The role of professional procurement

PSMG 15th July 2008Beth Rogers

Author “Rethinking sales management”

Objectives

• To discuss trends in procurement in UK healthcare

• To gain an understanding of the purchasing profession

• To explore the impact of procurement changes on selling

Illert and Emmerich, 2008

Provider

Patient

PhysicianPayer Product councils

Power play

• Common interest:– Improving the patient’s quality of life

• Conflict:– How much should it cost?

Trends in healthcare procurement• Procurement professionals are seen as “key business

advisors” in the NHS– Virtually all procurement specialists in the NHS are

vocationally and/or academically qualified• Use of purchasing agencies• Emergence of specialist procurement per product type• Increasing centralisation of purchasing activity• New contracts – focus on outcomes rather than activities• Use of e-procurement• Professional practice managers in PCTs

Station break

• What trends are you encountering:

• Secondary care?• Primary care?

Purchasing professionalism

The role of purchasing

“Professionalism in purchasing, with its ongoing external trading relationships, is key to supporting and/or enhancing the brand; sometimes this can be the only differentiating factor between companies.”

CIPS – Chartered Institute of Purchasing and Supply

(in healthcare, can we substitute “reputation” for brand?)

Purchasing manager role• Purchasing and supply chain strategy• Strategic sourcing analysis

– Managing risk• Proactive demand management• Pre-contract

– Identification of need, seek suppliers, evaluate suppliers, negotiate contract

• Post-contract– Relationship management

www.cips.org

Distinction between supplier management and

contract management

Influencing factors• External

– Government policy– Patient or pressure group perceptions– Media reaction

• Internal– Organisational culture

• Professional– Technical effectiveness– Financial viability– Quality of support/delivery/service – Business relationship

• Personal – How does this purchase affect my career?

Risk cannot be eliminated.Attempts to do so just move the risk.

Known risks are easier to manage.

Station break

• How can pharmaceutical companies help procurement professionals to manage risk?

Strategic decision-making

Leverage

Bottleneck

Strategic

Non-criticalKraljic1984

Importance of purchase

(profit impact)

Complexity/risk in supply market

Buying situations/Buyclasses• 3 types of decision:

– straight rebuy • routinised, response behaviour

– modified rebuy• limited problem solving

– new task • extended problem solving

• A new task, and sometimes a modified rebuy, requires wider participation in the buying process– Perhaps including external expertise (Robinson,1987)

A strategic response

• Dow Corning (chemicals/silicones)– Spun off e-business subsidiary Xiameter in

2002– Bulk orders of commodity products online

• Process efficient, cost efficient• No human intervention!

– Account managers focused on strategic business

Station break

• Which of your brands fit in which box?• How might that affect the way you sell

them?

And who else is involved?

Organisational buying roles

• 7 roles within “decision-making units:– initiators– users– influencers– deciders– buyers– Gatekeepers

• Control access• Standards approval

Who might play what role?

Purchasing consultants

• Usually highly qualified and able to apply best practice standards

• High probability that they have been engaged to reduce price

• Risk shifting may be an issue– Claim to reduce risks for clients– May create other risks

NHS

• Consultants PWC advocate balance of power between:– Dept of Health– Primary Care Trusts– Procurement– Patient– …..and provider

Station Break

• Which stakeholders should get what, in terms of sales resource?

Centralisation

The local/central dilemma

Local Central

Responsive, flexibleCloseness to user needsCloseness to point of delivery operations“Owned” by local stakeholdersAssociated with “niche” values

Larger quantities deliver economies of scaleExpertise can be developed per categoryPotential to reduce process costsClose to central strategy/policy

Current trend towards centralisation? E.g. polyclinics

Findings in USA• Group purchasing voluntary• Hospitals join groups to achieve best price

– But there are still concerns about who gets what

• Success dependent on:– Commitment to excellence in purchasing practice– Recognising the importance of relationships with clinical

suppliers– Integrating business and clinical interests– Highest skills levels in process– Staff committed to optimises resources to achieve

organisational goals

Schneller, 2000

New types of contract

Big picture

• Core national framework contracts– Some local tailoring

• Some element of payment by results– Janssen Cilag and cancer drug

Supplier performancemanagement

PriceQuality

Delivery

Service and support

Relationship, reputation

EODB

NHS• Price (always)• Quality / delivery

– Payment terms linked to outcomes– Patient choice (but not universally applied)

• Service/ support – Importance of consistency– Feedback system / measurement

• Relationships?– Reducing number of suppliers used– Encouragement of UK SMEs?– Role for Innovation?

• Centre for Evidence-based Purchasing

– New (less hassle) models?

Buying outsourcinge.g. disease management

• Strategic or tactical?• Innovation or operations?• Relationship development• Relationship maintenance

Station Break

• In the “strategic” box, what could we do for buying organisations to “reduce hassle”?

E-procurement

Drivers

•Price reduction•Process cost reduction•IT capabilities•Need for speedy communications•Control over processes•Need for speedy supply chain

Reverse auctions

• Rely on four pre-conditions– Commodity specifications, e.g. ISO

standards– Large quantities– Sufficient number of suppliers in the

market– Correct conditions in buying organisation:

skills, processes

Smeltzer and Carr 2003

Growing concerns about reverse auctions

• Supplier exploitation• Poor specifications • Erosion of trust• Media interest

– “Locum doctors for sales in e-auctions”• Only suitable for tactical purchases?

Station Break

• E-procurement: under what conditions should we play the purchasers’ game?

Key learning

• The purchasing profession plays an increasingly significant role in supplier selection– They own sourcing strategy and the

sourcing process– They determine to a large degree

how successful our sales effort can be

Things to think about• Allocating scarce resource

– Highly skilled account managers and expert teams to strategic opportunities

– Cheapest process for commodity brands• “Boundary spanning”

– Designing solutions from the customer point of view

• Creativity– Future scenarios for healthcare buying

Thank you!

• Contact details:

• Beth Rogers• Programme Manager – Sales Management• Portsmouth Business School• Beth.rogers@port.ac.uk