90 th annual meeting & exposition april 3 – 6, 2011 memphis, tennessee contract management...

90th Annual Meeting & ExpositionApril 3 – 6, 2011

Memphis, Tennessee

Contract Management

Implementing Strategic Sourcing Best Practices in a Research Intensive Teaching Organization

John P. Willi, MBA, CPCM, C.P.M., A.P.P., CMRP

Dana-Farber Cancer institute, Boston, MA


Memphis, Tennessee

Contract Management

Organizational Structure

I. DFCI Background

II. Strategic Sourcing at DFCI

III. Application of Out-of Academic/Healthcare Best Practices


Memphis, Tennessee

Contract Management

BackgroundMetric Value

Date Founded 1947

Employees 3,989

Annual Visits & Infusions 299,202

Research Clinical Trials 736

Beds (at neighboring Brigham & Women’s Hospital)

27

RNs 401

Outpatient Departments 256

Inpatient Units 213

MDs 172

PhDs 174

Principal Investigators 230

Research Fellows 573

Nobel Prize Winners 1


Memphis, Tennessee

Contract Management

Background (cont’d)Metric Value

2009 Operating Revenues $810 million

2009 Operating Expenses $790 million

Research Departments Cancer Immunology & AIDSCancer BiologyMedical OncologyBiostatisticsPopulation SciencesPediatric Oncology

Affiliations with Brigham & Women’s HospitalChildren’s Hospital Boston

Teaching Affiliate of Harvard Medical School

Designations National Cancer Institute (NCI) - Comprehensive Cancer Center recognized for scientific excellence

American Nurses Credentialing Center (ANCC), a subsidiary of the American Nurses Association (ANA) - Magnet Recognition Program recognized for excellence in nursing service and practice


Memphis, Tennessee

Contract Management


I. DFCI Background




Memphis, Tennessee

Contract Management

Purchasing Adds Value in Two Primary Areas

Purchasing OperationsEnsuring that product/service is ordered efficiently and delivered on time and of high quality

Procure-to-Pay Process Optimization

Compliance

Supplier Management and Issue Resolution

Internal Customer Service & Training

System Optimization

Strategic SourcingSelecting suppliers to satisfy business requirements and optimize total cost of ownership

Leading or Supporting a Sourcing Process with Cross-Functional Team Members

Developing Supply Strategy

Conducting Cost Analysis

Challenging Requirements / Specifications

Commercial Negotiations

Supporting Implementation of New Suppliers

Ensuring Supply Capacity


Memphis, Tennessee

Contract Management

Strategic Sourcing

As defined by Dana-Farber:• To identify opportunities that bring operational efficiencies as well as cost savings and

cost avoidances throughout the organization and value chain.

Why the Process Works:

• Provides a fresh perspective. Through identifying the friction points of a typically good procurement process by utilizing a structured, analytical – evidence based, and collaborative methodology.

• Adds a sense of urgency. By facilitating stakeholder discussion of issues that are often tabled due to other day-to-day priorities.

• Identifies superstitions within organization. Bringing great people from different sections together to address what the process really is.


Memphis, Tennessee

Contract Management

Opportunity Identification

Business Intelligence Tool

Categorization in accordance with United Nations Standard Products Services Code

Marketshare analysis by Supplier, Category and Historical Trend

Benchmark analysis by Supplier, Category, Top and Medium Quartile

Department analysis by Spend, Category and Supplier

Top price increases per item and category

Enterprise Resource Planning System (ERP)

Spend reports by supplier in accordance with fiscal calendar

80/20 rule


Memphis, Tennessee

Contract Management

Seven Step Strategic Sourcing ProcessTimeframe

1 month

½ month

1 month

• Confirm user requirements• Develop category definition• Understand industry and supply markets

• Identify qualified suppliers• Determine supplier value-added capabilities• Develop supplier “short list”

• Assess bargaining position• Evaluate alternative strategies• Select appropriate approaches and

techniques

• Select competitive vs. relationship approach• Verify and adjust sourcing strategy• Develop implementation plan

• Evaluate supplier proposals• Plan negotiation strategy• Conduct negotiations with suppliers

• Plan and implement transition to new suppliers

• Implement new pricing on databases• Conduct joint process improvement activities

• Monitor market conditions• Assess new technology and best practices

impact• Determine opportunities to reexamine

category

Selected Activities

2. Generate Supplier Portfolio

4. Select Implementation Path

5. Negotiate and Select Suppliers

6. Operationalize New Agreements

1. Develop Category Profile

Strategic Sourcing Process

7. Sustain the Results

Inputs to Next SSI

• Supplier Performance

• Market Conditions

• New Technology

3. Develop Sourcing Strategy

½ month

on-going

Source: A.T. Kearney


Memphis, Tennessee

Contract Management

ABC Analysis – Potential Category Distribution


Memphis, Tennessee

Contract Management

Supply Market Analysis – Five ForcesA detailed understanding of these forces will uncover opportunities to create supply advantage!

Porter’s “Five Forces” Framework Insights to Develop

• What forces are at work?

• What drivers most influence supplier competitiveness in this segment?

• What is the profile of a successful competitor in this market?

• How can we use supply market dynamics to our advantage?

Source: M. Porter, Harvard Business Review, 1979

Rivalry Among Existing

Competitors

Bargaining Power of Suppliers

Threat of Substitute

Products or Services

Threat of New

Entrants

Bargaining Power of

Buyer


Memphis, Tennessee

Contract Management

Utilize a Category Segmentation Matrix

Business Impact/Strategic

Importance

High

LowLow High

Leverage

Noncritical

Strategic

Bottleneck

Supplier Risk/Complexity

Leverage CommodityGreat Importance in terms of

Volume, % of Purchased cost, and Quality

Consolidation of SuppliersReverses Auctions

Non-critical GenericFocus on finding lowest price from

many suppliersEase of “Supplier Hopping” P-

CardsShort-term Contracts

Transactional

Strategic CriticalLimited Availability/Limited Suppliers

Collaboration/Integration with Suppliers

Continuous ImprovementLong-term Contracts

Early Supplier Involvement Innovation/Cost Reduction Ideas

Bottleneck Unique High Level of Market Complexity

Simplify the ProcurementReduce Risk

Buying Consortiums Help

Source: P. Kraljic, Harvard Business Review, 1983


Memphis, Tennessee

Contract Management


I. DFCI Background




Memphis, Tennessee

Contract Management

Application of Out-of Academic/Healthcare Best Practices

1. Leverage eCommerce

2. Promote Acceptance of a Payment Settlement Tool

3. Partner in Stockless Programs / Store Fronts with Key Suppliers

4. Ensure Contract Coverage - Get Everything in Writing

5. Establish Supplier Negotiation Tactics

6. Continuously perform detailed Category Analyses utilizing Spend relative to category, marketshare and benchmarks instilling a more evidence-based/data driven approach to sourcing


Memphis, Tennessee

Contract Management


Leverage eCommerce (subset: EDI)

1. If suppliers aren’t already involved, encourage touch-less buys

2. Increased ordering efficiency for end users

3. eProcurement provides a better ordering experience for customers and reduces overhead and operational costs for both parties


Memphis, Tennessee

Contract Management


Promote acceptance of a Payment Settlement Tool

1. It’s not a P-Card. It’s a settlement tool. Dynamic Discounting

2. Extended payment for the operations. Positive cash flow considerations

3. Gaining operational efficiency as cutting down cycle time. Cutting fewer checks

4. Receive a rebate from the card issuing company

5. The suppliers’ bank charges them a merchant fee of 1-3% (negotiable)


Memphis, Tennessee

Contract Management


Partner in Stockless Programs / Store Fronts with Key Suppliers

1. Entrenched marketshare / increased ‘mindshare’

2. Huge negotiation tactic

3. Low UOM discounts – means customers do not have to buy large amounts to achieve discounts

4. Decreases or eliminates freight costs

5. Better product availability for customers

6. It is still a lean, stockless program for the customer


Memphis, Tennessee

Contract Management


Ensure contract coverage. Get everything in writing.

1. More favorable terms and conditions.

2. Vessel to make everything else concrete.

3. Cross-marketing tool for Materials Management & Supplier conveying they are partnering in driving down cost and creating value.


Memphis, Tennessee

Contract Management


Negotiation Tactics

No minimum order requirements

Free shipping on Punch Out orders• Free shipping on stockroom delivery• Flat rate for shipping• Third party shipping (is it more cost effective to ship on our account)• Challenge restocking fee’s

Stockroom program (VMI/Consignment)• Free freight on VMI,JIT or Consignment orders

Prompt payment discounts (P-Card, 2%/10 Net 30)

New Lab or Internal Investigator startup discounts

Seasonal and or promotional discounts• Special EOQ or year end price incentives• Special pricing on inventory with lot expiration coming due

Cash Rebate Incentives• When going to RFP or Sourcing Event these are generally placed as a requirement

GPO and Consortium contract involvement

Volume concentration or bulk order discounts


Memphis, Tennessee

Contract Management


Negotiation Tactics (cont’d)

Discounts on new product offerings demonstrated at DFCI Supplier Days

Free or discounted training on or off site

Free software upgrades

Discounted software maintenance

Free or discounted product accessories

Free or discounted Professional Services

Discounted extended warranty’s

Offer the approved use of the Dana-Farber name in exchange for discount

Ask for a quote with GSA pricing (you will need the DFCI grant or contract #) if that supplier sells to the Government. It may not always be the best price but it is worth checking

Energy analysis to compare TCO from one product to the next. What are the year over year costs to operate?


Memphis, Tennessee

Contract Management


Detailed Supplier Profile

Supplier, Annual Spend, Vendor Spend, Top categories, Period change, marketshare, historical trend, and benchmark

ABC Corporation

ABC CorporationABC Lab SuppliesABC Chemistry Supplies


Memphis, Tennessee

Contract Management


Detailed Category Analysis (Spend + UNSPSC/Marketshare + Benchmarks)

1. Vendor Spend, marketshare, historical trend, and benchmark

2. Department scorecards with associated department and lab spend, average unit cost and savings


Memphis, Tennessee

Contract Management


Detailed Marketshare Analysis

Spend Category, Supplier Spend and Marketshare

Category Supplier Name Spend Marketshare Laboratory Electrophoresis and Blotting Systems and Supplies ABC Corporation $493,576 37% Lab Supplies, Inc. $199,433 14.91%

Molecular Structure, Corp. $152,173 11.37% Atom & Atom $101,156 7.56%

Electron, Inc. $72,615 5.43% Biostructure $46,224 3.45%

Laboratory Electrophoresis and Blotting Systems and Supplies Total $1,337,971 100%

90 th annual meeting & exposition april 3 – 6, 2011 memphis, tennessee contract management...

Documents

annual meeting exposition

sourcing process

dfci background

ma slide

practice slide

annual visits infusions299

supply capacity slide

cost savings