The overdue promise of e-procurement: a new business architecture and an evolutionary business model are necessary for electronic procurement to deliver and sustain the efficiencies that stakeholders require - E-Procurement/Materials Management

Health Management Technology, Nov, 2001 by Lee Marston, Lawrence Baisch

The next wave of value creation will occur in the consolidation of business functions and transactions across multiple companies, made possible by the Internet. For example, organizations such as Ford, Daimler-Chrysler and GM are choosing not to perform every process related to their procurement functions. Covisint, the auto industry-sponsored exchange, consolidates purchasing requirements by plant across all its members, places consolidated purchase orders to pre-approved suppliers, and processes payments via a single operating account, which is later settled with the various depository institutions. This consolidated approach to procurement significantly reduces operating costs for both the auto manufacturers and their suppliers, and at the same time drives better contract compliance and higher levels of service.

This same opportunity exists in healthcare, although it has not been fully realized because of the fragmented nature of the provider community. It is no wonder that group purchasing organizations have picked up the banner for e-procurement in our industry: They are the closest thing we have to supply aggregators for healthcare providers.

In addition to transaction consolidation, a number of companies in healthcare are focusing on the electronic consolidation and management of the contracting lifecycle. This is expected to generate significant savings opportunities once the "digital" version of contracts exists in a central location, accessible to all. Future consolidation opportunities include further consolidating purchasing power, consolidating the flow of materials, the flow of payments, and the flow of information and reporting.

Collaboration

Collaboration is a more recent concept and perhaps the most important one. The new strategic thinking in supply chain management is that further optimization requires new forms of business collaboration.

A collaborative network is composed of some combination of suppliers, customers, infrastructure managers and service organizations that jointly coordinate and plan their supply chain activities. While many variations of this model exist, most collaborative efforts are driven by the desire to create end-user value as a group initiative instead of through individual or arms-length relationships among supply-chain members.

For example, it may be possible to achieve 100 percent order fillrates with corresponding reductions in inventory by rethinking the procurement-fulfillment cycle that exists today. In a collaborative community, order fulfillment shifts as needed, to the member in the best position to fulfill the order. Today we have an elaborate backorder and drop-ship management process that is wasteful and inefficient.

Rather than the redundant approach to designing business processes solely from an internal perspective, the members of a collaborative community evaluate the entire end-to-end process and assign each component to the member most capable of executing with optimum performance in a given situation.