Transcript Document

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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Organizational Structure
I.
DFCI Background
II.
Strategic Sourcing at DFCI
III. Application of Out-of Academic/Healthcare Best
Practices
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Background
Metric
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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Background (cont’d)
Metric
Value
2009 Operating Revenues
$810 million
2009 Operating Expenses
$790 million
Research Departments
Cancer Immunology & AIDS
Cancer Biology
Medical Oncology
Biostatistics
Population Sciences
Pediatric Oncology
Affiliations with
Brigham & Women’s Hospital
Children’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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Organizational Structure
I.
DFCI Background
II.
Strategic Sourcing at DFCI
III. Application of Out-of Academic/Healthcare Best
Practices
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Purchasing Adds Value in Two Primary Areas
Purchasing Operations
Strategic Sourcing
Ensuring that product/service is ordered
efficiently and delivered on time and of high
quality
Selecting suppliers to satisfy business requirements
and optimize total cost of ownership
Procure-to-Pay Process
Optimization
Leading or Supporting a Sourcing
Process with Cross-Functional Team
Members
Compliance
Developing Supply Strategy
Conducting Cost Analysis
Supplier Management and
Issue Resolution
Challenging Requirements /
Specifications
Internal Customer Service &
Training
Commercial Negotiations
Supporting Implementation of New
Suppliers
System Optimization
Ensuring Supply Capacity
90th Annual Meeting & Exposition
April 3 – 6, 2011
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.
90th Annual Meeting & Exposition
April 3 – 6, 2011
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
Enterprise Resource Planning
System (ERP)
Spend reports by
supplier in accordance
with fiscal calendar
Benchmark analysis by
Supplier, Category, Top and
Medium Quartile
80/20 rule
Department analysis by
Spend, Category and
Supplier
Top price increases per
item and category
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Seven Step Strategic Sourcing Process
Selected Activities
Strategic Sourcing Process
1. Develop Category Profile
2. Generate Supplier Portfolio
Inputs to Next SSI
• Supplier
Performance
• Market
Conditions
• New Technology
3. Develop Sourcing Strategy
4. Select Implementation Path
5. Negotiate and Select Suppliers
6. Operationalize New Agreements
7. Sustain the Results
• 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
1 month
½ month
• Evaluate supplier proposals
• Plan negotiation strategy
• Conduct negotiations with suppliers
½ month
• Plan and implement transition to new
suppliers
• Implement new pricing on databases
• Conduct joint process improvement activities
1 month
• Monitor market conditions
• Assess new technology and best practices
impact
• Determine opportunities to reexamine
category
on-going
Source: A.T. Kearney
90th
Timeframe
Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
ABC Analysis – Potential Category Distribution
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Supply Market Analysis – Five Forces
A detailed understanding of these forces will uncover opportunities to create supply advantage!
Porter’s “Five Forces” Framework
Insights to Develop
Bargaining
Power of
Buyer
• What forces are at work?
Threat of
New
Entrants
Threat of
Substitute
Products or
Services
Rivalry
Among
Existing
Competitors
• 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?
Bargaining
Power of
Suppliers
Source: M. Porter, Harvard Business Review, 1979
90th
Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Utilize a Category Segmentation Matrix
High
Leverage
Strategic
Leverage Commodity
Great Importance in terms of
Volume, % of Purchased cost, and
Quality
Consolidation of Suppliers
Reverses Auctions
Business
Impact/Strategic
Importance
Non-critical Generic
Focus on finding lowest price from
many suppliers
Ease of “Supplier Hopping” P-Cards
Short-term Contracts
Transactional
Noncritical
Strategic Critical
Limited Availability/Limited Suppliers
Collaboration/Integration with
Suppliers
Continuous Improvement
Long-term Contracts
Early Supplier Involvement
Innovation/Cost Reduction Ideas
Bottleneck Unique
High Level of Market Complexity
Simplify the Procurement
Reduce Risk
Buying Consortiums Help
Bottleneck
Low
Low
Supplier Risk/Complexity
Source: P. Kraljic, Harvard Business Review, 1983
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
High
Contract Management
Organizational Structure
I.
DFCI Background
II.
Strategic Sourcing at DFCI
III. Application of Out-of Academic/Healthcare
Best Practices
90th Annual Meeting & Exposition
April 3 – 6, 2011
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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
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)
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
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.
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
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?
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
Detailed Supplier Profile
Supplier, Annual Spend, Vendor Spend, Top categories, Period change,
marketshare, historical trend, and benchmark
ABC
Corporation
ABC
ABC
Lab Supplies
Corporation
ABC
Chemistry
Supplies
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
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
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee
Contract Management
Application of Out-of Academic/Healthcare Best Practices
Detailed Marketshare Analysis
Spend Category, Supplier Spend and Marketshare
Category
Laboratory Electrophoresis and Blotting
Systems and Supplies
Supplier Name
Spend
Marketshare
ABC Corporation
Lab Supplies, Inc.
Molecular Structure, Corp.
$493,576
$199,433
37%
14.91%
Atom & Atom
$152,173
$101,156
11.37%
7.56%
Electron, Inc.
Biostructure
$72,615
$46,224
5.43%
3.45%
$1,337,971
100%
Laboratory Electrophoresis and
Blotting Systems and Supplies Total
90th Annual Meeting & Exposition
April 3 – 6, 2011
Memphis, Tennessee