The role of professional procurement PSMG 15 th July 2008 Beth 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 Physician Payer Product councils

Power play Common interest: –Improving the patients 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

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-critical Kraljic 1984 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 LocalCentral Responsive, flexible Closeness to user needs Closeness to point of delivery operations Owned by local stakeholders Associated with niche values Larger quantities deliver economies of scale Expertise can be developed per category Potential to reduce process costs Close 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 performance management Price Quality 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 outsourcing e.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