A PROJECT REPORT ON STRATEGIC PURCHASING PROCEDURE, SYSTEMS AND POLICIES (HOSPITAL INDUSTRY)

SUBMITTED BY Mr.BARRETTO HARMAN VICTOR ROLL No.RG/2008/1008356/BM COURSE-GDMM (REGULAR) PROJECT REPORT SUBMITTED TO INDIAN INSTITUTE OF MATERIALS MANAGEMENT JUNE-2010

The Project Report is on the basis of : Strategic Purchasing procedures, systems, policies and introducing different types of Purchasing.- Hospital Industry.
Purchasing involves in a hospital: it helps in procurement of materials at low prices, controls the high rate of inventory turnover, ensures continuity of supply, maintains the consistence of quality, minimizes the acquisition and storing cost of goods, helps in lowering the administrative cost and maintaining the supplier relationship. It also helps in development of new materials and new sources as well as efficient record keeping and prompt recording of goods and finally in development of personnel Some addition hereby tried to introduce in existing procedure and systems: the crucial aspect is to maintain the material cost at low level, with optimum inventory levels and establish systems and process as per the accredited standards

Introduction

Definition
Hospital: It is an integral part of a social & medical organization. The functions of which are to provide to the population, complete health care, both curative

& preventive, with out patient services & reaches out to the family in its own
environment. It also fulfills the functions of teaching, training of all the functionaries and is involved in project management and bio-med and social research.

Strategy:It refers to plan of action designed to achieve a particular goal, It is

long term goal set by Top Management. Policy: A policy is a typically described as a principle or rule to guide decision

& achieve rational outcome.

System: System have behaviour, which involves inputs, processing & outputs of material or information.

Organization
Sahyadri Hospital Ltd. is the largest chain of hospitals in Maharashtra. Sahyadri was conceived as a dream; a dream to make healthcare available, accessible, and accountable to the community at large. The aim of the group is to provide healthcare services to the middle & lower community by having hospitals in the remote areas. We have achieved a center of excellence status in a large number of specialties and super specialties, yet being the best at everything is the goal that we chase... Name of the units:1. Sahyadri Specialty Hospital, Karve Road, Pune 2. Sahyadri Hospital, Bibwewadi, Pune 3. Sahyadri Hospital, Bopodi, Pune 4 .Fatima Convent Sahyadri Clinic, Pune 5. Sahyadri Hospital, Hadapsar, Pune 6. Sahyadri Hospital, Kothrud, Pune 7. Sahyadri Munot Hospital, Pune 8. Sahyadri Specialty Hospital, Nashik 9. Sahyadri Specialty Hospital, Karad 10.Terna Sahyadri Specialty Hospital & Research Centre, Nerul, Navi Mumbai

Scope of Organisation
Organisation have developed their own practices and procedures to be followed for management of contracts & purchases. Over the period of time it needs to correct them & introduced new methods as a guideline in their policy.

Hereby in this project try to develop some practices such as such areas need to be improved are: List Price Agreements or Rate Contract Sub Store Analysis Decentralised Purchasing for Opex Items. It needs to implement the supplier certification programmes & Vendor Evaluation.

Operational Flow Details at the Sahyadri Units-Centralised

Every month at each unit, the material requirements from the various sub stores are indented to the main store. The material department store in charge consolidates all the requirements and prepares a monthly consumption report. The store in charge is the only authorized person to raise purchase requisitions. The head office (HO) personnel process all the PO and follow-up with the manufacturer in order to streamline the delivery process. Store personnel at the unit prepare the GRN in HMIS after receipt of the materials.

Procurement System & Procedure

The Purchasing Function & Procurement Cycle Purchase Request : Indents Purchase Requisiton Methods of Procurement: Sole Source Single Competitive Consignment Supplier Selection : Authorised Registered Vendors, Request for Quotation: Request not an order Receipt of Quotation, Bid Analysis & Technical Review : Committees Preparation & Processing of Purchase Order : CPD (HO) Follow-up (Expediting) : CPD(HO) Clearing & Forwarding Agent (CFA) Transportation to site : SHL (weekly) or directly by vendors Receiving of Goods Payment to suppliers : Capex-HO, Opex-Unit Level, Mode of PaymentCash, Advance, Credit, TT, L/c

Challenges Face at Sahyadri Hospitals unit - TSSH

as the units are situated in different regions, preferences are diverse and region specific huge lead time New unit/project difficult to forecast the consumption Each doctor has a loyalty or preference to a particular brand or manufacturer, based on his past clinical experience, in spite of there being other products of the same functionality and specifications which might even help in bettering the bottom-line of the hospital The another challenge that hospitals face is that vendors give importance to healthcare giants, not to small hospitals. Suppliers situated in Pune not ready to supply to units outside Pune periphery because of following reasons: logistic cost high, order quantity too less, restrictions from Chemists & Druggist Associations. The materials department has to maintain a fine balance between stocking materials, so that it is neither over-stocked or vice-versa.

Case Study-1 Lilavati Hospital

The Lilavati Hospital is the creation of the Lilavati Kirtilal Mehta Medical Trust formed in 1978, the LKMMT has engaged in charitable endeavors across India. Lilavati Hospital is committed to provide the best medical facilities in India. With its state of the art research facilities, researchers from all over the world would explore the future horizons of the bio-medical sciences for effective treatment and cure. They provide effective & efficient super specialty services along with other specialties. Materials Management:The Materials department is the only department which serves as the point of contact between suppliers and the company. Main Store Analysis: Material is procurred & stored in bulk. it is the major branch head It is the major hub for control & flow of material Sub Store Analysis: it is done in each and every area as per the hospital functioning It helps in streamlining the flow of materials by the hub and spoke model where main store is the major branch head. The patient is treated directly by the Sub Store faster, quicker without losing any seconds It avoids delay of the treatment & avoids risking the life of the patient.

Case Study-2.1 Wockhardt Hospital

Wockhardt Hospitals existence is the result of a 40-year tradition of caring and innovation nurtured by Wockhardt Ltd, Indias 5th largest Pharmaceutical and Healthcare company with a presence in 20 countries across the globe. Wockhardt Hospitals currently runs 7 hospitals located at Nagpur, Nashik, Surat, Rajkot, Bhavnagar and Vashi. Wockhardt Hospitals is an established chain of super specialty hospitals. Fortis Hospitals has taken over the following units, formerly of Wockhardt Hospitals i.e. Mumbai, Bangalore, Hyderabad, Kolkata, Nagpur, Nasik, Surat, Rajkot, Kalyan Materials Management: Material is purchased at the HO & directly supplied at all the units by the supplier. Centralized Purchasing: It minimizes duplication and wastage, develops a strong inventory management system, and minimizes stock in the hospital through a detailed consumption analysis of various items to ensure that redundant items are not reordered.

Case Study-2.2 Wockhardt Hospital

Integrated Purchase System: Wockhardt hospital has integrated purchase system i.e.Wockhardt Hospital Integrated Purchase (WHIP) is a process wherein the purchase activity for A category items and critical B category items will be consolidated. Its a web based portal sitting on top of Wipro HIS. Their aim is to standardize and control the purchase processes. All the Wockhardt units are centrally linked Wockhardt Hospital Centralized Purchasing Department is at their corporate office at Bandra Kurla Complex. Operational Flow: Every month at each unit, the material requirements from the various sub stores are indented to the main store. The material department store in charge consolidates all the requirements and prepares a monthly consumption report. The store in charge is the only authorized person to login in the WHIP portal and raise purchase requisitions. HO personnel will aggregate the indents from all the Wockhardt units The head office (HO) personnel process all the PO and follow-up with the manufacturer in order to streamline the delivery process. Store personnel at the unit prepare the GRN in Wipro HIS after receipt of the materials

1.1 Implementation
Hereby in this project try to develop some practices such as such areas need to improved are: 1.1) List Price Agreements or Rate Contract to be done with the principals for common fast moving items through HO. Guided cost to be set for all units. The agreement does not constitute any obligation from the part of the supplier to have any stock available for SHLs, neither does it require SHL to purchase any of the items covered by the agreement during the term. LPA or RC is an agreement with a manufacturer or supplier to fix the prices for a period of time to route the material directly or through the authorised distributor to the unit. Revision in prices is permissible only in case of change in MRP or Price list or due to justified increase in the cost of material or labour General Items: Surgical Disposable, Consummables, Printing & Stationary, Linen, Laboratory Consummables, Gases etc.

1.2 Implementation
1.2) Sub store analysis It is done in each and every area as per the hospital functioning It helps in streamlining the flow of materials by the hub and spoke model where main store is the major branch head. The patient is treated directly by the Sub Store faster, quicker without losing any seconds It avoids delay of the treatment & avoids risking the life of the patient. The Head of the department/sub stores is accountable for the Sub-Store stock. Indents are raised from the Sub Store to the Main Store. Issue of the material to the Sub Store are done as per the allotted days i.e. one day in a week. Responsibility of the Sub Stores is to keep sufficient stock to meet emergency or critical situations. Major Sub Stores: Operation Theatre, Cathlab, Cardiology, Retail Pharmacy, NICU, ENT, Endoscopy, Wards, Labour-OT etc. Other Sub Stores: HR, Admin, Front Office, Marketing, Engineering, Bio-medical, Facility, Hospitality.

Committees
Purchase Approval Committee:Members: Chairman, V. Chairman, Head SCM, Head - Accounts, Unit Head, Head of technical Dept. Drug/Therapeutic Committee:Members: V Chairman, Head SCM, Consultant 1, Consultant 2, Head -SCM Condemnation Committee:Members: Head SCM, Head Accounts, Head of technical one member of the respective department e.g. Engineering, Bio-medical, IT, Diagnostic etc. Technical Approva Committee:Members: Manager Biomedical/CSSD/Engineering/IT

1.3 Implementation
1.3) Decentralized Purchasing for Opex items. It will help to have a close co-ordination between the User & the Purchasing Dept. It will also help to arrange emergency purchase without the delay involved in communication between the user & the Head Office. Procurement procedure for the opex item according to the item category: Drug & medicine - Drug Committee Max. three reputed brands to be made available based on the effective drug interaction results & the price i.e. High, Low Medium. Surgical Disposable - Drug Committee Max. two standardized brands to be made available based on quality, usage & the price. Linen:- The design & material to be standardized from the HO for all units. The Rate contract to be prepared accordingly as per the system. Printed Stationary:- The design & material to be standardized from the HO for all units. The Rate contract to be prepared accordingly. Monthly Requirement to be

sent to the CPD for procurement.

1.4.a Implementation
1.4.a) The supplier certification programmes & Vendor Evaluation Organization will keep a Certified Suppliers List (CSL) containing the names and data corresponding to all suppliers-principal & authorized distributors that have registered with SHL through the supplier certification programmes. All purchases must be made from suppliers who have been certified by the company. The following are the pre-requisite for the Supplier Certification Programme: Registration Certificate or industrial license Summary of corporate qualification and experience detailing technical and financial capabilities. Clear and specific commodities that fall in his scope of supply. Authorisation letters from the principals. Other additional information as may be required. The administration & the maintenance of the Certified Supplier List will be Solely done by the Materials Department.

1.4.b Implementation
1.4. b) Vendor Evaluation Commercial Evaluation Technique: Procedure of Vendor Evaluation: Quality : No of lots accepted (excluding rejections) Upon total no of lots received Quality No of lots Accepted / Total No of lots Received x 25 Delivery : no of lots delivered in time Upon Total no of lots delivered Delivery No of lots delivered in Time / Total no of lots delivered x 25 Credit : Credit given for X item , Max Credit offered for X item. Credit Credit given for the X Item / Max credit offered for Y x 25 Price : Min price , Max Price offered Price Min price for Y item / Max Price offered for Y x 25 List of approved vendor shall be updated on yearly basis. Annual award programmes to be announced to reward the high performers. This will help in building long term partnership with the suppliers. The poor performers will be called & instructed to improve their performance. Vendor name is to be removed if vendor rating found continuously poor.

1.1 Achievements Lead Time

Type Local Purchases Broad Category Equipments Medicines CPDLead Time 45 Days 10 Days TSSH-Lead Time 45 Days 03 Days

Surgical Items
Linen Narcotic Drug Import Purchases Equipment Medicines

10 Days

03 Days
07 Days 30 Days 03 Days 16 weeks 07 weeks

General Items 15 Days 45 Days 21 Days 16 weeks 12 weeks

Surgical Items

16 weeks

07 weeks

1.2 Achievements Margin Analysis

Type Sr.No. Item Category SHL Margins/Cost TSSH Margins/Cost

Opex
Opex Opex Opex Opex CAPEX CAPEX CAPEX CAPEX

1
2 3 4 5 1 2 3 4

Drugs & Medicines

Surgical Disposable Implants Stationary Cathlab Angioplasty Consummables Slotted Angle Rack Lead Goggles Lead Glass Heart Lung Machine

25%
40% 15%

35%
60% 20%

Order 4,800/7,800/65,000/54,00,000/-

Consignment 2,600/6,300/54,000/40,60,000/-

Conclusion
The following is the advantages in implementation of this purchasing procedure: Purchasing procedure activities get streamlined, standardized & controlled. All the units get centrally linked. Lead Time of the material will be reduced. The cost of procuring, inventorying & storage cost will be low. It will be advantageous in keeping multiple suppliers. Contracting with suppliers for minimum annual purchases, by informing suppliers of the annual demand. Procurement of item on consignment basis. Return to the vendors the non-moving items it will reduced the inventory substantially, will reduce storage cost, avoid material to obsolete etc. Direct purchasing from manufacturers or local authorized distributors. Reduction in administrative cost. Consumption analysis will help to minimize stock.