Supplier Relationship Management: A Case Study in the Context of Health Care
Sep 14, Supplier Relationship Management (SRM) is management system and Strategy: meaning a holistic approach to developing stronger management of supplier relationships rather than a mapping of products, increasing brand value, and gives your customers the kind of quality they expect and deserve. Progress on depicting supply chains may hasten a convergence in definition of what a supply .. End-Customer. CUSTOMER RELATIONSHIP MANAGEMENT. So what exactly is Supplier Relationship Management, anyway? opinion, being over-used, without really attaching too much meaning to them. To begin with, let's try to map out what we mean when we talk about “Supplier Relationship CATEGORIES: Category Management,; Customer Relationship.
Therefore actual and accurate information about prices, delivery times, quantities and quality aspects build the basic input parameters for performance measurement.
Hence, data quality management is becoming increasingly important when establishing SRM. While in health care improved data quality is mostly linked to better management of health plans and improved treatments, it also can help to increase competitiveness of a hospital e.
Until now, little has been done by the hospital purchasing department managers to implement performance measurement and governance principles in procurement. However, the discussion with the health care professionals showed that the awareness of governance issues is changing . Therefore the case study at hand simply presents a first field report.Vcast 8 - The Customer Supplier Relationship - Short Show
Nevertheless, it can help to get a better understanding of the importance of SRM in day-to-day business of a health care organization. According to Yin, case study can be defined as "an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident" .
Case study research is widely used and is particularly appropriate for the study of both, social as well as technical phenomena such as the development, implementation and use of information systems and IT within organizations , , .
Supplier Relationship Management - eSourcingWiki
We used it in an exploratory manner for investigating the possible impact of SRM, i. To obtain the required data, multiple expert interviews were conducted. In addition, personal observational field notes and secondary material e. Initial findings have been published in German at . However, this contribution extends the previous work by referencing and translating current findings of industrial research in the field and by suggesting generic practices the hospital supply managers found essential for implementing SRM in the health care context.
However, as it is impossible to tackle all the respective changes at the same time e. The focus of the presented case study is thus on two topics: Inter-organizational exchange of product information corresponds to the process of initiation in Figure 3and as a preliminary form of strategic sourcing 2. Optimization of the internal ordering procedure as a crucial task of operational procurement corresponds to the process of demand determination in Figure 3.
The first aspect was selected due to the fact that the availability of timely and accurate information about purchasing conditions of other hospitals strongly enhances the bargaining power of buying agents and therefore can be seen as an enabler for the transformation of the current structure of an archaic seller's market to a more competitive buyer's market cp. The second aspect is a common issue, which also can be found in other sectors of economy.
The emphasis therefore is on the demonstration that existing solutions of other sectors can also favorably be applied in the health care context cp. On the other hand, the optimized handling of internal orders can be seen as an important contribution of the hospital's purchasing department to enhance the overall quality of health service delivery, since a medical treatment without the proper material and drugs can significantly affect the therapy of a patient.
Every day, the purchasing department handled orders either by phone or per fax. Therefore the great part of a buying agent's labor time was used to manually process these orders. Inthe purchasing department manager decided to introduce the concept of SRM as an organizational and technical response to the actual drawbacks. Thereby two major objectives should be attained: Cost of supplies approximately 93 million Euros annual material costs a year should be reduced, 2. Procurement and logistical processes should be optimized across the different clinics from ordering to in-house delivery.
Relationships to other hospitals and suppliers were informal, unclear, and inefficient. As price margins for a single hospital are constantly declining, a purchasing association with three other hospitals, comparable in size and maturity level, was founded in fall It quickly became clear that for the conjoint negotiation a standardization of and concentration on selected products and suppliers was needed.
On the basis of a product portfolio, the supply managers of the four hospitals decided to center on the procurement of therapeutic and diagnostic equipment in a first step Figure 5.
In a second step, the procurement of other commodities will follow in Switzerland the provisioning of pharmaceuticals is ceded to the hospital pharmacists in most instances; for more information please refer to  Figure 5: Example of a hospital's product portfolio for demanded goods To have a better basis for negotiation, the information needs with reference to products, prices, and suppliers were defined.
However, in order to facilitate comparison for the conjoint determination and pooling of the demand, a common material and supplier classification was needed. It was obvious that the development of a proprietary classification will cause a lengthy and disharmonizing debate about material denominators, supplier evaluation properties etc. Therefore the supply managers decided to participate in an electronic marketplace, which categorized items neutrally, and free of manufacturer-specific terms Figure 6.
In doing so, information about product prices, trade allowances, and consumption became transparent and is now actively being used for negotiation with suppliers. However, as the used electronic marketplace only facilitates electronic ordering not electronic exchange of information between the hospitals, this is only seen as a first step towards a conversion from a seller's to a buyer's market.
Structuring of business relationships by the use of an electronic marketplace 4. Hence, with the aim of optimizing efficiency of the overall logistical processes two major deficiencies were addressed.
First, to ease the buying agents of doing unprofitable work e. For this purpose, a desktop purchasing tool was implemented, which contained all product data with the former, hospital-specific denomination of the items not the new classification scheme of the electronic marketplacesince this was one of the key requirements to ensure the acceptability of the solution. To guarantee the consistency of the neutral as well as the hospital-specific product data, a synchronization mechanism between the two databases was needed.
On the other hand, simplicity of handling was another essential requirement. For this reason, the whole ordering procedure on the part of the wards had to be effected on a simple web browser.
By using this tool the search for determined products was significantly simplified and extensive add-on information about products and suppliers provided. As a result, manual ordering was cut down to a minimum. After the implementation of the tool more than 80 percent of the in-house orders were processed electronically. Second, to enhance the overall logistical processes an interface to the materials management system was implemented.
As the incoming goods are registered in the ERP, an important feedback loop for the purchasing department was automated which formerly was done by hand. Due to better information about the reliability of suppliers, stock management and inventory control was improved and the delivery of the needed goods was accelerated, too. However, another essential feedback loop - the factual use of the delivered material within the medical treatment - still remains unconsidered.
Process and information flows after SRM project 4. Further evidence from the qualitative interviews revealed that the following practices significantly influenced the project on the business relationship level: One key for success is a thorough analysis of the market in order to understand evolving opportunities and threats as they relate to the strengths and weaknesses of the health care organization. Before new relationships with hospitals and suppliers are established, market power, potential growth rate, profitability, and cost structure as well as the internal demands have to be explored, and shaped in a concise and clear sourcing strategy.
Public sector organizations are differentiated in comparison with their commercial counterparts in the private sector. Therefore performance management in health care is not only aiming at the systematic generation and control of an organization's economic value but also at the optimization of the efficiency and effectiveness of service delivery .
Along with the sourcing strategy, also clearly defined target systems e. With respect to the process and information systems level, the following practices impacted the success of the SRM implementation: After having defined the strategic conditions of the hospital's supplier relationship management, it is important to examine the processes and the infrastructure, which supports the achievement of the strategic targets.
For an innovation driven climate in which information and communication technology becomes a strategic enabler for tangible e. A holistic improvement of SRM not only requires the adaptation of processes and infrastructure "hard change" but also to review the corporate culture "soft change"since the effectiveness and efficiency of a health care organization strongly depends on the ability of the human resources .
As a high degree of flexibility, openness and agility of buying agents, nursing staff, logisticians etc. In most organizations, the personnel responsible for on-going supplier management are the same individuals who drove strategic sourcing and those who managed internal functional departments before they were outsourced. In both cases, such individuals often lack both the knowledge and the skills required to manage supplier relationships effectively.
Procurement personnel are trained in sourcing methodologies, negotiation, and other procurement skills. Operational personnel have a deep functional understanding and can be excellent people managers; however, they often lack the understanding of procurement best practices.
The result is that the best skills and knowledge are not brought to bear in managing supplier relationships. The result is that supplier accountability is diminished and internal costs can rise. Formal supplier development programs are lacking or ineffective: However, most companies lack effective programs for supplier development.
So what exactly is Supplier Relationship Management, anyway?
Everybody has become a vendor manager: Inefficiency introduced as too many employees spend time on unnecessary or redundant interactions with suppliers. As companies outsource more activities to suppliers, they often find that not all the internal work goes away — an alarming number of employees across the organization end up spending time and effort managing and interacting with the supplier. This overhead is exacerbated by the duplication of supplier management effort that typically occurs across different corporate functions, business divisions, and geographies.
Because internal roles and responsibilities are not clear, because many aspects of the relationship are ill-defined, because vendor management is seen as a viable job in departments where headcount reductions routinely occur, and because suppliers make every attempt to spread their relationship footprint, too many employees become involved in performing supplier management tasks that are often redundant, inefficient, unnecessary, or even competing.
In our experience this can translate into dozens or even hundreds of employees involved with tracking supplier activities, dealing with issues, interacting with supplier personnel, etc.
Procurement, what have you done for me lately?: While the procurement function has played a leadership role in sourcing and outsourcing activities, as sourcing matures in an organization, the objectives and value proposition of the procurement function need to evolve.
In many organizations, the procurement function has played a leading role in deploying strategic sourcing, outsourcing, and low cost country sourcing. However, as sourcing has become mature in many organizations, as the key categories have already been sourced, as sourcing practices have been institutionalized, and as many functions and business groups have become more or less self sufficient when it comes to further sourcing, procurement organizations are finding that they must develop a new value proposition.
One path is for procurement organizations to champion effective SRM become centers of excellence, not just of strategic sourcing, but of on-going SRM across the entire lifecycle of supplier relationships.
System support for end-to-end supplier management is not effective: Many organizations lack the systems capabilities needed to support day-to-day supplier management across the supplier life-cycle. The result is excessive manual effort, lack of a single view of supplier impact on the organization, and reduced ability to improve supplier performance.
While many large organizations have deployed systems for e-procurement and ERP systems to manage purchasing transactions and accounts payable APsupplier data remains fragmented between corporate systems and desktop hard drives and system support for SRM across the entire relationship life-cycle is often minimal. Data pertaining to supplier relationship governance, supplier development activities, etc.
Forming a single picture of a supplier relationship is not easy. In addition, very few companies have systems that support day-to-day SRM activities such as relationship governance, SLA management, joint process improvement, and supplier stratification. Where such system capabilities exist, they are fragmented leading to inefficient processes. To address these challenges, companies are adopting SRM capabilities and revisiting their processes, organizations, and systems to manage their new supply environments.
World Class Supplier Relationship Management: Supplier Relationship Management SRM is a set of principles, processes, templates, and tools that help companies maximize relationship value and minimize risk and management overhead over the entire supplier relationship lifecycle.
SRM enables organizations to effectively: Stratify suppliers based on importance and define relationship expectations Establish the governance structure and process for internal and supplier interactions across the lifecycle of the supplier relationship Define formal processes for management involvement in the relationship Clarify internal roles and responsibilities, and required skills Put in place processes to effectively manage performance and develop supplier capabilities to continuously improve value SRM is comprised of five key elements: Effective SRM requires a clear company-wide understanding of which suppliers are the most strategic to the organization and which are less important.
However, in the absence of balanced, formal criteria for supplier stratification, suppliers on which the organization spends the most are inevitably viewed as the most important and tend to capture the greatest relationship focus and effort. In addition, effective stratification requires a set of common definitions of how suppliers in strategic and non-strategic tiers should be managed.
This common set of definitions enables companies to: Optimize resource allocation across a broad supplier base Establish and manage relationship expectations by supplier tier, providing a common reference point for what it means for a supplier to be strategic Provide functional and business groups with consistent partnering strategies within their supply bases Provide functional and business groups with a fresh view of their supplier portfolios based on relationship value, enabling improved decisions on further supplier consolidation and leading to further strategic sourcing opportunities Motivate suppliers to strive for advancement across supplier tiers Governance and Organization: Once the importance of an individual supplier to the organization is established via Supplier Stratification, the next step is for the organization to define the team structure that will be required to manage the supplier on a day-to-day basis as well as the roles involved in those activities and skills and knowledge that team members will be expected to bring to the table.
In addition, the streamlined structures eliminate many of the dropped hand-offs and help to make supplier management more proactive. Once a team structure with roles and responsibilities is defined, the next step is to formalize the on-going governance processes to make supplier management repeatable, transparent to management, and consistent throughout the organization. An effective set of governance practices lays out: Schedules, attendee lists, and agendas for key supplier relationship review meetings Templates for supplier relationship reviews Detailed designs of day-to-day supplier management activities such as contract management, financial management, and issue resolution Triggers and escalation paths for supplier issue resolution Supplier Development: Develops new services and products that can drive competitive advantage Closes capability and performance gaps Creates a reliable and long-term source of supply Provides access to new ideas and opportunities for improvement Prioritizes capability development and supplier investment Benefit to Supplier: Several supplier development needs are prevalent in direct, indirect, and outsourced environments: Few contracts encourage suppliers to identify opportunities to add value Lack of process to identify new value creation ideas Lack of incentives for suppliers to identify new opportunities Companies can address these supplier development needs by establishing a formal supplier development program that first selects suppliers where development effort will have the highest value to the organization, determines the specific development need sand applies the appropriate development techniques.
Sample development techniques include: Service Level and Performance Management: Effective management of supplier service levels and performance is a critical element of SRM. Organizations that measure the supplier impact on business value drivers, hold suppliers accountable for poor performance, and provide incentives for outstanding performance, benefit by: Enabling continuous improvement in supply performance and efficiency Ensuring adherence to contractually defined SLAs and performance targets Providing improved visibility and documentation to supplier performance issues Supporting supplier governance by providing data on supplier performance and value added to the organization However, performance management, in its current form, falls short of achieving this ideal, amounting to a mere tactical reporting exercise.
In some cases it may even be advantageous to redefine the scope of the supplier relationship to ensure that the supplier can truly impact business value. The next step is to establish a contractual agreement that clearly defines supplier performance expectations, target levels, and tolerance ranges. In addition, it is critical to formalize the consequences of underperforming or over-performing to an agreement, the specific trigger points and conditions for remediation once an SLA breach occurs, the process for remediation, and ownership of the supplier performance within the organization.
To enable truly effective performance management, the resulting relationship agreement elements must be captured and presented in an integrated fashion. In many cases, after examining existing SLAs and performance measures and developing a performance map for the relationship, organizations implementing SRM find that they must go back and re-define contractual SLAs.
However, even where SLAs are already effective, developing and using a performance map ensures that all parties involved in the relationship understand how performance will be managed and who will manage it. The result is a dramatic improvement in performance. Supplier Relationship Management Systems: While successful supplier relationship management is largely driven by changes in policies, processes, roles, and supplier agreements, effective systems are a critical enabler.
Systems play three key roles in enabling SRM: Supplier Relationship Data Management: Availability of all relevant relationship information allows staff to manage and audit supplier relationships more proactively Access to consistent reports facilitates executive and management reviews of supplier performance and status across supplier relationships Roll-up capability enabling visibility of overall relationship factors such as risk, performance, resource allocation, etc.
Standardized Tools and Templates: Companies that have adopted SRM best practices are realizing a number of important benefits: To realize the full benefits of strategic sourcing, outsourcing, and low cost country sourcing, leading organizations need to build the capabilities required to effectively manage the resulting supply base by deploying SRM best practices.
To define a starting point and prioritize SRM activities, companies should consider the following questions: Is there a clearly defined, common set of processes, policies, and tools governing the on-going day-to-day management of suppliers?