different departments and locations is bought at the contracted price.
In real terms, what this all means is that e-procurement has definable value in healthcare. For example, when one of the world's premier cancer centers deployed e-procurement, the organization:
- Reduced supplier enablement time from one year to one month;
- Reduced inventory holding from $1 million to $300,000 by outsourcing warehousing;
- Reduced stock-keeping units by 70 percent, from 3,000 to 900; and,
- Placed more than 90 percent of spend under management.
Significant savings can be realized from the supply chain, but many healthcare organizations do not view supply chain performance as an essential part of their overall operating strategy. With the continuing rapid increase of all healthcare costs, there is an acute need to examine and improve supply chain processes. Those healthcare entities that do not take action will continue to struggle in the current economic environment.
About the Author: Gamble Heffernan is vice president of marketing at SciQuest, a provider of procurement automation and supplier enablement solutions. Her experience includes management positions at Misys Healthcare Systems, Cardinal Healthcare and GE Medical Systems. More information on SciQuest at www.sciquest.com.