Reforming the health supply chain “down under” Supply Chain Congress 21 August 2013 Megan Main, Chief Executive
Health Purchasing Victoria (HPV) 1. HPV overview 2. Becoming more strategic 3. Global trends – where are we at? 4. Reform opportunities
Why do we need to improve our supply chain? Health Purchasing Victoria | Achieving best- value supply chain outcomes for Victoria’s health sector 3
1. HPV overview
What is HPV? HPV was established in 2001 as an independent statutory authority Purpose HPV achieves best value supply chain outcomes for Victoria’s health sector
HPV – Core Functions • To supply or facilitate supply of goods and services • To provide advice and support • To monitor compliance • To foster improvements in use of systems and e- commerce • To maintain useful data and share that with health services • To ensure probity is maintained in the purchasing, tendering and contracting of public hospitals
Sourcing program Value under HPV contract has more than doubled since 2007-08
Sourcing program Annual benefit of HPV sourcing has more than doubled since 2007-08 Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain outcomes 8
HPV categories Clinical tenders Prostheses tenders Clinical Protective Apparel & Drapes Interventional Cardiology Prostheses Continence Management Products Orthopaedic Prostheses Contrast Media & Radiopharmaceuticals Trauma Implants Enteral Feeds Interventional Radiology Prostheses Equipment tenders Examination and Surgical Gloves Beds and Accessories Hand Hygiene & Domestic Paper Products Hypodermic Needles, Syringes & Oral Dispensers X-ray machines Peritoneal Dialysis Fluids Ultrasound machines IV Administration Sets Physiological Monitoring Restricted access tenders Medical and Industrial Gases Monitoring Products Infusion Pumps Operating Room & Wound Drainage Consumables Nurse Agency Services Pathology Products Pathology Service (Gippsland Group Bs) Non-clinical tenders Peritoneal Dialysis Products Pharmaceutical Products & IV Fluids Catering Supplies Respiratory Products Office Requisites Sterilisation Consumables Natural Gas > 5TJ Surgical Dressings, Tapes & Bandages Electricity Surgical Instruments Open & Laparoscopic Cleaning Chemicals and Dispensers Sutures, Skin Staples and Tissue Adhesives Non-Emergency Patient Transport In progress/under investigation Wound Care Haemodialysis Equipment & Consumables Interpreting Service Telecommunications Green - Greenfield commenced in 2013-14 Neurosurgery Prostheses
Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain outcomes 10
2. Becoming more strategic
PROCUREMENT MODEL – THE PAST Opportunities Strengths Process Integrity Agility to go to market Compliance to old government “rules” Ability to meet market dynamics Built our brand on Additional value through category consistency management Delivered benefits to Stronger stakeholder and the Health Services supplier engagement Respected by suppliers Innovation driven/Whole of life contract value delivery Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain outcomes 12
Strategic procurement Can’t you see I’m busy? Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain 13 outcomes
Strategic procurement • Clear line of accountability and responsibility • Greater visibility, oversight and strategic alignment of expenditure • Better leveraging of expenditure to increase buying power • Consistent approach to contract management • Professional approach • Better value for money, achieves savings and efficiencies Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain 14 outcomes
The proverbial iceberg… Purchase Price Clinical variation Demand variation, uncertain demand Drivers of Quality – over spec? under spec? price Inventory – # lines, out of date Logistics – small orders, frequent deliveries Manual processes and rework Duplication
3. Global trends
Old hospital Materials Management model Purchasing • “place and chase” Stores • receive and deliver Health Purchasing Victoria | Achieving best- value supply chain outcomes for Victoria’s health sector 17
Health Dimensions of world-class Procurement • Align Procurement with broader strategy • Ensure business compliance Strategic alignment • Influence of Procurement more broadly? Capability and Category Structure and culture management systems • Talent management • Category value • Organisational • Mindset creation strategies structure • Processes • Collaboration • Ability to change • Value chain analysis • Performance management • Knowledge &information management Source: McKinsey Global Purchasing Excellence Benchmarking Survey and Framework, McKinsey & Co
Emerging health trends - infrastructure Emerging trend Key elements Are we there yet? • Realign resources to generate extra value • Strengthen quality of team 1 Talent / People On the way • Bring in clinical resources • Bring in experts from other industries • Data/ Consolidate for single view of data across system • 2 Information Implement standard product coding system On the way • systems Give front lines user friendly tools Not yet • Product Build vs buy for distribution But other • 3 distribution Optimise inventory Australian • strategy Additional revenue generation opportunities states are well on the way
Emerging health trends – activity focus Emerging trend Key elements Are we there yet? • Utilisation / Evidence-based standardised specifications • 4 demand Close collaboration with clinicians No • management Evidence based use policies • Front line expertise Generic • 5 Protocols for substitution Some drugs products • Global sourcing Capital • 6 Sourcing practices applied to capital expenditure On the way expenditure • Win-win arrangements that create value • Supply chain Reduce combined costs 7 No • partnerships Grow markets • Zero-sum models that capture value
HPV example: demand management Saving opportunity by reducing clinical variation and adhering to clinical guidelines Weighted average price Bare metal $ Q stents $4 x Q Drug-eluting stents Target range for % of drug-eluting stents Source: McKinsey report for HPV, HPV supplier sales data 1 Sep 10 to 31 Mar 11, clinician discussion, 28 June 2011
Using data - usefully Sometimes the raw data doesn’t tell us much… Graph of spend on nurse agency services, 12 months $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Health Purchasing Victoria | Achieving best- value supply chain outcomes for Victoria’s health sector 22
Using data - usefully … but when we normalise the data it tells a different story Nurse agency spend as % of total nursing salaries 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Health Purchasing Victoria | Achieving best- value supply chain outcomes for Victoria’s health sector 23
4. Reform opportunities
HPV reform scope - definitions Procurement reform Supply chain reform End to end procurement process Opportunity Sourcing Invitation to Warehouse Assessment Strategy Supply and Place Distribution • Market • Stakeholder • RFX Engage Evaluate & Orders / Engagement Engagement Implement • Auction • Receipt Suppliers Negotiate Non- • Spend • Business • Negotiation Contract(s) • Payment Contract(s) contract (SRM) analysis Requirements etc. • Delivery Purchasing • Contract • Market review Analysis Systems / technology SRM Spend analysis eSourcing Catalogue / Purchasing - eCommerce VPCS EDI / Recalls Contract Management Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain 25 outcomes
The bigger reform picture There are many inter-related elements which together deliver a modern, efficient supply chain Initiative What is it? Why do it? • Critical enabler of reform – single source of truth Victorian Product • Accurate, up to date data accessible by all Catalogue (VPC) • Ability to order centrally for demand consolidation Procurement System Key enablers • Critical enabler of efficiencies • Reduce clinical variation Clinical demand / • Better buying power through supplier consolidation / Standardisation competition instead of all being on a panel • Coordinated, efficient purchasing, warehousing and distribution around the state • Technology enabled, e.g. end-to-end e-procurement Supply chain reform • Better buying power through larger consolidated volumes. Key reforms • More strategic approach to contestable non-labour spend • Understand where money is being spent and prioritise Procurement reform effort for biggest return Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain 26 outcomes
Procurement Reform An incremental approach will deliver some benefits Health Purchasing Victoria | Working with Victoria’s health sector to achieve best -value supply chain outcomes 27
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