Exceptional Success

Louisiana hospital automates supply chain processes to save time, increase efficiencies and lower costs.

Supply expenses at Woman’s Hospital, like at many hospitals, are second only to labor costs. We knew, therefore, that improving supply chain efficiencies through automation and focusing staff’s time on supply contract management could have a tremendous impact on our institution’s bottom line. Our partnership with Westminster, Colo.-based Global Healthcare Exchange LLC (GHX) is helping us achieve this goal.

Louisiana hospital automates supply chain processes to save time, increase efficiencies and lower costs.

Michael Maggio is systems specialist in materials management at Woman’s Hospital in Baton Rouge, La. Contact him at [email protected]. Joseph Perez is director of materials management at Woman’s Hospital. Contact him at [email protected].

Our 225-bed, private, not-for-profit organization is one of the first and largest women’s specialty hospitals in the nation and the largest delivery system in Louisiana. More than 2,000 employees care for approximately 220,000 patients a year, the majority of whom are women and infants. To support the supply needs of our organization, nine purchasing staff members in our materials management department handle almost 7,000 purchase orders and 41,000 items and buy more than $14 million worth of items a year (excluding pharmaceutical items, capital items and service contracts).

Focus on Exceptions
A year and a half ago, we decided that our materials management information system (MMIS) did not have the functionality required to achieve all of our supply chain objectives. It stored our inventory and tracked the status of materials. Our purchasing process, however, was virtually 100 percent manual. To streamline the process, we needed to electronically purchase as much as possible from suppliers. But creating and maintaining connections using our MMIS was time intensive and expensive. It cost $2,000 to make a new connection with each vendor and increased the manual process even more to transmit data. Furthermore, data transmission via phone modem was unreliable.

The seven connections Woman’s had established with suppliers only allowed us to send electronic purchase orders. The rest of the purchasing and payment process was highly manual. Buyers printed order confirmations sent by suppliers and reviewed them, line-by-line, to identify any problems. We wanted a system that automatically notified our staff when there were problems with orders that required their attention, and allowed other orders to proceed in an automated and touchless fashion. Our goal was for our purchasing staff to focus only on exceptions, instead of getting mired in routine clerical tasks.

Our MMIS also could not accept advanced transaction sets such as electronic invoices and catalog contract updates–key to automating other supply chain processes, including those in contracting and accounts payable. The limited search capabilities of the MMIS made it difficult for hospital staff to identify the correct products to buy. This required purchasing staff’s help in determining the right products, made it difficult to ensure contract compliance and sometimes resulted in overcharges. We wanted a system that made it easy for hospital staff to find the products required for patient care that were also approved by the contracting team. This included getting contract price updates electronically, instead of manually entering the data into the MMIS. We wanted to further streamline the purchasing process by developing templates for frequent purchases and to incorporate workflows that would build in approvals up front. That way, if a requisition met all the requirements, it could be sent to the supplier without intervention by purchasing staff.

Finding the Lowest Cost, Most Efficient Solution
Purchasing a new MMIS or enterprise resource system (ERP) was cost-prohibitive and would have required significant investments of time and labor to implement and train staff. Because we determined that no system on the market provided all of the functionality we required, we looked for a technology business partner that could provide those capabilities and whose system would interface seamlessly with our existing MMIS.

Woman’s Hospital in Baton Rouge, La.

In the summer of 2004, we solicited administration’s input and began talking to colleagues at other hospitals. We quickly determined that only two companies offered a full suite of products that addressed the majority of our needs: Global Healthcare Exchange and Neoforma Inc. (Editor’s Note: GHX acquired Neoforma in March). Both companies offered a trading exchange that enabled hospitals and suppliers to conduct business electronically. They also offered various products and services designed to automate manual supply chain processes and improve contract management. Users of both systems expressed satisfaction with the services provided, although few hospitals were using the systems to the extent we envisioned for Woman’s Hospital.

After further discussions and due diligence, we chose GHX because we felt the company was the most flexible and willing to further develop their products to meet our specific needs. Their agreement to help us add new vendors from their almost 180 suppliers also played a role in our final selection.

In December 2004, we signed the contract with GHX to utilize their Web-based systems. Specifically, they provided the following:

Integration between our MMIS and the GHX trading exchange and connectivity to suppliers through installation of the Connect Plus server;
The ability to utilize an increased number of electronic data interchange (EDI) transaction sets, including purchase orders, purchase order acknowledgements, advanced shipping notices, electronic invoices and contract catalog updates;
Use of the Order Center to alert purchasing staff to order exceptions and to proactively research and correct errors before they become costly invoice exceptions;
Electronic uploads of our GPO contracts into the Contract Center and our MMIS, which enable real-time, electronic three-way matches between prices on purchase orders, purchase order acknowledgements and the most up-to-date contract price;
Implementation of the Catalyst online requisitioning tool to improve product sourcing and streamline requisitioning.

First Step: Data Cleansing
We began cleansing our data three months before go-live. It took us two months to clean up our item and vendor dictionaries so we had the correct information to transmit. It took another month to build the interface between our MMIS and GHX. The first week of April 2005, we went live with the Web-based electronic purchasing system in materials management. We then tested the ordering process with one of our original seven vendors for a month until the process was flawless. We brought the remaining six suppliers up within a week and added additional suppliers daily until we achieved connectivity with a total of 43.

After completing the EDI ordering process, we customized the Catalyst requisitioning system to provide preapproved product lists and templates for frequent purchases. We also built in workflows and spending controls to maximize the number of requisitions that could be automatically converted to purchase orders without the purchasing staff’s approval or intervention. Finally, we incorporated our hospital policies and procedures into the Catalyst system and integrated it into our MMIS system. We went live with the new requisitioning tool on July 22, 2005.

Two Phases of Training
We trained staff on the new solution in two phases–first we trained our materials management staff, using them to test the system, then we rolled out training to the rest of the hospital staff. GHX conducted two training sessions at the hospital for employees in our materials management department, including staff in purchasing and contracting, inventory control, the hospital storeroom/warehouse and sterilization processing. Purchasing staff learned how to use the electronic purchasing system first through live interactive Web training followed by on-site training with GHX personnel. It took us three months to train hundreds of employees throughout the hospital on the new requisitioning tool. An influx of patients due to hurricanes Katrina and Rita last summer delayed the training process a couple of months as we concentrated on caring for a larger number of patients. Staff that had trained on Catalyst before the hurricanes reported that the requisition system made it easier for them to meet the supply needs of a higher patient load.

Today, our buyers and expeditor can access the Order Center Dashboard on their desktop PCs and see in real time the status–including exceptions–of any purchase orders sent via EDI through the GHX system. From the same dashboard, they can quickly determine the type of problem and, in many cases, resolve the issue before it results in time-consuming and more costly invoice exceptions. Nurses and other hospital personnel with Internet access can requisition orders easily on any PC–on or off campus. Each user has a customized profile so that orders can be charged automatically to the user’s department, channeled through the appropriate approval process and delivered to their appropriate locations.

Sixty percent of the items in our catalog currently are on contract. Now the system automatically does three-way comparisons between the price on the purchase order, the price in the catalog and the contract price.

Significant Time Savings
Since we automated our supply chain processes, we have avoided millions of dollars in capital expenses to purchase and implement a new MMIS system. We increased the number of suppliers with which Woman’s can conduct business electronically from seven to 43. We more than doubled EDI transmissions from an average of 28 percent to 62 percent of items ordered. The process of verifying and transmitting purchase orders utilizing EDI order processing and scripting automation (from Boston Workstation) went from 100 percent manual to 58 percent automatic. We used to verify exceptions of ordered EDI items manually. Now, it’s 100 automatic.

We reduced the time buyers spend verifying purchase orders from eight to 10 hours per day to 45 minutes per day. Automation has almost entirely eliminated charges for purchase orders that are below minimum amounts. The system alerts us if minimum amount charges occur and gives us the option of waiting until the next day, if we can, to meet our minimum order requirements and avoid extra charges.

Our staff, instead of merely filling orders, spends more time reviewing contracts and helping their assigned departments save additional supply costs. Hospital staff, including clinicians, spend less time sourcing and requisitioning products. Finally, we’ve reduced overpayments to suppliers by ensuring the use of accurate contract pricing. We hope to save more than $976,000 through contract price enforcement, and receive an additional $290,000 in contract rebates annually.

We continue to develop the Catalyst requisitioning system. By the end of 2006, we plan to add electronic invoicing, capital approval and the ability to handle “bill only.” We also are working on Punch Out or Round Trip functionality, which will allow users to import information about selected items from individual supplier Web sites into our Catalyst system and to requisition the items via GHX. These further developments will help us continue to save time, improve efficiencies and reduce our bottom line.

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