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Arnold Palmer Hospitals Supply Chain

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Title: Arnold Palmer Hospitals Supply Chain


1
Arnold Palmer Hospitals Supply Chain
  • Procurement Case Study
  • Istanbul, 06/12/2006

2
Overview
  • Arnold Palmer Hospital
  • Since 1989, it is one of the nation's top
    hospitals dedicated to serving women and
    children
  • located on the downtown Orlando Regional
    Healthcare campus
  • over 2,000 employees
  • 431-bed facility totaling 676,000 square feet in
    Orlando, Florida
  • Also including 96 pediatric beds, 72 obstetric
    beds, a 78-bed Neonatal Intensive Care Unit, a
    35-bed Gynecology Unit and a 20-room Labor
    Delivery Unit.
  • only hospital in the Southeast - and one of only
    six in the USA - dedicated exclusively to serving
    the special needs of children and women,
  • Also member of Orlando Regional Healthcare
  • Which is one of Florida's most comprehensive
    private, not-for-profit healthcare networks.
  • Comprises 8 hospitals including Arnold Palmer
    Hospital
  • Also owner of Healthcare Purchasing Alliance
    (HPA)

3
Procurement History
  • Before
  • Arnold Palmer was a member of large buying group
    one servicing also 900 members
  • Advantages
  • By the help of large purchasing units, low cost
    opportunities per product type
  • Disadvantages
  • Frequently changing suppliers
  • Missing local opportunities with local suppliers
  • Bureaucratic and standardized structure,
    diffucult to manage exceptions

4
Current Situation
  • Arnold Palmer established Healthcare Purchasing
    Alliance (HPA) in 2003
  • with 7 regional hospitals.
  • under control of Orlando Regional Healthcare
  • Smaller than large buying group but still
    considerable volume (with 200 million in annual
    purchases )
  • First year saving was 7million dollar shared by
    8 members
  • Yearly cost is 400,000
  • Long term contracts with suppliers guaranteeing a
    committed volume

5
Procurement in Service Industry
  • Procurement is more focused on product innovation
    and direct spending opportunites in manufacturing
    industry. (Buyer-vendor collaboration)
  • In service industry procurement is also focused
    on indirect spending issues. Because most of the
    products purchased in service industry is kind of
    supportive structure for serving capabilities.
  • On the other hand InArnold Palmer Hospital
  • Case is more like manufacturing in service
    industry.
  • Opportunities manifest themselves through Medical
    Economic Outcomes Committee (Like Subject Matter
    Expert Committee also responsible for cost based
    issues)
  • Includes subcommittes per deparment
  • Includes Nurses , Doctors and other experienced
    medical staff as subject matter expert committee.

6
Procurement in Service Industry-2
  • To understand difference between the HPA and
    large purchasing group in one case - Custom
    packs. (used in operating room) As far as we
    understood from the text the process tree is

Distributed
Assembled
Manufacture
Define the eligible Manufacturers and
other parties
Assess the opportunities for quality issues
Find the potential suppliers
Identify Need
McKesson General Medical
Medical Economic Outcomes Committee
HPA
Specific custom packaging co
Specific Manufacturers
HPA
Key Users
  • The main difference is The HPA allows Arnold
    Palmer Hospital to be creative in this way. With
    major cost savings, standardization, blanket
    purchase orders, long-term contracts, and more
    control of product development, the benefits to
    the hospital are substantial.

7
Question 1How does this supply chain differ from
that in a manufacturing firm?
  • Manufacturing firms is more focused on new
    product innovation building efficient
    buyer-vendor collaboration.
  • In healthcare services sector, purchasing options
    are evaluated with a goal of better medicine
    while achieving economic targets. In service
    industry procurement is also focused on indirect
    spending issues. Because most of the products
    purchased in service industry is kind of
    supportive structure for serving capabilities.
  • In service sector, personnel are often deeply
    involved in purchasing decisions.
  • Normally for service sector different companies
    purchases the similar and standardized products
    in terms of RFP requirements.
  • However in manufactoring firms, most part of
    purchasing is based on direct spending which
    needs customization and should be firm based.
  • The case structure for this hospital is in the
    middle of service industry and manufacturing
    industry in terms of decision phases.

8
Question 2What are the constraints on making
decisions based on economics alone at Arnold
Palmer Hospital?
  • Medical Economic Outcomes Committee at Arnold
    Palmer Hospital, tries to maximize the economic
    and medical benefits simultaneously. Its not
    possible to base the purchases solely on economic
    advantages.
  • Supply chain management should focus on the total
    impact of care, not merely product acquisition
    costs in the service industry. It should look
    strategically at value, to positively affect both
    the patient outcome and the costs of care, not
    just price.
  • Not only major cost savings but also they should
    consider quality, standardization, blanket
    purchase orders, long-term contracts, and more
    control of product development issues.
  • From this perspective Medical Economic Outcomes
    Committee is kind of approval committee to
    evaluate the quality standards for eligible
    suppliers in terms of economic targets.

9
Question 3What role do doctors and nurses play
in supply-chain decisions in a hospital? How is
this participation handled at Arnold Palmer
Hospital?
  • Doctors, nurses are dealing with the medical
    supply directly. Changing or unfamiliar supplies
    make them uncomfortable at their practices.
  • So, at Arnold Palmer Hospital, doctors and nurses
    are members of Medical Economic Outcomes
    Committee, who can evaluate the purchasing
    options
  • They have also authority on procurement decisions
    in terms of quality and standadization problems.

10
Question 4Doctor Smith just returned from the
Annual Physician's Orthopedic Conference, where
she saw a new hip joint replacement demonstrated.
She decides she wants to start using the
replacement joint at Arnold Palmer Hospital. What
process will Dr. Smith have to go through at the
hospital to introduce this new product into the
supply chain for future surgical use?
  • Development of custom products is possible with
    collaboration low level supply channels.
  • A new hip joint replacement from the Doctor
    Smiths Example requires the evaluation of the
    Medical Economic Outcomes Committee and
    re-organization of the vendors.
  • She should also follow the same process for
    custom pack

Distributed
Assembled
Manufacture
Define the eligible Manufacturers and
other parties
Assess the opportunities for quality issues
Find the potential suppliers
Identify Need
Specific Distribute Co.
Medical Economic Outcomes Committee
HPA
Specific custom packaging co
Specific Manufacturers
HPA
Key Users Doctor Smith
11
GPOs Economies Of Scale In Contracting
  • A successful sourcing/contracting strategy
    requires a significant amount of resources.
  • Health Industry Group Purchasing Association
    (HIGPA) states
  • Goods and purchased services account for 45 of
    hospital expenses
  • 72 - 80 of every hospital supply dollar is
    acquired thru group purchasing
  • GPOs saved hospitals 14.8 to 22 billion in
    1999, which represents 10-15 of total supply
    purchases
  • 95-98 of hospitals in the US belong to one or
    more GPOs
  • The 1 GPO value sited by hospitals, is
    contracting.

If group purchasing organizations did not exist,
it would cost hospitals an average of 353,000
per facility to perform the same cost comparisons
and contracting functions as GPOs.
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