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Sourcing and Procurement

Five strategic sourcing lessons from 2020 for healthcare supply chains

According to a Healthcare Supply Chain Association (HSCA) study, Group Purchasing Organisations (GPOs) help save up to $34 billion annually in procurement in the healthcare sector. About 98% of U.S hospitals are associated with over 600 GPOs, which saves them up to 13.1% of their procurement costs.

But extensive reliance on this traditional healthcare supply chain has failed to cope up with the devastation caused by the COVID-19 pandemic, which engulfed hospitals and healthcare centres.

Problems with the current sourcing models

  • Lack of transparency:

    According to the sourcing applications of a major service provider, there was up to 300% variation in cost for the same product in different categories. Since 20–30% of purchases happen out of contract, this results in out-of-market pricing.
  • Lack of resources:

    Most hospitals lack the resources and technological access to real-time information with actionable market pricing intelligence, which will help achieve cost savings. There is almost zero data analysis and trend analysis for better negotiations.
  • GPO contracts:

    Contracts are generally sealed for 3–5 years, with fixed slabs that often do not provide the best pricing over a long term. Lengthy contracts have clauses that trap hospitals in unfavourable pricing positions.

Why is strategic sourcing important

Strategic sourcing for successful supply chain management helps maximise total value for the organisation with an information-based process that develops a holistic procurement ecosystem. Strategic sourcing helps in:

  • Achieving marketplace pricing transparency through technology by comparing purchasing data with peers and at the SKU level based on volumes and market share.
  • Obtaining competitive prices through marketplace pricing data by leveraging technology to procure the preferred healthcare products at better prices.
  • Moving to a dynamic sourcing model to save more efficiently and effectively and reduce the negotiation and procurement time by as much as 70% by eliminating the Request for Proposal (RFP) model.

Procurement Mindset

Strategic Sourcing Mindset

Minimum cost that can be paid for a product

How to achieve the lowest total cost of ownership?

One vendor and a single transaction

Building mutual beneficial alliances

Only a profit–loss approach

Holistic approach where all parties can benefit

Lack of risk considerations

Managing current risks and foresight to the future ones

Focus on purchase value

Focus on business value

Five healthcare strategic sourcing lessons from the 2020 COVID-19 pandemic

The COVID-19 pandemic left hospitals and other healthcare organisations scrambling for supplies such as medicines and PPE kits for their frontline staff and patients. In such a scenario, traditional long-term contract-based procurement models may no longer be efficient. Here is what we need:

  • Contract management that is dynamic and a core function of the supply chain:

    Most contracts, once signed, are rarely referred to in the future. But they are an essential part of the supply chain when you are dealing with multiple suppliers. AI-based technology can help you manage the contracts better and quickly re-negotiate with the supplier if required.
  • Focus on the total cost of ownership and not just the purchase price:

    The procurement decision should not be based only on the list price. You need to factor in these aspects as well:
    • Is the price of the supplies uniform across different locations?
    • Is your supplier based too far geographically, leading to higher transportation costs?
    • Are your contracts too rigid and binding for multiple years?
    • Is your procurement strategy based on getting the lowest price or finding the best deal on the recommended supplies?
  • Dynamic optimisation of the inventory:

    In-house tracking of the inventory in real time as per the demand and supply helps reduce spending on supplies that are not required. Forecast the demand for specific supplies and proactively place orders.
  • Automation and streamlining through technology:

    Leverage AI to automate repetitive tasks such as placing orders for medicines. Let AI find the best supplier with the most competitive pricing and help you save costs and time.
  • Monitoring and leveraging strategic supplier relationships:

    During the COVID-19 pandemic, a few suppliers couldn’t meet the demands, and hospitals couldn’t expand their supplier base quickly. Rather than depending on a select few, you must expand your supplier base if needed, manage the long-term relationships better, and have an edge on the negotiating table.

What are the benefits of strategic sourcing?

Strategic sourcing saves you from putting all the eggs in one basket. The primary benefits include:

  • Better decision making and contract negotiation based on dynamic pricing.
  • Stronger relationship with existing suppliers and development of a new larger base.
  • Proactive measures to manage risks efficiently.
  • Better spend analysis on reducing costs and increasing profitability.
  • Ability to quickly scale up the demand to meet emergencies such as the COVID-19 pandemic.
  • Better in-house inventory management.

How Infosys BPM can help transform strategic sourcing in healthcare

Tap into our services for category planning and execution, sourcing support and tail spend management, supplier relationship management, and contract management administration. Our offerings include:
  • Design Thinking (DT) for better design, development, transition, and stable operations.
  • AI-, ML- and robotics-led strategic sourcing to optimise spending, contracts and approvals up to 50%.
  • Advanced analytics and reporting solutions for real-time insight and more.