Medical Center Realizes Savings and Productivity Enhancements with On-Demand Cloud Procurement System


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Transcript of a BriefingsDirect podcast on how Ohio State University Medical Center has streamlined their procurement process with cloud-based tools from Ariba.

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Medical Center Realizes Savings and Productivity Enhancements with On-Demand Cloud Procurement System

  1. 1. Medical Center Realizes Savings and ProductivityEnhancements with On-Demand Cloud Procurement SystemTranscript of a BriefingsDirect podcast on how Ohio State University Medical Center hasstreamlined their procurement process with cloud-based tools from Ariba.Listen to the podcast. Find it on iTunes/iPod. Sponsor: AribaDana Gardner: Hi. This is Dana Gardner, Principal Analyst at Interarbor Solutions, and you’re listening to BriefingsDirect. Today, we present a sponsored podcast discussion on how businesses are using cloud commerce and automated procurement to dramatically improve how they source and manage the buying process. [Ariba is a sponsor of BriefingsDirect podcasts.] In doing so, well see how they improve cash management and gain ananalytical edge to constantly improving these processes. We will examine how the Ohio StateUniversity Medical Center has moved its procurement activities to the cloud and adoptedstrategic sourcing, dramatically increasing efficiency across the purchases managed. Well learnmore about how a large medical enterprise is conducting its business better through collaborativecloud commerce.Please join me now in welcoming our guest. Were here with Karen Sherrill. She is SeniorCommodity Manager at the Ohio State University Medical Center in Columbus. Welcome to theshow, Karen.Karen Sherrill: Why, thank you.Gardner: What was wrong before? What did you need to change in how you sourced andprocured that led you to adopt more automation and more of these cloud-based services?Sherrill: The Medical Center is a government agency. So as you can imagine, it’s tied down with a lot of bureaucracy and paper. But as we moved into the year 2010, we were receiving a lot of pressure to do things faster and more efficiently. The only way to do that was some type of technology to allow our current staffing levels to support the needed growth to be able to support our customers faster. We were processing about 422 bids a year, and that equated to about the same number of contracts. We had only 26 buyers who were able to support the business that was projected to grow significantly with our medical centerexpansion and the growth of our ambulatory site.
  2. 2. Some of the limitations that we were running up against was that our resources were spending alot of time providing technical support to the old legacy system. In addition, the legacy systemwas supporting static documents. So we were posting PDFs, and suppliers were mailing in bids,which was not an efficient way to analyze them on the back-end.We were manually tracking supplier contract terms, conditions, and modifications, and that wastaking a significant amount of time in order to execute the final agreement.We had no repository for contracts. So when people were seeking agreements, we were lookingon shared drives and peoples’ desks and were having to go to external storage. Contracts wereexpiring. We were not aware of them and not renewing them in a timely fashion.No frameworkIn addition, we had counterparts with the university and we werent able to collaborate with them and have visibility into what bids they were doing and what bids we were doing. So there was no framework to support that type of collaboration that was essential for us to be successful going forward.Those were some of the limitations and concerns that we were trying to address and we thereforeimplemented technology in order to help us meet or relieve some of these concerns.Gardner: When you decided that you were no longer able to scale this effectively and that yourexisting processes were breaking down under complexity and load, how did you go aboutseeking a solution? What were the requirements that you had in mind when you were seeking toimprove on this situation?Sherrill: One of the requirements was that it had to be an automated technology and it had to beeasy to use. The provider of the technology would need to provide the technical support,primarily not for the buyers, but for the suppliers, who would be interacting with the system andwould need training and guidance to navigate the system in order to submit an effective bidresult.Gardner: Tell me a bit about the Ohio State University Medical Center. For those who arentfamiliar, let us know the breadth and depth of the organization there.Sherrill: The Ohio State University Medical Center is located in Columbus, Ohio. We consist offive hospitals. The main hospitals are the James Cancer Hospital, the Ohio State UniversityHospital, the main campus, and then we have Ohio State University Medical Center HospitalEast.We have about 58,000 inpatient admissions and about one million outpatient admissions, and wedo about 15,000 inpatient surgeries, about 19,000 outpatient surgeries, and about a 120,137 visitsto our emergency department.
  3. 3. We consists of about 450 beds, and that does not include our one million square foot expansionconstruction project that we currently have underway, and is expected to be completed in fiscalyear 2014.Gardner: So clearly its a very big and busy place. Are you managing all the procurement formedical supplies and office supplies? Whats the extent of the purchasing and buying that youreinvolved with?Divided into two sectionsSherrill: Were divided into two sections. I head up the indirect products and services, whichmeans that anything thats non-clinical or not related to a patients care. So that would bemarketing, advertising, linen, landscaping, anything thats not directly related with patient care.I have a counterpart who handles all the clinical types of purchases, which would bemammography equipment, needles, drug-eluting stents, all the medical type related supplies andservices.Gardner: So there you were just a few years ago, looking at this problem, knowing where youwanted to go, knowing that you needed to automate and outsource a significant portion of this,and with a very big organization that doesnt just stop in order for you to bring in a new system.You need to keep the plane flying while you change the engine, so to speak.So, Karen, tell us a little bit about how this unfolded. How did the journey begin, and where haveyou come in just a fairly short amount of time?Sherrill: Initially they did an RFP for the e-sourcing technology. Ariba was selected. That wasdone prior to my coming on board, but when I came on board they said, "This is the technologywe have selected and you need to implement this."As a result, being a new person in the organization, I didnt really know how the organizationoperated, because I came from the private sector. This was a public sector entity. I was a newperson, and no one knew who I was.The first thing for me was to build relationships internally, and I did that by just taking the timeto stop, listen to the way they currently did business, and why they did it that way. Sometimesthey may be doing things for a good reason or maybe there was a legal reason. There were otherthings they were doing because they did it for 50 years, and maybe we didnt need do it that wayany longer. So that was the first step.The second step was that the leadership heads agreed to lay out a significant amount ofinvestment in this particular technology, and my only assignment was to implement it. So wecreated this analogy that the locomotive is out of the gate. The financial investment had been
  4. 4. made. Then you have Karen Sherrill, who is trying to prove something, and my only assignmentis to get this implemented.The rule was that you have three choices: you can get on the locomotive and enjoy the ride, youcan step aside and let the train pass you by, or you can try to get in front of the train and stop theprogress.That was the analogy or the vision that we put in place, and they could decide where they wantedto fall. We had individuals who chose three different areas.Enjoy the rideMost of them decided to get on the train and enjoy the ride, because they were really itching forchange and becoming more efficient. Others were nonbelievers, saying that this is never going tostick, so I am going to let the train pass me by. And there were a few who were afraid oftechnology changing, afraid of the processes changing, afraid of the shift in power as a result ofthe processes changing, and they feared visibility. So they tried to stop the train.Because we had leadership support, whenever we ran across those individuals, we could run it upthe chain. We had an endearing term that they would then get the smack down or be smackedback in line so the train can continue on.We had to do that several times, but in the end we knew what the destination was and thelocomotive was going to get there. We were not going to be one of those organizations thatbought the technology, and when the subscription expired, we had not had one bid go through thetool.One of my personal objectives was that a year was not going to go by without one bid goingthrough the tool. One year sounds like a long time, but they didn’t have any processesdocumented. So we had to step back a few months to document the processes in order toeffectively communicate how we wanted this technology to be configured.But it was not going to take more than a year to get one bid through the tool. Then, when we hadthe one success, the goal was to build upon that success and continue to get more and moremomentum. That’s how we were able to drive this locomotive to conclusion very quickly.Gardner: Its so important when youre dealing with technology shifts not to underestimate theimportance of those people issues and to provide the time for those transitions to take place. Sothat’s clearly a big deal.Was there something about the way that the service delivery, the software as a service (SaaS), orcloud delivery helped in that regard? Did people feel like they were getting support? How wouldyou characterize the way that a cloud delivery transition may have affected this people, orbehavioral, aspect of things?
  5. 5. Sherrill: One of the key reasons we selected the cloud on-demand version versus somethinghosted behind our firewall, or even deciding to integrate it with our systems behind our firewall,is that you have to get IT support internally, get their approval, and that would have delayed theimplementation of this significantly.We consciously made the decision not to integrate. There was really no need to do it at this point.And they wanted to see if we would use the technology. Why invest in integrating somethingthat’s never going to be adopted?So one of the benefits of using the on-demand solution in the cloud is that you don’t have tobuild that interface behind a firewall and you do not have to use internal resources to implementor execute the system. So that was one benefit to using the cloud solution.Assisting suppliersOne of the problems we were having was that on the old system buyers were providingsuppliers’ technical support, such as suppliers cant remember their email, they got the wrongcategory, they didn’t get the bid, and the buyers were constantly having to interface withsuppliers.When you go to a technology approach that’s more advanced, theyre going to need even moreassistance on how to navigate the sites or get their passwords reset. With the on-demandtechnology we are able to utilize the Ariba help desk. Most of our tickets are supplier based, andwithin 12 months of implementing there were over 700 tickets issued to the help desk, whichwere transparent to me and all the buyers.Thats a benefit that is definitely required when you go to a more advanced technology forprocessing bids. The suppliers are going to be needing more support, but you cant have yourresources that are supposed to be focusing on strategic sourcing spending all their time trying tohelp suppliers to submit a response to a bid.Gardner: Id like to hear more about the efficiencies that youve been able to develop with thissystem and approach, but lets look at the higher-level benefits around strategic sourcing.Is there something about using the network, Ariba’s Community, their cloud, their Discoveryprocess and services that allowed you to increase the amount of folks that would be interested indoing business with you. Were you able to find additional people when you were seeking them,sort of a matching process I suppose? Was there really a radical or a substantial difference in howyou sourced, regardless of how you went about sourcing?Sherrill: There was an additional benefit from using Ariba Discovery in our legacy system.There were only about 5,000 suppliers. As a public entity were required to do publicnotifications of our bid opportunities. With only 5,000 suppliers within our legacy base, thecompetition could be somewhat limited, because its only those suppliers who knew about oursite and had come there to register to receive our bid notification.
  6. 6. When we transitioned to Discovery, there were about 350,000 suppliers on Discovery. Its grownto over a half-million at this point. So weve substantially increased the number of suppliers thatare aware of our bid opportunities.When you increase the number of suppliers aware of your bid opportunities, the number ofsuppliers that participate grows or increases. When you have more suppliers participating, youhave increased competition, which then lowers pricing. And we found that to be the case on twohigh profile projects.One project was related to linen. There was a supplier that we were aware of but we couldn’t findtheir contact information. We put the public bid notification on Discovery, and the supplierpopped up. They participated in our bid.They didn’t win, but they were strong competition, and the incumbent felt the need to reducetheir pricing by about 16 percent, which resulted in a half-million dollar savings in year one andyear two of the agreement. So if we didn’t have that strong competition, that saving probablywould not have been generated.Driving down pricesThe dynamics that were working there was that you had the incumbent, who if they lost thebusiness, would have a lot of explaining to do, working against the dynamic of a new companywho was being told, "Do whatever you have to do to get the business." That dynamic drove thepricing down. So that was one benefit.On several of our categories, were just getting a lot more suppliers participating, findingsuppliers that can source things that the buyers may not be a subject matter expert in. Becausewere joined with the university, theyre utilizing the system too, and sometimes theyre beingasked to source things like hay or dental strips. Theyre not a subject matter expert in that. Whereare they going to find suppliers?By just putting out a bid notification on Discovery, it makes the buyers who are more of ageneralist have the tools necessary to find suppliers that can compete on categories that theyrenot subject matter experts in, in order to generate the competition to reduce price and getadditional value from the supplier base.Gardner: You mentioned earlier that one of the requirements you had was to automate andcreate more of a solid data repository, perhaps a system of record, for these sorts of activities. Ingoing to Ariba, have you been able to achieve that, and what has that done that for you? Is therean analytics benefit and an auditing or tracking benefit? How has being able to satisfy thatrequirement benefited you as a business?Sherrill: Its allowed us to standardize on the Seven-Step Strategic Sourcing Process, and withinthat process there are certain documents that have to be completed. We get audited on that
  7. 7. documentation being completed. Its basically around, did we follow the public biddingguidelines? Did we do a public bid? Was the lowest and most responsive bidder selected? Andwhat was the documentation, the score sheet, that support that contract award?Now, when an auditor comes in and they select bids, we can run a report of all the bids that wererun during a particular period of time. They can just select the bids that they want, and the buyerscan just do a search and pull the documents that were requested.Before, they had to go to some file cabinet and find the bid number. What if it was misfiled? Itallows us to obtain audited documents much more quickly and it also standardized on the processto make sure the documents are completed in order to close the project out. So from a visibilitystandpoint, that has benefited us.From the reporting aspect, we also can see how many bids are being run by what people and howmany contracts are being executed, so we can get visibility into workload. Someone is doing xnumber of bids, but their work is not very contract related, versus someone is not doing verymany bids, but they are doing a lot of contracts, versus someone who is not doing any bids orany contracts -- and that’s kind of an issue. So we can run a report and keep track of productivity,where we may have to shift projects or resources in order to better support our customers. Andwe can do that by just running a quick report.Savings is another big initiative. Everybody wants to know, how much savings you generatedover what period of time. We used to have an Excel spreadsheet where people were loading intheir projects. A high-level executive would say, "I want to know what the savings were," andthere would be this big initiative about going to the spreadsheet to update your savings. Ofcourse only one person could go into the particular spreadsheet at a time, and the accuracy of itwas always questionable.People feel more comfortableNow we have the technology where people load up their projects and load up their savings. Wecan run a monthly report that is scheduled. People are required to review their savings numberson a monthly basis and make any tweaks or adjustments. When we get those requests for savingsnumber, the accuracy of it is a lot higher and people feel more comfortable with it and people canupdate their savings at the same time.So if we have to do it on a quick term basis, like in two or three hours, you can say, "Go andupdate your projects." The source analysts can just pull down that report, and weve got ournumbers. That is a beautiful thing as far as visibility into savings, tracking the savings, andbuilding more confidence in the accuracy of the numbers we report.Gardner: How about the productivity of your buyer workforce there? Obviously, youre doingmore things, but are you doing it with the same staff? How are they feeling about the workload?Whats the sense of what you can do with your resources there?
  8. 8. Sherrill: Our resources, since we went live, have only increased by one, but we got additionalwork to go with that. That was medical center expansion project. So the workload has increasedand we have had the same number of people.Before we implemented Ariba, the construction category had a lot of bids, and that particularbuyer was getting a lot of complaints that he wasnt turning the bids around faster, or as fast asthe end user would like, and the analysis was taking too long. They wanted to see the bid results.They wanted to see it analyzed quickly, and they were escalating these complaints.We implemented Ariba. So now hes able to execute his bids faster. Once he loaded one bid up, ifanother one was similar, he could copy and just tweak, which increased the efficiency on his end.And because the suppliers were inputting their responses online, it was easier for him to exportand do the analysis much quicker, but that particular user base also embraced the technology.Weve got them to the point that when the bids come in, they can go in and pull them downthemselves and do the analysis and decide who they want to shortlist.That particular group is much happier. Were not getting any complaints, and the projects aremoving off of his plate much faster. In fact, we used to have a lot of projects that were past due,past due, past due. The last report that we did there was something that was just due out in thefuture. So were starting to get ahead of our strategic sourcing pipeline.Gardner: That sounds very impressive. What would you have in terms of suggestions orrecommendations for folks who are examining moving to a cloud-based procurement andstrategic sourcing service or activity? Do you have any 20/20 hindsight, something that youcould offer in terms of what you learned along the way?Sherrill: The first thing I would recommend, and most companies may have it, is that you needto have your processes documented. When you buy one of these subscriptions, the clock startsticking. If you have to stop and document your processes, then youre not using the tool, but youare paying for it.Document your processesHave your processes documented, so as soon as your subscription starts, you can have the toolconfigured and you dont have to use eight months, like we had to do, to figure out how wewanted the tool to be configured.They also need to keep in mind that the technology is just a tool and it requires people,processes, and the technology to be successful. I like to say that you have to have brains behindthe tool or its not going to work for you.Some of the people here had the skill set to embrace the tool and the utilization of the tool, butwe have other people who dont have the correct skill set in order to effectively utilize the tool.
  9. 9. That’s kind of a constraint if you dont have the authority to transform your organization andright size it with the people that have the correct skill sets.Another important implementation is that youve got to have support from the top, who will backyou up when someone is trying to put up a wall or be an obstacle to the implementation.The way you get the leadership support is having an individual who has built credibility as far asthe transformation actually working. The person leading the process needs to have the right skillset, and from what we found, that was a person who had excellent project management skills.Also key is that they need to be able to do strategic sourcing. You have more credibility, if youreactually using the tool and actually using the processes that you are implementing.Number three, the person has to have excellent communication and interpersonal skills to dealwith those people who dont want to go along with the process, as well as team building skills. Ifthat particular leader has all those skills, it allows the opportunity for them to do sourcing eventsand lead by example.One of the things that made Ohio State University’s implementation successful is that myprojects were the ones that went through the tool first. I was able to identify any problems andreconcile them immediately, so that the buyers that were putting in their bids behind mine wouldnever run across those problems.If there were problems that I encountered that I wasnt able to fix, and a buyer identified it, Icould say, "Im aware of that problem, and here is your workaround," so that I didnt get any"aha" or "got you" moment that they were trying to come up with to stop the implementation.The second component to that is that you need to have early adopters. These were people whowanted to change, who wanted to have their sourcing projects to be the first ones to go to thetool. That was valuable in that, while I as a project leader will say that this is great, Im going tosay its great, because I am responsible for rolling it out. But I had early adopters who also agree,who are fans, who are vocal about it, and also had successes. That was very instrumental torolling the project out successfully.Adding credibilityThen once youve got several of the people who have the credibility of utilizing the tool, whoare actually sourcing professionals that are using the tool, it adds credibility, and then everyoneelse has no choice but to follow along.The other important thing is that you have to shut down the old way of processing bids. We had ago-live date and we had those individuals that decided to use the old way all the way up until thelast date, but when we came to the go-live date, there were no more bids going out the old way.That led to us having 100 percent compliance, since we went live May of 2010. Those would bemy recommendations.
  10. 10. Gardner: That’s very good insight. I appreciate that. Youve been listening to a sponsoredpodcast discussion on how businesses are using cloud commerce and automated procurement todramatically improve how they source and manage the buying process.I want to thank our guest. Weve been here with Karen Sherrill, Senior Commodity Manager, TheOhio State University Medical Center in Columbus. Thanks so much, Karen. That was veryinsightful. I appreciate it.Sherrill: Thank you for having me.Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. As always, thanks forlistening and come back next time.Listen to the podcast. Find it on iTunes/iPod. Sponsor: AribaTranscript of a BriefingsDirect podcast on how Ohio State University Medical Center hasstreamlined their procurement process with cloud-based tools from Ariba. Copyright InterarborSolutions, LLC, 2005-2011. All rights reserved.You may also be interested in: • Ariba Live Discussion: How Cloud Alters Landscape for eCommerce, Procurement and Supply Chain Management • Analysts Define Business Value and Imperatives for Cloud-Bases B2B eCommerce • Cloud-Based Commerce Network Helps Florida Manufacturer MarkMaster Reach New Markets, Streamline Transactions • BriefingsDirect Analysts Discuss Business Commerce Clouds: Wave of the Future or Old Wine in a New Bottle