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Web-Enablement Of Healthcare Supply Chain Still Faces Hurdles
April 22, 2003
Healthcare providers' gradual transformation into e-health organisations will expand interest in the usage of e-business for online healthcare supply procurement. The advantages of e-procurement are clear and the migration to this method of procurement inexorable.
This trend will lead to a growth surge in purchases of computer systems and administration software. More specifically, the shift to e-procurement will stimulate the implementation of the underlying technology related to e-business, such as enterprise resource planning (ERP) offerings.
In an effort to automate their procurement processes and shorten fulfilment cycles, purchasing managers at larger healthcare organisations are already using or evaluating online procurement. Meanwhile, smaller and less computerised healthcare centres enjoy the cost-effectiveness associated with e-procurement by obtaining products and supplies through portals or group purchasing models.
The move to e-procurement in the European healthcare sector is at an early stage of its development. The UK government is blazing an e-procurement trail, which has propelled the region to the top spot of European e-procurement users.
In Germany, SAP's home turf, the widespread use of the software giant's ERP package has pushed the nation into second position. Despite Scandinavia's pro-technology mentality and web-savviness, the region has, curiously enough, not significantly progressed beyond the pilot stage.
A new study by international market consultants Frost & Sullivan (http://healthcare.frost.com) indicates growing willingness among healthcare institutions to embrace e-procurement, but cautions that it will be a rocky road to universal acceptance of the technology. The main barrier to e-procurement uptake has been the proscriptive manner in which healthcare authorities and governments require purchasing to take place.
Frost & Sullivan's findings show that the total volume of e-procurement in the European healthcare sector was worth around þ0.4 billion in 2002. By 2008, this value is forecast to rise to þ33.7 billion, representing around 23 per cent of the total hospital expenditure in the same year. By 2010, around one third of Europe's healthcare procurement is expected to be conducted electronically.
Vendors of medical devices and pharmaceuticals have tried to encourage buyers to deploy e-procurement to simplify procedures. Although some vendors have offered a financial incentive to accelerate the switch to e-procurement, this is by no means a unanimous decision. The main vendor initiative has been through third parties such as the Global Healthcare Exchange (GHX).
Compounded by worries about data security, healthcare professionals' inherent conservatism and organisational inertia, as well as a reticence to change established processes, are key factors slowing the penetration rate of e-procurement in the healthcare environment.
"Competitive sealed tenders are commonplace and the transition of this method to the internet is not simple. Despite these reservations, most of the major vendors appreciate the advantages of e-procurement," argues Chris Cherrington, Industry Analyst at Frost & Sullivan.
"Firstly, they have the technical and financial strength to build e-procurement platforms which can ultimately exclude smaller vendors from the market altogether. Secondly, they are capable of drastically reducing the cost of sales for their low margin items. As a result, the onward march of e-procurement in healthcare continues apace," he underlines.
The main challenge to hospitals wishing to convert, either partially or completely, to a system of e-procurement is their current arrangements for procurement. E-procurement in itself is neither difficult nor complex in its enactment, however, it presupposes that a certain level of automation exists in the procurement process.
"For most hospitals, this "industrial" approach to procurement is unusual. Hospitals are driven by clinical need, not profit, and are unable to predict demand. Generally, their best managers are concerned with clinical outcomes rather than procurement. Inefficient funding has further entrenched the attitudes of those people dealing with procurement and a "buy-while-you-have-the-budget" mindset is ubiquitous," Cherrington continues.
Thus, for e-procurement to be adopted, a change of attitude and approach is required that will be a struggle to achieve. Frost & Sullivan believe that the advantages of e-procurement will overcome these problems, however, the progress to e-procurement could be hastened if governments were to drop their insistence on historic budgeting.
While the UK and Germany are the main proponents of e-procurement technology, there is little evidence to suggest that other countries feel prompted to follow suit. The pace and scale of e-procurement deployment across Europe tends to be politically motivated or dependent upon the technological situation in individual hospitals.
European Union accession states, most significantly Poland, may also adopt this technology and further enhance the prospects for vendors using this channel to market. The expansion of Europe will create new market opportunities for vendors and eliminate tariffs and export restrictions. Many of the new entrants have a socialist tradition of high-quality care provided by the state, and these high ideals and treatment capacity expectations are poised to encourage healthcare spending.
Healthcare e-procurement provides vendors of surgical disposables and pharmaceuticals with the richest pickings. In the future, other disposable products will rise in importance. Meanwhile, capital expenditure on premium-priced equipment is not expected to feature prominently in the development of e-procurement, the study concludes.
Price for Report: EUR 3,500
Report Code: B216
Publication Date: April 2003
Background
Frost & Sullivan is an international marketing consulting company that monitors a comprehensive spectrum of markets for trends, market measurements and strategies. This on-going research is utilised to complement a series of research publications to support industry participants with customised consulting needs.
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