Lecture Purchasing and supply chain management (3rd/e): Chapter 17 - W. C. Benton

Chapter 17 - Health care purchasing and supply management. Chapter 17 is a special feature of the textbook. There are critical differences between the health care supply chain and industrial supply chain, such as the automotive supply chain. The focus of this chapter is on purchasing day-to-day supplies and capital equipment acquisition.

Chapter17: HealthCarePurchasing andSupplyManagement PurchasingandSupplyChainManagement 3rdedition PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. PurchasingandSupplyChainManagement3rdedition,Copyright2013W. Content Inventory control  • The DRG System and Operating Cost  • Health Care Supply Chain   • Group Purchasing Organization (GPO)  • Opportunities in Health Care Supply Management  • ProcessOverviewofCapitalEquipmentAcquisition PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. TheHealthCareIndustry Hospitalsarecomplexorganizationsprovidingservices including: Inpatienttreatment(nursingunits),surgery,radiology,pharmacy, laboratory • Dietary, housekeeping, physical plant engineering, administration Outlook • • Expected to grow and consume an even greater share of GNP Challenges • Uncontrollable non­salary costs and declining profits PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. InventoryandHealthCare Inventorycontrol Animportantcomponentinsupportingtheobjectiveofproviding patientcare The2primaryfunctionsofinventory(inthehospital setting): To maximize supply service consistent with maximum  efficiency and optimum inventory investment  To provide a cushion between the forecasted and actual  demand Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.            Complicating Factors Unique to Health Care • Inaccurate demand estimations  • Complex patterns of the length of stay and patient mix (types of  patients and diagnoses) • More accurate forecasts could be made by using DRG or CPP  related practices  • • Communicationisvitalbetween: Thepractitioners(medicalstaff) Thesupplymanagementfunction However,communicationhastraditionallybeendifficult Hospitalsasasetoflittlefiefdoms PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. Complicating Factors Unique to Health Care  (cont.) • Safety Stock • High cost of stock outs unique to healthcare • Classification of the stockout tolerances: 1) Use­location urgency 2) Facilityưlocationurgency 3) Regionalưlocationurgency 4) Nourgency PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. OperatingCostinHospitals The DRG system • A reimbursement system  • • Flat rate reimbursement based on a patient’s diagnosis  • • Based on specific diagnosis­related groups (DRG)  Regardless of the associated costs  UndertheDRGsystem,reductionofhospitaloperating costhasbecomeextremelyimportant PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. HospitalSupply ManagementTrends Trainingandeducationhavebecomeakeypriority Reductionininventorylevelsisbecominglessimportant • • • • More of the supply managers report to VP­level upper  management  Including physicians in the materials acquisition process  has shown to reduce costs  More hospitals are establishing a corporate supply chain  management department Eliminatingnonmovingsuppliesbyimplementinga stocklessdistributionservice PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. HealthCareSupplyChain Characteristics: Aprolongedcostưbasedreimbursementsystem High buyer’s switching cost and dependence on a supplier   because of many buyers and few suppliers • The performance criteria is based on hospital value for patients • There are a variety of organizations that bridge the suppliers and  the hospitals • • e.g., group purchasing organization (GPO) Anoligopolisticenvironmentwitharelativelysmallnumberof GPOsdominatethemarket PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. GroupPurchasingOrganization(GPO) Anorganizationcreatedtoleveragethepurchasing powerofitsmemberhospitalstoobtaindiscountsfrom suppliers Currenttrends: Approximately9698%ofhospitalsutilizeGPOcontracts Onaverage,2~4GPOsperfacility Annually,morethan$175billionisspentthroughaGPO 10 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. MoneyFlowsRelatedtoGPOs 11 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. OpportunitiesinHealthCareSupply Management(cont.) Areasofopportunityinsupplymanagement: Supplychainplanning Product management • Sourcing and contracting • Distribution and inventory management • Technology enablement  Supply management must be elevated to an integral  component of the hospital executive management team 12 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. CapitalEquipmentAcquisitionApproval FactorsandDecisionRules Iftwoprojectsarejudgedtobeofequalfinancialworth,the projectwhichbettersatisfiesthefollowingfactorsshouldbe chosen: a) Communityneed b) Marketability c) Hospital business objectives d) New technology  13 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.            Technological Assessment Process Priorities must be set beforehand Form subcommittees (interdepartmental planning) including:  • Medical personnel who use the equipment  • Physicians  Make the committee tour the facility and become familiar with the  equipment on hand • Look into the possibility of upgrading current equipment Conduct interviews of the personnel who use the equipment  • Rank the needs within and among the departments Enter information into a database  • Develop a comprehensive database   14 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. TheSupplierSelectionProcess Theprocess: Developalistoffunctionalspecifications 1) Eachspecificationistobecategorizedasa: Necessary feature • Desirable feature • A characteristic that is irrelevant or even undesirable  2) Establishing a bid list/initial base of qualified suppliers 3) Arrange a pre­bid conference 4) Receive bids  15 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.            Questions? 16 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.            ... Annually, more than  $175  billion is spent through a GPO 10 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. MoneyFlowsRelatedtoGPOs 11 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.... Receive bids  15 Purchasing and Supply Chain Management,  3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.            Questions? 16 Purchasing and Supply Chain Management,  3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.           ... PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. OpportunitiesinHealthCareSupply Management( cont.) Areasofopportunityinsupplymanagement: Supply chain planning • Product management • Sourcing and contracting