F&S study shows Web-enablement of health care supply chain still faces hurdles in European market

London 22 April 2003Health care providers' gradual transformation into e-health organisations will expand interest in the usage of e-business for on-line health care 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.

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In an effort to automate their procurement processes and shorten fulfilment cycles, purchasing managers at larger health care organisations are already using or evaluating on-line procurement. Meanwhile, smaller and less computerised health care 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 health care sector is at an early stage of its development. The British 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 indicates growing willingness among health care 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 health care authorities and governments require purchasing to take place.

Frost & Sullivan's findings show that the total volume of e-procurement in the European health care sector was worth around 0,4 billion euro in 2002. By 2008, this value is forecast to rise to 33,7 billion euro, representing around 23 percent of the total hospital expenditure in the same year. By 2010, around one third of Europe's health care 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, health care 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 health care 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 health care 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", Chris 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 researchers 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 United Kingdom 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 health care spending.

Health care 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. The study on e-procurement trends in the European health care market is available at the price of 3500 euro and can be ordered by contacting Mrs. Katja Feick of Frost & Sullivan.


Leslie Versweyveld

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