Survive the Budget Cuts: Reduce

Your Supply Chain Costs

The UPMC Story
Michael DeLuca, Director Supply Chain Systems & Consulting Services
Presenter

Michael DeLuca
Director, Supply Chain Systems &
Consulting Services
UPMC

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UPMC/University Relationship (Simplified)
UPMC University of Pittsburgh
Board of Directors Joint Board Board of Trustees
Appointments
President and CEO
Chancellor
President, Physician
Hospitals Services Division
Senior Vice Chancellor
for Health Sciences
Strategic Business
Initiatives Dean, School of Medicine

UPP Clinical Department

Health Insurance Chairs
Community
Practices
Enterprise Services
Administrative
Functions
International and
Commercial Services
Division

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 UPMC Global Healthcare
Pittsburgh Ireland UK Palermo Qatar

MAP

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 UPMC Profile
• $7.9 billion in assets
• $7.0 billion in revenue
• Leading integrated health care system in Pennsylvania; one of the largest and most diverse in the nation
• 48,000 employees; second largest employer in Pennsylvania; major force in local economy
Hospital – 20 tertiary, community, and specialty hospitals
Physician – more than 4,000 physicians with privileges at UPMC hospitals including about
2,300 employed
Community Provider Services – extensive network of rehabilitation, home care and senior services
Insurance – products covering commercial, Medicare and Medicaid segments, EAP, Behavioral
Health (1.3 million covered lives in Health Plan)
International and Commercial Services Division – commercial and international ventures that
leverage UPMC’s core competencies, intellectual capital, and management expertise

On a typical day at UPMC Annual patient activity at UPMC

• 2,600 patients
• 1,000 people use emergency departments
• 8,000 are treated in outpatient facilities
• 1,200 receive services through home health
programs
• More than 3,350 licensed beds
• More than 182,000 admissions
• More than 3 million outpatient visits
• More than 400,000 emergency visits
• More than 130,000 surgeries
• More than 1 million home care visits

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 Operating Revenue Trends
Employees Revenues
(Thousands) (Billions)

12% Growth In Operating Revenue

2003 2004 2005 2006 2007 2008

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 UPMC SCM By The Numbers
• $1.8 billion in spend
• 300+ FTE’s across the SCM organization
• Process 4000+ Purchase requisitions per week
• Receive 1.1 million+ packages per year through a central distribution center
• Manage over 600 point of consumption material carts (Avg. 172 items per cart)
• Process 70,000+ invoices per month
• Manage 30+ value analysis teams
• Procurement cost as a percent of spend is .45%
• Cost to process a P.O. $3.35
• Cost to process and invoice $1.55
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How we stack up?

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 SCM Leadership

Jim Szilagy
CSO

Mike DeLuca Jennifer Hey Robert Pavlik

Kelly Coxon
Director of SCM Director of
Director of
SCM Systems & Director of Strategic Sourcing
Procure to Pay
Consulting Services Materials Mgmt (Non-Clinical)

David Hargraves
Toni Silva Lynn Koziak Jack Colletti
Director of
Director Director General Manager
Strategic Sourcing
Supplier Relations Financial Analysis Prodigo Solutions
(Clinical)

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 UPMC SCM Organization/People
January 2006
• No clear organization structure with all
resources focused on the fire of the day
– Reporting relationships were unclear
• Education Level
– Bachelors Degree 31%
– Masters Degree 0%
– Professional Certification 0%
• No documented strategic plan, mission
statement, or values statement
communicated to the organization
• Performance objectives were not defined
and metrics were subjective or absent
Today
• Clearly defined organization structure lead
by an experienced management group with
world class SCM skills
• Education Level
– Bachelors Degree 61%
– Masters Degree 15%
– Professional Certification 11%
• A world class SCM strategic plan, mission
statement, and values statement has been
documented and communicated broadly to
provide clarity of direction to the
organization
• Performance objectives and expectations
are clearly communicated for each member
of SCM including objective metrics to
measure progress and results
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 UPMC SCM Systems
January 2006
• SCM did not drive technology and business
process changes.
– SCM used limited PeopleSoft functionality which
lead to sub-optimization of business processes
and technological stagnation
– No automation - a paper based process
– Documents lost in interoffice mail, no visibility
for requestor into SCM processes, and average
buying process time exceeded 20 days
– No validation of appropriate spend authorization
Today
• SCM drives technology change through ISD
using well documented technology road maps,
process flows, and business cases
– SCM advanced the use of Peoplesoft and re-
engineered business processes to increase
productivity. World class eMarketplace
technology deployed to increase automation
and drive spend compliance
– SCM deployed e-procurement and e-
disbursement requests across UPMC
– Full visibility of the transaction flow and the
average buying process time is reduced to
under 3 days
– Automated approval workflow enabling
compliance with SOX requirements
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eMarketplace Drives Compliance

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 Current State (Q1 2007)

Data User
Compliance Automation
Management Experience

•Poor contract •No eProcurement •60k SKUs •Users frustrated

compliance •No automated •Item master with search
•Rampant orders (“touchless”) team struggling •Maverick
maverick •Data quality spending
spending poor rampant
•Each hospital •No •Special requests
operating on their standardization rampant
own

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 The UPMC eMarkeplace
Internet Internet

Users log in to the base

system and connect to
the eMarketplace to build
a shopping cart
Supplier Connections

The shopping
cart is built in the
eMarketplace
and returned Seamlessly
back to your integrate item
system workflow. master(s) and Item SmartSearch™ technology
supplier Item Supplier enables the rapid implementation
catalogs. Master Catalog of punchout and ecommerce
Master enabled suppliers.

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 Results

Data User
Compliance Automation
Management Experience
Drive more spend Reduce special Streamline item Realize extensive
under management requests and master process savings
with improved enable touchless management, and increased
contract (no buyer) and improve user adoption.
compliance and purchasing, and UNSPC quality.
rapid enablement of improve overall
key suppliers and connectivity with
punchout suppliers. your supplier base.

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 Metrics Tell the Story: Leveraging Best
Practice in Pursuit of “World Class”
Increase “Lights Out”
(automated
transactions) to
remove tactical FTE’s
Every 5% Increase
Represents a FTE

Increase eMarketplace
transactions from 15%
to 68%  Contract
Compliance Benefit &
FTE Impact

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CRM Order Automation: A Shared Success

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The Future: Accelerate Benefit Capture
 Continue aggressive push to access supplier hosted (and
local) content through single eMarketplace punchout
 Incorporate services & internal purchases (telecom, print
services) into eMarketplace
 Add more direct connects through eMarketplace for
“configurables” (furniture, clinical equipment, catering)
 Leverage content and supplier enablement to drive back-
end Procure-to-Pay automation (ERS, Assumed Receipt,
ASN Receipt etc.) Lights Out  Perfect Order
 Segment Supply Base and funnel toward appropriate
automated flowpath – using the PeopleSoft SRM suite as
the foundation
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 UPMC SCM Systems
January 2006
• No OR and financial systems integration
– OR staff performing double entry – in OR
system (SurgiNet) and in financial system
(PeopleSoft)
• 15 to 20 minutes per requisition
• Electronic Data Interchange (EDI) was
primarily used for purchase orders and
purchase order acknowledgements
– Only 35 vendors live on
• Very few vendors had electronic invoicing
– Only 5 vendors live
• No procure-to-pay automation, therefore a
buyer processes every transaction even
though the price and terms are established
• No electronic catalog functionality deployed to
drive compliance and efficiency
Today
• Full integration between OR System (SurgiNet)
and PeopleSoft
– Designated OR staff perform per case requisition
validity checks using a new workbench
• >5 minutes per requisition
• Significant traction in electronic commerce
– 117 vendors live (EDI 850/855)
• Significant traction in electronic invoicing
– 71 vendors live
• Full procure-to-pay automation in place for 92
vendors (Electronic requisition to PO to vendor
with no manual process)
• Launched a commercial enterprise (Prodigo
Solutions) to advance the eMarketplace UPMC
SCM developed
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Leverage eCommerce

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Outbound and Inbound

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Focus on Supplier Onboarding

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 Results
Results of Deployment
• Eliminated Paper Disbursement Requests
• Eliminated Paper Requisitions
• Eliminated 60% of faxed/phoned PO’s to supply base and working toward 100%
Hard Impact
• eVoucher eliminated 4 FTE’s in the AP Entry Group
• eProcurement/eMarketplace eliminated 6 FTE’s that comprised the SCM Pre-Key
Group
• Allowed for the reduction or limited the need to hire 15.31 FTE’s and counting as
eMarketplace and “Lights Out” programs expand.
Soft Impact
• Efficiencies gained with supply base
• Efficiency & effectiveness of remaining Procurement Operations staff
• Increased control through automation & interfaces: PO spend rogue (limit use of
P-Card, Flat File Invoice & Blanket PO) spend

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Next: Remove All Paper PO Based Invoices

“According to a recent survey, the healthcare industry is at least 15 percent behind

other industries when it comes to automation.” – Healthcare Finance News

“hospitals are about five years behind non-healthcare industries in terms of

adoption of paperless invoice processing. Of the survey respondents, more than
70 percent of the hospitals received in excess of 80 percent of their invoices in
paper format. As a result, they said resolving matching errors and exceptions
were their most challenging tasks.” – PayStream Advisors, a Charlotte-based
research and consulting firm

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 UPMC SCM Strategic Sourcing
January 2006
• Sourcing process was sub-optimized
– Multiple processes used, no consistency
– New buyers confused about how to perform
and succeed in their role
– Inconsistent results from sourcing activities
Major spend categories not under contract
• Poor contract management
– Major spend categories not under contract
– Contracts scattered across the system and
untraceable
– No way of know contract expiration date
– Majority of contracts with terms favoring the
vendor
• No method of tracking deflation or ensuring
contract compliance
Today
• Codified 7-Step Sourcing Process in place
– All sourcing personnel trained in the 7-step
process
– Job aids for contract implementation now in
place
– Measurable and sustainable results
• Improved Contract Management
– Major spend categories are under contract or
actively managed
– Contracts electronically filed in a central
location
– Regular systematic reporting communicates
contract expirations
– Standard UPMC contracts are complete and
used for all new agreements
• Strategic sourcing plans are proactively
developed and deflation performance is
measured against the plans.
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 UPMC SCM Strategic Sourcing
January 2006
• Limited strategic relationships forged with
major groups
– ISD
– Facilities and construction
– Human Resources
– Hospital Operations & clinical resources
• PAM groups were unsupervised and
inconsistently operated with limited impact.
No oversight committee to drive results
• New technology was introduced in a clinical
setting rather than through a defined
business process.
• No way of knowing what rebates were due
UPMC from suppliers
Today
• Strong active cross functional team working
on sourcing projects
– ISD
– Facilities and construction
– Human Resources
– Hospital Operations & clinical resources
• Value analysis teams are managed in a
standard fashion with documented project
plans and status reports. Results are driven
through an executive cross functional
steering team
• New technology is introduced through a
cross functional team using a defined
process and governance
• Clear understanding of what rebates have
been earned
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 UPMC SCM Challenges Ahead
• Increased pressure on cost
– Spend intelligence
– Transition resources to strategic activity
– Optimize the entire supply chain organization
– Explore new categories
– Manage consumption
– Manage new product introduction

• Understand and manage risk

– Supply base
– Products and services
– COI
– Governance

• Continue to challenge, change, and educate

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 Contact Information

Prodigo Solutions is focused on taking cost out of the

healthcare purchasing equation. We are a dynamic
technology and services company that provides supply
chain solutions to healthcare providers.

Janette “J.P.” Perretta

Director, Sales & Marketing
703.574.4479 (office)
412.445.8096 (cell)
JP@prodigosolutions.com
www.prodigosolutions.com
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