The role of professional procurement

1
The role of professional procurement

• PSMG
• 15th July 2008
• Beth Rogers
• Author Rethinking sales management

2
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

3
Illert and Emmerich, 2008
4
Power play

• Common interest
• Improving the patients quality of life
• Conflict
• How much should it cost?

5
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

6
Station break

• What trends are you encountering
• Secondary care?
• Primary care?

7
Purchasing professionalism
8
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?)

9
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
10
Distinction between supplier management and
contract management
11
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.
12
Station break

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

13
Strategic decision-making
Leverage
Strategic
Importance of purchase (profit impact)
Bottleneck
Non-critical
Kraljic 1984
Complexity/risk in supply market
14
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)

15
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

16
Station break

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

17
And who else is involved?
18
Organisational buying roles

• 7 roles within decision-making units
• initiators
• users
• influencers
• deciders
• buyers
• Gatekeepers
• Control access
• Standards approval

Who might play what role?
19
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

20
NHS

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

21
Station Break

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

22
Centralisation
23
The local/central dilemma
Current trend towards centralisation? E.g.
polyclinics
24
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
25
New types of contract
26
Big picture

• Core national framework contracts
• Some local tailoring
• Some element of payment by results
• Janssen Cilag and cancer drug

27
Supplier performancemanagement
Relationship, reputation
Service and support
Price Quality Delivery
EODB
28
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?

29
Buying outsourcinge.g. disease management

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

30
Station Break

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

31
E-procurement
32
Drivers

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

33
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
34
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?

35
Station Break

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

36
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

37
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

38
Thank you!

• Contact details
• Beth Rogers
• Programme Manager Sales Management
• Portsmouth Business School
• Beth.rogers_at_port.ac.uk