Medical E-procurement—Navigating in a B2B Market - Industry Trend or Event

Health Management Technology, August, 2000 by Douglas E. Goldstein

Use the 4 `M's to kick the cyber-tires before you ink the deal.

The healthcare e-procurement market is heating up as pure-play dot-com companies salivate over the profit possibilities of streamlining the $300 billion medical supply market. These Internet companies plan to revolutionize the way you buy and sell medical products and equipment. The battle lines are beginning to blur as consolidation and partnerships between bricks and mortar group purchasing organizations (GPO) companies and dot-coms take place.

Initiators in this market--such as Neoforma.com, MediBuy, and Medpool.com--are pure-play dot-com companies backed by hundreds of millions of dollars in market capitalization. But traditional bricks-and-mortar manufacturers and distributors have begun to Web-enable their catalogues in an effort to catch up. And, the newest breed of hybrid e-companies includes merged bricks and clicks that leverage trusted brand names with dot-corn applications.

Executives who know how to navigate today's medical e-procurement winners--as well as evaluate tomorrow's consolidators--will successfully save procurement dollars and staff time. Get connected to what the medical e-procurement revolution has to offer your organization.

Understand Different Electronic Web Exchange Types

If you think medical e-procurement ordering is only about saving a buck and getting rid of the middlemen, you are missing the bigger picture. E-procurement companies aim to provide a breadth of products and services to healthcare organizations more efficiently, while automating the purchasing process through Internet technology and connectivity. The types of Web exchange models vary widely. Products, services, auctions, and efficient new ways of managing inventory are just of few options. Understanding the difference is vital to picking the right Web-based procurement partners to automate your process and lower your costs. It's your challenge to ferret out the Web exchange type and partner that best fits the needs of your organization. Do you need to unload inventory or secure a few pallets of tongue depressors in a short timeframe? A spot-buying solution partner might be the right pick. Would participation in online equipment auctions help the hospital acquire that MRI your neurosurgeons have been asking for? Try an e-faciliator or open exchange. Or, if you just need a convenient and low-cost way to order supplies, an online storefront might be just what you need.

The key is to understand the offerings of each type of medical e-procurement player--before making a selection. Then you can move on to inspect them for solvency and value.

Assess Potential e-Partners

No sane financial investor would ink a deal with an e-company without first performing due diligence. Before you start placing million-dollar orders or auction bids with a medical e-procurement company you know little about, take the time to kick the cyber-tires. Where is the company in its development cycle? How strong is its financial backing? What real value does the company bring? Does the company really deliver a lower price or is merely helping you cut transaction costs? A GPO can get you volume discounts, but medical e-procurement partners worth their salt use the medium of the Internet to offer more--auctions, online requests for proposals, inventory management and other value-added services. Before you sign up for a "protective undercoat," think like a venture capitalist. Test drive the medical e-procurement players using the four "M"s:

Management--Are the folks in charge the types you want to do business with? Do they have similar values and desire for quality service? Companies that are heavy on technology staff but light on those who understand healthcare or procurement could be a red flag. Look for dot-com vendors that have well-rounded experience with Internet start-ups, healthcare and procurement management, finance, operations, and sales.

Model--How does the company differentiate itself from competitors? What is the company's growth strategy? Does it want to be the Amazon of medical e-procurement, or just package up some assets to sell to the highest bidder? Is the company a trusted bricks brand that seeks an e-commerce strategy to preserves its leadership position and enhance shareholder value--or a me-too that thinks it has a new twist? It's also important to understand how the company makes money--from subscriptions, transactions, or sponsor dollars. Evaluate the e-business models and compare e-commerce transactions vs. connectivity or flat rate fees.

Money--Who is funding the company, and does it have sufficient funds to compete? Find out if the capital is seed money or venture-based, and if the company is private or public. If your medical e-procurement partner doesn't have ample access to cash, it will be outspent by its competitors, or burn its capital before making significant profits--potentially leaving your organization with pending orders that can't be filled. Is the company making a profit? And find out how revenue recognition is tracked. If the company books previous quarters' sales in the following quarter because it needs a boost to meet analysts' forecasts, the company's financial picture could be favorably distorted.