An online procurement system slashes costs for a health care company

With a new online procurement system for stocking its 55 health care facilities with supplies ranging from medical equipment to cleaning supplies, Avalon Health Care is saving money while also slashing the time it takes to receive supplies.

Paul Demery

With 330 people buying supplies across its 55 health care facilities in several western states, Avalon Health Care needed a more efficient and user-friendly procurement system. And after its first year of running a new web-hosted procurement application, it has saved about $1 million in procurement costs while also expediting purchases and reducing the need for full-time personnel in its procurement department, says Hyrum Kirton, vice president of procurement.

“We’ve been able to stay under proposed procurement budgets,” he says.

A major reason for that, he adds, is that now department managers using e-procurement software from Coupa Software can immediately compare spending requests from employees against the funds remaining in spending plans. “In the past, we couldn’t say, ‘if we buy this gauze, we’ll have this much to spend until the end of the month,’” Kirton says. Now, he adds, “to see spending requests against budget plans when approving requests—that was reason enough to justify the cost of the new system.”

The new software also lets department managers see how many units of such higher-priced items as wheelchairs or medical walkers are already in stock, preventing unnecessary purchases just because items are available for a good price. “We’re always looking for the best price,” Kirton says. “But do we really need to buy everything we’re buying? By not buying some things, we save even more.”

Avalon, which provides out-of-hospital services including skilled nursing, pharmacy and assisted living care, saved nearly 50% of its annual spending on housekeeping supplies and about $1 million overall in the first year since going live with the Coupa e-procurement system in the summer of 2012, Kirton says.

In addition to better visibility into already purchased inventory and more control over spending and budget plans, the new software system also has saved the equivalent of one full-time employee on the dedicated procurement staff while also speeding up the purchase approval process, Kirton says. Under Avalon’s former procurement system, a purchase request by an employee would be sent to a manager’s desktop computer for approval; some high-ticket purchase requests would be sent to headquarters for approval by groups of four or five executives.

Those managers might take more than a day more to grant approvals, Kirton says. In the case of teams of executives at headquarters, the approval process could take several days, he adds. To speed up the process, the new Coupa system forwards approval requests directly to managers’ and executives’ mobile phones via e-mail or text messaging.  Managers now typically grant approvals in less than a day, and executive teams have cut approvals down to about two days from four or five days.

The new software also makes it easier for Salt Lake City-based Avalon to send purchase orders to vendors regardless of how they want to exchange documents, Kirton says. Under its old procurement system, Avalon had to maintain two systems for vendors who wanted to exchange documents electronically and for those who wanted to exchange paper documents. But with the Coupa software, Kirton says, Avalon can arrange through a single software administrative page to send purchase orders via multiple methods, including online XML transactions, e-mail, electronic data interchange or manually sent paper documents.

In yet another method of interacting with suppliers, Avalon can use the Coupa procurement software to let its buyers “punch out” to the e-commerce site operated by an approved vendor, which lets buyers browse product pages rich with images and descriptions instead of the comparatively basic listings in procurement software. When clicking to purchase a product on a vendor’s e-commerce site through the punch-out feature, the transaction is automatically sent back to the Coupa procurement system for approvals from the designated managers and executives.

Coupa provides the software under a software-as-a-service model, under which Avalon pays a monthly subscription fee to access the software through the Internet, while its suppliers don’t pay to use the system. By comparison, Avalon’s former procurement software vendor charged fees as a percentage of transaction value to both Avalon and its suppliers. Although Kirton declines to comment on the cost of the Coupa subscription, he says Avalon’s suppliers have passed on to Avalon their savings from not having to pay transaction fees. “They all adjusted their fees down by what we saved in the former transaction fees,” he says. “That saved us about 10% off the SaaS fee, so it was a win-win.”

Kirton says it took about three months to set up the Coupa software to start a pilot project with a vendor, then another three months to get the system operating for all of Avalon’s 6,000 vendors. Without saying what Avalon spent on set-up costs, he notes it generally costs from $80,000 to $120,000 to deploy the Coupa procurement software.

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