A national agreement for PCs reduces buying costs
Chuck Noland leads the information technology buying group at Kaiser Permanente.
By Staff -- Purchasing, 2/12/1998
At its second annual supplier conference held recently in Oakland, Calif., Kaiser Permanente presented performance awards to two suppliers. One, Office Depot, provides the largest health maintenance organization (HMO) in the U.S. with office supplies; the other, Compaq Computer, provides it with desktop personal computer systems.To help reduce its buying costs, Kaiser Permanente began efforts about two years ago to centralize its purchasing operation. At the time, purchasing at the HMO was highly decentralized--each of 11 regional buying organizations acquired all of the goods and services--medical/surgical as well as non-medical--to keep Kaiser Permanente up and running. With locations in 19 states and the District of Columbia, the HMO has 10,000 physicians and serves 8.9 million members.
Since 1996, national purchase agreements have reduced buying costs at Kaiser Permanente by about $100 million. The HMO spends roughly $1.4 billion annually. Of this figure, $400 million goes toward information technology spending.
One reason Kaiser Permanente undertook the centralization efforts is not unfamiliar to buyers in other industries. Despite the fact that purchased goods and services make up only 20% of annual revenues at non-profit HMOs such as Kaiser Permanente, the organization was under increasing pressure to begin reigning in its rising costs.
"Applying leveraged commodity management principles has come late to healthcare," says Chuck Noland, director of operations, national purchasing organization. "However, I think we are moving to the leading edge." Noland, who has 22 years experience working in purchasing at Apple Computer and the University of California, was hired specifically for his buying expertise. Reporting to Kip Edwards, vice president, national purchasing organization, Noland leads the NPO's information technology buying team.
One of the first things the new national purchasing organization did, was to develop national agreements for commodities previously purchased by each of the 11 regional buying organizations. Buyers divided commodities that were to be included in national agreements into three groups: medical/surgical, non-medical, and information technology. Now, six commodity managers develop national agreements for commodities within these groups. The information technology group is made up of distributed computing, telephone, and central processing. Still, tactical buying is being done by each of the 11 operations.
The national purchasing organization, which Kaiser Permanente also calls strategic sourcing, held its first supplier conference in May, 1996. To its top 35 suppliers, buyers presented the operation's vision and expectations for each of the three commodity groups. The suppliers were told that at a second annual conference, the NPO would select Suppliers of the Year. Using a supplier-performance rating system, buyers now quantitatively evaluate suppliers based on price, service and responsiveness, product availability, current and future technical resources, quality, and knowledge of Kaiser Permanente.
Showing continuous improvements in these areas by both Office Depot and Compaq, led Kaiser Permanente to present each of these suppliers with the HMO's first Supplier of the Year awards. Compaq is the HMO's primary desktop computer systems supplier. In the medical/surgical area, a supplier has yet to meet criteria set by the national purchasing operation necessary to win the award.
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