It has been fun and educational to watch the strategic sourcing market evolve over the past almost 25 years. It followed a path from:
- ground-breaking consulting work by AT Kearney in the 1990s to
- “new wave” full service, tech-enabled reverse auctions by Freemarkets in the late 1990s to
- self-service tools in the early and mid 2000s to
- free tools for reverse auctions and RFIs in the 2010s
It’s a great example of a market that created enormous value for many of its participants, with most of this value being captured by buyers–not technology vendors, and certainly not suppliers! In that way, the strategic sourcing market has always reminded me of the airline industry–great fares and relatively convenient travel for us consumers and zero profits for almost the entire industry since its founding.
As with any commoditized market, later entrants have tried to distinguish themselves with specialized expertise or commodity knowledge. Examples include:
- CombineNet and Trade Extensions with optimization tools especially for logistics, but applicable to other verticals
- Cvent with unique data on hotel accommodations for meetings and events as well as an ad-supported model
- GPOs who also aggregate spend, primarily in healthcare and indirect spend
Lumere (formerly Procured Health) is a strategic sourcing platform not only specific to the healthcare space, but specific to one spend area within this space, medical devices. It is a huge spend area ($150 billion according to the above-mentioned article) and one that has been knotty to solve, as:
- providers are sometimes oligopolists,
- doctors installing (I guess implanting is the correct word!) these devices in tend to be pretty picky on which devices they train on and prefer
- no patient wants to hear their new pacemaker was chosen by the results of a reverse auction among global suppliers of pacemakers!
Procured Health clearly understands the sensitivities of this category and offers various features to try to get consensus. Their website mentions that their tools can:
- Capture analysis and decisions – including product research, trial results, and financial models – with a single platform.
Survey your clinicians in-process, and compare their preferences to those of other member institutions. Keep clinicians informed of the status of their product requests and decisions.
Discover functionally equivalent devices for any category using our proprietary suggestion engine. Access summarized peer-reviewed literature, adverse event and recall information.
But my favorite part of the Lumere (formerly Procured Health) pitch is the unapologetic, some would say politically incorrect, way they take on the issue of supplier economics. For a while, there was a backlash against these tools and providers had to be careful to emphasize supplier friendly features such as “expressive bidding”, and downplay reverse auctions. But these guys do not mince words. Again from their website:
Despite numerous interventions – GPOs, reverse auctions, and consultants – medical device manufacturers have continued to extract 70% gross margins year after year.
The pressures to drive down healthcare costs and improve outcomes will not abate any time soon. It will be fun to see if Procured Health can play a role.
(By the way, here are a couple bad medical device sourcing jokes I hope the folks at Procured Health can use:
- What do you call it when you replace your strategic sourcing application with a new, cooler application? A “hip” replacement.
- What do you call it when clinicians work with procurement people to strategically source a new artificial knee device? A joint sourcing program.)