Tips For Developing A Lean Procurement Function
Procurement cost accounts for more than 30 percent of a hospitals’ expenditure, in fact it’s the largest financial outlay second only to staffing, and yet many healthcare institutions relegate its management to the back office. Healthcare Global spoke to hospital procurement expert Richard Macintosh, Managing Director at Inverto about ways hospital executives can manage their procurement function to yield tremendous financial savings.
Richard outlined five key points that will help any hospital lean and improve its procurement function >>>
- Make the move from transactional to strategic sourcing
- Employ people with a commercial background
- Address procurement at an executive level
- Focus on clinical engagement
- Don’t compromise on patient care
Commonly, the first thing hospital executives will look at when they are losing money is staffing levels, however that method of leaning your institution is limited and often leads of compromised patient care. What hospital executives should be addressing first and foremost is the procurement function.
Transactional Versus Strategic Sourcing
“Typically we find is this is an area that’s not been particularly well managed. The typical procurement function is very transactional; the department is placing purchase orders, monitoring arrivals, and distributing goods, but they are not actually doing any proactive sourcing, they are not driving out cost savings. We find that many procurement departments are transactional rather than strategic,” says Macintosh.
If you took a snapshot of a typical hospital procurement function you would label it ‘back office’. You would probably find the department in a porter-cabin at the back of the hospital, titled, ‘Supplies’ rather than ‘Procurement’ and furthermore a team of people who are not very senior or indeed commercial would most likely run it.
“We find the key to success when it comes to hospital procurement is clinical engagement,” says Macintosh. “The procurement function doesn’t interact with the front line staff; they don’t interact with the clinicians, the nurses or head of estates - they are in the back office managing transactions. To this end it is essential to have very good commercial people heading up the department, who work closely with clinicians. If you can achieve this, you can make some extremely impressive savings.”
“Take an orthopedics department as an example, it requires a very specialised segment of spend. It is the surgeons and clinicians who have the specialised knowledge about technology and products so in order to make cost savings you have got to work very closely with those people. You have got to understand their exact requirements and then it’s the procurement function’s role to fully understand the market. If you merge both expertise and work very closely with one another you can source the best value suppliers and arrangements for the department,” says Macintosh.
It is vital for the procurement function to work alongside the clinical arm of the hospital. The only way to make significant cost savings is to work out all the possible commercial options and to teach clinicians to understand the commercial implications of their decisions.
“What we often find is that the clinical staff are making decisions regarding procurement, and they are making those decisions without any cost knowledge or commercial understanding. The procurement function should be doing this for them; it should be the conduit for innovation, they should be working with the supply base, to bring innovative products and solutions to the hospital. Instead the suppliers go straight to the clinicians, and it’s a bit like a kid going into a toy shop – of course they want the best, newest products, however it should be the role of procurement to educate and negotiate on behalf of the clinical staff to ensure they get the products they need, while also managing cost base.”
Procurement strategies should be on the boardroom agenda
Focus On Patient Outcome
Not compromising patient outcome is very simple, procurement should be getting best value for the hospital, and it’s not only about cost. It has to take into consideration all factors including quality and outcome, as well as safety. Before you undertake any work on the category of business spend you must understand the business requirements so again it comes back to clinical engagement, you must spend lots of time with the stakeholder understanding what they need now and in the future. If you understand that you can then procure against it - you will select suppliers against what is required by the hospital and you will search for the best commercial option. It is simply no good to source the lowest cost product, because it may not tick all the boxes for the department. This haphazard approach to procurement could in fact end up costing you more money in the long term.
“Within the hospital industry there are lots of collaborative procurement hubs - regional focused buying organisations – however there is a fairly big questions mark over how effective these are,” says Macintosh. “Collaboration is great and there is a theory that says the more you can bundle together in terms of volume, the more attractive it is to a supplier, and the lower cost you get, however, it is hard enough to get surgeons within one hospital to agree on what they want, let alone surgeons across many hospitals.”
When it comes to cost saving, commitment is key. “What we have found is that many hospitals can get better prices, by being able to commit to the buyers that they have selected. It’s a mix, logic says collaboration and volume should trump anything else but in practice it’s not necessarily true,” says Macintosh.
Employing The Right People
It may be cliché to say, but employing the right team of people within the procurement function is probably the most important factor when it comes to efficiency and cost saving. “You have got to have good people. Strategic sourcing, proactively driving savings requires good people, it requires commercial people and people who are able to manage the supply market, internal stakeholders and business requirements. They must be able to work peer to peer with the CEO or the Head of Orthopedics or the Chief Nurse,” says Macintosh.
There has not been enough emphasis put on the procurement department as a key function, it has been neglected. The procurement function is seen as a low-level function that reports into finance, so it has no executive visibility. Procurement is generally not on the executive agenda and it should be. As Macintosh concludes, “It’s fundamental, procurement should be on the c-suite agenda, without doubt, and you need good people to do that. The procurement function should have a very high profile within the hospital, it should be one of the backbones of the organisation, its just so important.”
By following the steps outlined by Macintosh, hospitals can make vast savings from a procurement perspective. On average, Inverto helps organisations save a huge 9.6 percent of the spend that they address, certainly not an insignificant figure.
How healthcare can safeguard itself against cyberthreats
One of the most fundamental lessons from the COVID crisis is that health should always be a priority. In a similar fashion to the human body that frequently fights off viruses and foreign invaders that intend to cause it harm, the sector itself is now a prime target for another type of external threat: cyberattacks.
The figures speak for themselves: between December and January this year, hospitals in the UK were at 89% capacity, with 7,000 fewer available beds than there usually are. As the pandemic increased pressure on hospitals, clinics, and research facilities to create a treatment for patients globally, it has left the sector exposed to hackers who, like a virus, have been targeting it relentlessly and evolving their tactics.
From patient records being held ransom, to fake emails claiming to originate from the UN WHO, the NHS, or vaccine centres, through to attacks on the cold supply chain to find out the secret formula of the COVID vaccine, the healthcare industry is facing constant cyberattacks and struggling to cope. This threat is unlikely to go away anytime soon – and as such, the industry needs to take a proactive, preventative stance to stay safe in a dynamic digital world.
The responsive nature of healthcare – particularly of hospitals – means that efficiency is crucial to the industry’s standard operations. To support this, the sector has been embracing technological advancements that can improve the quality of work, enabling staff to meet pressing deadlines, and enhancing patient care. For example, the industry has been digitising records and improving its ways of working through digital means over the past few years.
This shift is critical to offer high quality patient care; yet, it also means the sector has become more dependent on IT, which can come with a risk if cybersecurity processes employed are deemed as inadequate.
Without the correct security measures in place, the desired efficiency gains realised, can be easily lost in a heartbeat. Simply put, an elementary glitch in the system can have a tremendous ripple effect on many areas, from accessing patient records and conducting scans, to maintaining physical security and protecting the intellectual property of experimental treatment development.
To prevent this, healthcare organisations need to ensure they’re considering cybersecurity as part of their overall digital transformation strategy – and setting the right foundations to create a culture where safety goes hand in hand with patient care.
Before implementing cybersecurity process, healthcare organisations need to assess the potential risks they face. Depending on how much confidential data the trust has, where it is stored, who has access to it and via which means, the cybersecurity strategy and associated solutions will change.
It’s fair to say that a medical device start-up where all employees have a corporate-sanctioned laptop and access data via a VPN will have radically different needs to a large hospital with hundreds of frontline workers connecting to the hospital’s Wi-Fi using their personal device.
These requirements will pale by comparison to a global pharmaceutical giant with offices in multiple locations, a large R&D department researching new treatments for complex diseases and a fully integrated supply chain. Considering the existing setup and what the organisations is looking to achieve with its digital transformation strategy will therefore have an immediate impact on the cybersecurity strategy.
Despite this, there are fundamentals that any organisation should implement:
Review and test your back-up policy to ensure it is thorough and sufficient – By checking that the organisation’s back-up is running smoothly, IT teams can limit any risks of disruption in the midst of an incident and of losing data permanently.
In our recent State of Email Security report, we found that six out of ten organisations have been victims of ransomware in 2020. As a result, afflicted organisations have lost an average of six days to downtime. One third of organisations even admitted that they failed to get their data back, despite paying the ransom. In the healthcare industry, this could mean losing valuable patient records or data related to new treatments – two areas the sector cannot afford to be cavalier about.
Conduct due diligence across the organisation’s supply chain – Healthcare organisations should review their ways of working with partners, providers and regulatory institutions they work with in order to prevent any weak link in their cybersecurity chain. Without this due diligence, organisations leave themselves exposed to the risks of third party-led incidents.
Roll out mandatory cybersecurity awareness training - Healthcare organisations shouldn’t neglect the training and awareness of their entire staff – including frontline workers who may not access the corporate network on a regular basis. According to our State of Email Security report, only one fifth of organisations carry out ongoing cyber awareness training.
This suggests it is not widely considered as a fundamental part of most organisations cyber-resilience strategy, despite the fact many employees rely on their organisation’s corporate network to work. By providing systematic training, healthcare organisations can help workers at all levels better understand the current cyberthreats they face, how they could impact their organisation, the role they play in defending the networks, and develop consistent, good cybersecurity hygiene habits to limit the risks of incidents.
Consider a degree of separation – Information and Operational Technology (IT and OT) networks should be separated.
Although mutually supported and reliance on each other, employees shouldn’t be accessing one via the other. This should be complemented by a considered tried and tested contingency and resiliency plan that allows crucial services to function unabated should there be a compromise. Similarly, admin terminals should not have internet access to afford a degree of hardening and protection for these critical accounts.
As the sector becomes a common target for fraudulent and malicious activity, putting cybersecurity at the core of the organisation’s operations is critical. It will help limit the risks of disruption due to cyberattacks, reduce time spent by the cybersecurity team to resolve easily avoidable errors, and ensure that institutions can deliver patient care, safe in the knowledge that their networks are safe.
Fighting future threats
With technology continuing to change the face of healthcare, the surface area and vectors available for attacks by malicious actors is constantly increasing. With the introduction of apps, networked monitoring devices, and a need for communication, the attack vector is ever expanding, a trend that needs to be monitored and secured against.
To prevent any damage to patients, staff, or the organisation they are responsible for, healthcare leaders must put security front and centre of their digital transformation strategy. Only then can the sector harness the full benefits of technology. Doing this should include implementing cybersecurity awareness training to challenge misconceptions around security, encourage conversation, and to ensure employee knowledge of the security basics and threats faced.
This ultimately allows healthcare organisations to do what they do best: provide the highest standard of patient care, safe in the knowledge that their operations, patients, and data are safe.