Skip navigation
2018

I interviewed Hal Good who discussed The Future of Cooperative Purchasing.

 

 

 

 

 

 

Today we're speaking with Hal Good, and we're going to discuss the future of cooperative purchasing. So, Hal, can you first provide a brief background of yourself?

 

Good morning, Dustin. Pleased to be talking with you. Yes, my background — I started in hospital procurement and actually hospital materials management and logistics. From there I moved into procurement with the City of Palm Springs, California, and then later at the county level and also participated in projects at the state level in the state of California. So my background started out in the private sector, but then I moved into the public sector. And most recently, I've been doing a lot of things in social media.

 

What is the future of cooperative purchasing?

 

I think one of the big resources that cooperative purchasing provides to, especially, people in the state and local agencies in the United States is the ability to tag on to a great contract where someone else has done a full request for proposal and has made an award and followed all the rules that are universally kind of acceptable to everyone.And they come up with a good contract. And then all of the other agencies whose rules allow them to participate in that contract can also sign on to that contract and utilize it. It's especially important, I think, for smaller agencies that are having a more and more difficult time having the resources to keep up to the changes in the digital environment or just playing their resources, to process all the requests for proposals or solicitations, they have to, where they can rely on a better staffed agency that has maybe specialists in those areas that can come up with a contract.And then they can utilize the contract without having to try to reinvent that expertise and maybe not do it as well because of the fact that they don't have the resources to do it.

 

So I think it's a great resource for public procurement overall to really benefit from other people's work and kind of share resources. So that word cooperative is applicable on many levels. But one of key components of it is sharing resources. So someone may have expertise in one area. They do a request or proposal in that. Another person has expertise in another, and they do a request or proposal in that. And then everybody benefits because everybody can use everybody’s resultant contracts.

 

Can you talk about the vendor community and how it is impacted?

 

I think the vendor community has to look at what is available in terms of the competition with the impact of cooperative contracts. And they need to either decide that there is an opportunity for them to get a contract with competition maybe on a national basis with their competitors to successfully compete in that marketplace. And if there isn't, then maybe they want to find more of a niche market. I kind of liken it to the big boxes that took over in grocery stores where you have huge players, and there's these that can compete successfully in that market. But then the ones that can't go into a niche market where maybe they run a deli or a specialty bakery or something like that. So I think it's an opportunity for vendors to look at themselves honestly and see what that sort of a market means for them in terms of their own destiny and planning.

 

What about sustainability? How is this related to sustainability?

 

I think that's one of the big resources because you have agencies that really are dedicated to come up with addressing the broader sustainability issues. And they come up with a contract that really works in that area. And then, again, everybody can tag on to it. Also, following up on the other statement I just made about vendors looking at where they can compete, that also creates a niche market, because maybe you're not the biggest, but maybe you address the sustainability issues, if you're a vendor, better than anyone else. And so it's an opportunity for those sorts of things to go forward in an environment where more and more we're looking at smart everything — smart cities, smart government, smart grids. Sustainability is a big issue. And if you can get something that works in that and share it will other people that have similar needs and similar goals, that's a huge benefit.

 

Thank you. Do you have any final recommendations?

 

I think that for anyone that's hearing this or reading the results of this that hasn't looked into opportunities for cooperative purchasing, it's well-worth their time to look at it, because I think it's going to be more and more important in the public procurement world, especially at the state and local level in the future.

 

Thanks for sharing today, Hal.

 

Thank you, Dustin. My pleasure.

 

 

About Hal Good

 

 

 

 

 

 

Hal Good

 

Procurement Advisor, Futurist and Influencer

 

LinkedIn Profile

I interviewed Rick Kovac who discussed Supply Chain Risk Management.

 

 

 

 

 

 

Can you first provide a brief background of yourself?

 

Dustin, I've worked across all those 50 restaurant brands — that includes the likes of McDonald's, Burger King, KFC, Pizza Hut, Taco Bell, Cheesecake Factory, PF Chang's, Pei Wei, Shake Shack, and many others. Those have been based in Asia, Australia, Middle East, US, and Europe.

 

In regards to supply chain, probably the largest supply chain that I've managed has been about a billion dollars in purchases, and we store some 30,000 SKUs from over a hundred countries and a total of about 3,000 suppliers. So a fairly large supply chain to try to manage. I've been quite fortunate to actually have lived in many countries overseas as well. So I've had about 30 years of not living in the States where I originally started. So that's a quick and simple background.

 

Can you talk about some of your experience with supply chain risk management?

 

Yes, I can, I think a lot of companies don't actually have a standard in place in regards to supply chain risk management. So some of the larger ones — the likes of McDonald's and Burger King — will have in place standards for risk management. So you'll have backup suppliers. You'll actually test those backup suppliers on a regular basis to ensure they can actually fill the void if your regular supplier is not able to supply. But many other businesses really kind of talk about risk management but don't have the standards in place. So I've worked for some companies that their risk management was to ask a supplier what would happen if they were unable to supply. And the supplier said, "Oh, we can shift it to another factory." And they would put the tick in the box that supply was covered in the event that the factory was unable to supply.Nobody ever tested the theory. Could the other factory supply? Did the other factory have the equipment? Did the other factory...they may not even have had forming molds.

 

I've had some instances where companies have done that, and they found out their backup supply was capable, but their backup supply took four, five, or six months to actually become capable because they didn't have the right piece of equipment or they didn't have some of the forming molds in place. And so those needed to be ordered and everything else.

 

I think risk management in a business needs to be important, but, more importantly, it needs to be positioned to be something that the business talks about on a regular basis and put some standards in place.

 

How it's done effectively?

 

I think, Dustin, probably one of the best examples of "effectively" is actually to kind of rank your suppliers, in a sense, A, B, and C. So most critical, obviously, falls in the A [inaudible 4:05] the kind of [inaudible 4:06] the supplier C.So somebody supplying plastic gloves to your business or garbage bags to your business may fall into that C category. Somebody supplying corrugated boxes may fall into the B category. But if you're somebody like McDonald's, for instance, or Burger King or KFC, somebody supplying your French fries may fall into that A category.

 

Once you've got them in the categories, then you go through and you talk about how you manage that risk. Within the A category, it may very well be I've got a backup supplier, and I need that backup supplier to actually produce product for me their times in a year. So that way, if your supplier falls over, not only is your backup supplier proving to you they have to right equipment, they're proving to you that they could actually provide the product at the standards that you want, and they're not trying to fill in a void and also learn how to make your product at the same time. So I think that's probably what you want to do for your A levels.

 

For your B levels, it may be just simply saying, if the corrugated supplier can't supply us, we've got a list of four or five others that we can go talk to and get them to provide that product.

 

In regards to a C, you'd probably just have a nice list of C suppliers to say, if my garbage bag supplier calls me up and says, "I can't supply," who's next on the list to call and get product from?

 

So I think something as simple as that will keep you covered. If you're a much larger, international business such as McDonald's, then you need to have some understanding that if the US is supplying product to the UK, for instance, not only does the US need to make that as a backup supply but also go through the process of shipping it to the UK so that you've got your shipping lines backed up, in a sense, as well.

 

Do you have any final recommendations regarding supply chain risk management?

 

Yeah, I do, Dustin. It's simple. It's you should plan and prepare because, unfortunately, a supplier not being able to supply you isn't something you can kind of work into your daily plan. And the business anticipates that you'll have continuous supply.

 

So a very good example is the business I'm working at the moment. They had a supplier that provided glass jars to them. And the supplier called up on a Friday and said, "We're actually going to shut down our factory for three months. So hopefully you have enough stock."

 

Nobody planned a backup. That supplier didn't send anybody a note a month before, two months before, or three months before. They called on the Friday to say, "We're closing today for the next three months while we do some refurbishment to the factory." So that left the business without any kind of backup supplier and everybody frantically on the phone saying, we've only got about a week's worth of stock of glass bottles, because glass bottles take up a lot of space in your warehouse. How do we try to hurry up and get some glass bottles so we can keep producing and not shut down ourselves for three months?

 

And that's a classic example of not preparing and not preparing for an A-level supplier. And it's important that you make sure you prepare for your A-level suppliers. Your Bs and Cs, you got a little more flexibility. But your A's, if your business is filling glass bottles with a product, and you have no glass bottles, then, obviously, you can't do much business.

 

Thanks for sharing today, Richard.

 

Since you're like being a Boy Scout, if you were ever in the Boy Scouts, you always need to be prepared and plan ahead and make sure those critical products, you've got some kind of viable backup in the event that that supplier has some issues.

 

 

About Rick Kovac

 

 

 

 

 

 

Rick Kovac

 

Senior Executive - Global Experience in Operations, Supply Chain, Procurement and Distribution

 

LinkedIn Profile

I interviewed Howard Mann who discussed Supply Chain Process in Healthcare.

 

 

 

 

 

 

Today we're speaking with Howard Mann. We are going to discuss supply chain process in healthcare. Howard, it's great to speak with you today. Can you first provide a brief background of yourself?

 

Certainly, Dustin. My name is Howard Mann, and I'm a vice president of supply chain with a company here in the United States that works in the healthcare arena. I've worked with the supply chain and information technology in healthcare for the past 35 years. I've worked in hospitals, integrated delivery networks, which are multiple hospitals. I've worked with very small hospitals, and I've worked with non-acute care providers, which is something I'm doing now. So I have a fairly broad experience and past experience, and I spent six years working with hospital information technology groups. So that gives me a little bit stronger technology perspective with supply chain.

 

Can you talk a little bit about what is supply chain process in healthcare? What's involved?

 

Healthcare in the United States is regulated by the fact that hospitals are seen as a community provider, and therefore, under our laws, they're governed by what's called Safe Harbors. On the supply chain side, we're not allowed to collaborate with other independent hospitals to set or fix pricing with supplies, products, services, things like that.So, on the supply chain side, from a purchasing perspective, it makes contract negotiations somewhat of a challenge.

 

Hospitals, over the years, were allowed, under legal laws called Safe Harbors, to work with or collaborate with an independent group purchasing organizations in which there are between 12 and 14 in the United States. There's been consolidation across those. And those organizations contract, and then we can participate with them and utilize their contracts. So that does put an extra layer between us and our supplier partners and our distributor partners to try to help us continue the flow of particular products but also equipment and services.

 

So that, along with consolidations across hospitals across the United States, when market consolidation brings more opportunity to contract, and then we also do not want to bypass or challenge our non-taxable status, not for profits, or our ability to negotiate the for-profits. So there is a lot of that has to be done of the supply chain side that isn't typically the same as the manufacturing or for retail markets.

 

Supply chain on the hospital side tends to focus on some fundamental things that are taken for granted on the retailer or the manufacturing side. It makes for a little bit different challenge, although all of the other aspects are exactly the same as manufacturing and/or retails. We do acquisitions, distribution of products. We warehouse. We have [inaudible 3:45] freight. We have to deal with invoicing and billing. They are the same things, some of the same functions of retail manufacturing. So there's commonality, and there's disparity.

 

Can you talk about how it's done effectively?

 

Well, the effectiveness is the continued ability to contract nationally. In addition, one of the things that we try to pursue in healthcare, basically, our mission is to provide excellent healthcare to all of our patients and provide a good working place for our clinicians and physicians. When you have an environment like that, it is a little bit different than manufacturing where you're projecting towards a market for sales and then you're making sure that parts and pieces are assembled in order to create a product or a service that will sell.

 

So those are our prospective healthcare systems. They're driven by analyzing their market and managing to their stock prices and that kind of organization.

 

Healthcare is providing a general, assumed level of care for their communities. We have to basically be prepared at all times in order to be able to provide that service. That makes the forecast a little more challenging. In healthcare, there are continual efforts to try to accomplish that, and that makes the supply chain have to be a little more reactive as being prospective on the manufacturing and retails side. So those are challenges that we face.

 

Do you have any success stories or examples you could share?

 

There is constant improvement across the healthcare supply chain. There is the fact that initially supply chain was focused on purchasing. It was the acquisition phase of the cycle of materials that healthcare needed. And that has dramatically changed over the years, particularly through legislation where we have things that are driving us, like safety for our patients, is now creating a federal mandate to create a unique device identifier for all the products that are used in taking care of our patients. And that's going to give us information that will help us move closer to the ability to forecast what needs to be bought. There are tremendous efforts going on now throughout healthcare to continually move us towards a more technologically savvy supply chain. And a lot of the people that are coming into healthcare supply chain, there are a number of them that came from industry, from manufacturing, from retail, that are bringing tactics and aspects of retail and manufacturing into healthcare supply chain, where they're trying to move that forward.

 

We're also working much more closely with our customers within our system, not only our patients but also our physicians and practitioners, in how to make quality-based decisions around the supplies, devices, equipment, and services that are purchased or acquired, which helps us negotiate more effectively.

 

So there are many, many exciting things going on in the healthcare arena today that is going to move us to where we need to be in the supply chain.

 

Thanks, Howard, for sharing today on this topic of supply chain process in healthcare.

 

 

About Howard Mann

 

 

 

 

 

 

Howard Mann

 

Vice President, Supply Chain Management at Cardiovascular Care Group

 

LinkedIn Profile

I interviewed Ashok Muttin who discussed Healthcare Supply Chain and Amazon.

 

 

 

 

 

Can you first provide a background of this topic about Amazon entry into the healthcare supply chain and why is this relevant?

 

Thank you, Dustin. It's good to speak to you. I think the entry of Amazon is very relevant because of multiple reasons. The healthcare supply chain has been complicated and complex for a variety of reasons — either because of the multiple players that are in there, such as a GPOs, and manufacturers, the distributors, and then the providers are, for any number of those reasons, healthcare supply chain has been unnecessarily complicated. With Amazon coming in with the firepower and their ability to attract multiple suppliers all over the world and their ability to drive measureable cost savings and to bring in a sense of transparency to the whole supply chain is very, very relevant in more ways than one.

 

Obviously, it remains to be seen that the efforts that Amazon is making and the tremendous investment that they are making is going to bear fruit because supply chain, while it's complicated, it's also necessary that Amazon goes through this whole process in a very simplified way and brings a sense of transparency.Otherwise, Amazon will continue to face the same challenges that other folks in the past have faced. So it's going to be an interesting next 18 to 24 months to watch.

 

Can you talk about how this impacts the players in the supply chain?

 

That's a very interesting question, Dustin. If you really look at all of the players that we have today, we have the manufacturers — global as well as national and regional manufacturers. Then we have distributors. Obviously the there large ones being the Cardinal, the Owens & Minor, and Medline.And then there are literally hundreds of smaller local distributors that are working in the supply chain. Then there are the providers along with the group purchasing organizations.

 

Who each one of the players in this supply chain obviously are going to be impacted in multiple ways. I think the biggest impact is going to be on the group purchasing organizations because, as we have seen over the last couple of months or almost a year or a year and half, the significance of the GPOs continues to decrease and their value continues to be questioned.

 

So if they continue to be simply a contracting organization and not do anything else, then I think they are the ones that are going to be impacted the biggest. So there is an argument that is going out there that Amazon could possibly partner with the group purchasing organizations, and I, unfortunately, haven't been able to come up with one single reason to say that Amazon would partner with them. It's almost like saying would Amazon partner with someone like a Borders, which was, as both of us knew, was a leading book chain, or a Blockbuster for that matter. Would Amazon do that? Probably not.

 

So in the same way, it's very difficult to think that Amazon would actually partner with a GPO, and I would think that the GPOs would be in the square, in the center of the crosshairs of Amazon, and they probably are going to be the ones that have the biggest impact.

 

The second one, I think, are the distributors. There are a lot of small and mid-sized distributors today that don't have a tremendous amount of scale or the sophisticated operations like someone like an Amazon can bring. My sense is that a lot of those small distributors are going to be impacted in significant ways, and I expect some kind of a consolidation to happen in that area.

 

Now, it remains to be seen whether the big three or the big four, as we call them when we include the McKesson in that group of the big four, whether they will go ahead and acquire smaller distributors to build muscle or some of these smaller distributors will go out of business. That's an area that is very interesting and remains to be seen. As far as the manufacturers are concerned, I don't really foresee myself thinking that Amazon is going to go ahead and acquire someone like a Medtronic or a Johnson & Johnson, Smith & Nephew, Stryker, or any one of these guys.Manufacturers who have very clear advantages, who have invested tremendously in research and development, and they have a significant product pipeline... I don't really see anything happening to the manufacturers except the fact that because now Amazon is going to come in, muscle their way in, obviously they are going to start with something very simple — things like the consumables, which they had already started in some small way. I see a huge expansion of that happening. And then that expansion leading to servicing the non-acute care would be a cakewalk for Amazon. That is still a significant supply chain business in the healthcare area.

 

So manufacturers, I think, are very well placed, as long as they are the ones who are truly developing products, who are investing in research and development. I don't really see any impact on them, at least in the near to medium terms.

 

I think another constituent that I think is going to be affected issome of the healthcare management consulting companies that have been there. So if you really look at the five or six of these big consulting companies, unfortunately, every one of these consulting companies has never really invested in any core technologies or core analytics or any one of those enabling things for the providers. They continue to recycle the same consulting work that they do. Obviously, every year they come up with a new name for that consulting or some sexy variant of the previous one.But really, they haven't really come up with anything new for the providers.

 

And once Amazon comes into the picture and they bring in a tremendous amount of transparency, at that point in time, I think the CFOs and some of the heads of supply chain who are hiring these consulting companies are probably going to ask themselves the question, "Do we really need these guys?" If Amazon is doing all of those things that a consulting company is supposed to do in terms of analytics, in terms of driving down the cost, in terms of providing the transparency, in terms of showing the visibility into the supply chain, then that, I think, is interesting to see how it will affect the so-called healthcare management consulting companies.

 

So if I were to really look at it, you have the GPOs. They are probably going to have the highest impact as far as we can read the situation.

 

Second one, I think all of the smaller and the medium-sized distributors, they will have a significant impact. Manufacturers really don't see an impact happening, and then, obviously, the management consulting companies are, I think, going to be significantly impacted. That's how we read the situation. We have been following this very thoroughly in the last five months, and Amazon, obviously, has created multiple pilot programs based upon publicly available information. And they seem to be in a very good position. And also, as you are very well aware, Amazon has hired some of the best and the brightest from the group purchasing organizations.

 

What that means is those guys are going to bring a tremendous amount of knowledge, a tremendous amount of insight, into the inner workings of the group purchasing organization. And by leveraging that knowledge base, leveraging that insight, I have a feeling that Amazon will attack the GPOs very directly.

 

Is there any more you can say about some of the things the affected parties should be looking at?

 

We have always talked about this very openly, and I have personally expressed my opinion multiple times. GPOs did have a huge opportunity to reinvent themselves. I still think the window of opportunity is not closed entirely, but they really have to think about literally re-engineering themselves, transforming themselves into more of a technology company, more of a platform company, more of an enabler than they are today. As we all know, the majority of the expertise that the GPOs bring to the table is all in the contract management area. Having said that, if Amazon were to come in and bring in a new paradigm, a new business model, I don't know how valuable is that, just the contract management capabilities. But if leveraging all of the data that the GPOs have, leveraging all of the insights that they have about the buying patterns, the demand curves, the highs and the lows, leveraging all of the relationships that we have with the providers, GPOs could probably reinvent themselves. I still think that every day that they don't do it, the time is clicking. But if they were to really think outside the box... If they do some kind of constructive destruction within their own organizations and are willing to let go of this 4% commissions that they easily get, then I think they have an opportunity to put of a viable competition to someone like Amazon.

 

What that also means is the GPOs would have to partner with a technology provider, maybe someone like and create what we call or what we've been evangelizing as a private marketplace. And that private marketplace could put up significant competition to Amazon because, while Amazon is very capable, has significant amounts of dollars to invest, an almost unending supply of capital, but Amazon still needs to learn the complexities of the last mile of the supply chain which is integrating with the provider systems, working around the recalls and the replacements, physician preference items — these are all the areas that GPOs have a tremendous amount of expertise and insight. They could leverage all of that, package that into a platform. And if they were to take that platform to the market and be bold enough to say that we will not anymore depend on the 4% commissions; we will go ahead and create a new paradigm, then that's a good opportunity of the GPOs.

 

Now, as far as the distributors are concerned, it's tough to compete with someone like Amazon when they come in with all their guns blazing. They have such sophisticated infrastructure, they could easily bundle their Amazon Prime subscription to serve all of those non-acute care facilities whether they are owned by an or they are independent entities out there. Amazon is going to come in heavy and high.

 

So the only way that the distributors could do is to probably band themselves together and create some of these coalitions and gain in strength in terms of both their ability to get mass and their ability to reinvent some of their operations. Because if Amazon comes in and brings in the drone technology and turns the distribution upside down by bringing in just-in-time systems, then it’s really going to be a tough battle for the smaller distributors.

 

The big guys, I guess they will survive because they have already very strong existing relationships with the providers, and the provides have been locked into multi-year agreements with the distributors. So they still have a 10- to 12-month window to react to be able to put in a viable competition for Amazon.

 

Can you discuss some of the challenges that these other parties will face?

 

It's going to be significant challenges, Dustin. As you can see, Amazon always goes after those industries where there is a significant inefficiency in the system, where the few are profiting at the cost of others, where the margins tend to be high, where there is complicated, multi-tiered contracts, pricing and sales strategies. And then there is a whole lot of confusion. And if you look at the healthcare industry and the healthcare supply chain, all of those factors are there. So if Amazon were to look at one industry that is huge, that is a viable entry for Amazon... So each of the constituents, each one of the affected parties would have to look inside themselves. And every one of them would have to — to use the old, clichéd word —“think outside the box” and be able to evaluate their core strengths and weaknesses and be able to design some kind of mechanism to put up a viable fight with Amazon.

 

It is very obvious that each one of the constituents, leaving apart the manufacturers, will become more of a technology company than they are today. It's not about how many trucks do you own, how many distribution centers do you own, how many drivers do you own, and how they are located. Amazon is better at doing all of those things. So each one of the affected parties would have to think about an entirely different business model that would leverage their core strengths, their knowledge of the providers, their knowledge of the physician-preference items. Then they can probably create new models that can become viable competitors to Amazon.

 

Thanks, Ashok, for sharing today.

 

Thank you very much, Dustin.

 

About Ashok Muttin

 

 

 

 

 

 

Ashok Muttin

 

Purpose Driven Entrepreneur Reinventing Healthcare Supply Chain

 

LinkedIn Profile