IT Procurement in Health Care Industry and Hospitality Industry

ANJALI AMAL
anjali.amal@gmail.com*
University of South Australia
ABSTRACT
Keywords: Information Technology procurement, e-procurement,
hospitality, healthcare,
Index Terms:
1 INTRODUCTION
Scope: Procurement has undergone significant changes over past
few years. Because of the increasing importance of purchasing,
purchasing managers are confronted with questions concerning
the justification of their decisions and the resulting performance.
Aim/purpose: The purpose of this research is to expand the
existing knowledge on the IT Procurement and co-relate it with
two other industries. The main aim of this research is to analyze
the importance of IT procurement in Health Industry and
Hospitality Industry and to investigate how it can provide a
competitive advantage.
2 LITERATURE REVIEW
In order to conduct the research I have gone through various
research papers, journals and books written by expert authors.
This review will focus on two main topics, (1) the importance of
IT procurement in health industry and hospitality industry, (2) the
competitive advantages of IT procurement within these industries.
Procurement Performance Measurement System in the Health
care Industry, which was published in the International Journal of
Health Care Quality Assurance, outlined the increasing operating
cost in providing healthcare is a main concern to health care
providers. Therefore the procurement performance measurement
will enable competitive advantage and offer a framework for
constant progress. The paper suggests that there is no intelligible
way to measure the performance of the procurement process and
thus it is quite hard for purchasing departments in making suitable
decisions. This leads to the deterioration-as is now used
commonly in healthcare industry, of the general procurement
performance and internal client approval. This in turn results in
higher costs for patients. According to Alt, the increase in the
health care costs and inefficiencies are due to in adequate and
tedious purchasing procedures .
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The health care cost increase is based on the clear conventions
that medical supply purchasing information systems are
insufficient and thus the supply of healthcare has been
unsuccessful. These inefficiencies could be enhanced considerably
through the appropriate application of purchasing strategies.
Information technology (IT) and information systems (IS) plays a
key role in the health care industry but it needs more improvement
in order to identify and implement better beneficial systems. It can
facilitate effective decision making by reducing the increasing
healthcare costs and can improving the quality and safety of the
healthcare industry. The paper also analysed the case study
conducted in the Materials Management Department (MMD)
which is the purchasing department of Singapore Hospital. The
MMD department is divided into two sections which is
purchasing and inventory management and their job is to manage
the supply chain activities of the hospital through cost-effective
approach in sourcing, procuring, inventory management and
distribution. After the rearrangement which took place between
1989and 1991, the hospital was run as private companies with a
goal of no profit. Thus one of the primary areas under attention
was the procurement system, as it has the highest potential to save
money .According to the study conducted in Tampa General
Hospital in 1984, the radical restructuring of its materials
management department brought a huge impact. At that time, the
ordering and delivery systems were not effective. It took all their
time and effort and they did whatever was essential to get
supplies. The study continued on the next year so that finally they
were successful in the simplification of the order processing
system. Electronic order entry systems were also implemented .
Internet has been anticipated as the foremost enabling technology
for e-commerce as stated by many professionals. Access to email,
work in process inventories and schedules, corporate databases are
all made possible through the recognition of strategic
manufacturing IT-related concepts. These concepts has an impact
in the role of new technologies to ensure the successful
functioning of health care industry. Moreover there is an
increasing need for the development of successful models that
relates authentication, knowledge management and leadership
strategies and especially in the Automatic Identification and Data
Capture systems industry (AIDC) which is evident as the
economy is internet and information systems focused. The AIDC
and the associated information technologies are more than just
barcodes and smart cards. They are a wide range of technologies
which can offer strengths and limitations based on the tasks they
are assigned to perform . It also include magnetic stripes, radio
frequency identification voice data entry and biotechnology. The
AIDC technologies are the words used to define the direct entry of
data into a computer system, programmable logic controller
(PLC) or other microprocessor-controlled device without the use
of a keyboard via direct human input. Since the use of internet and
AIDC systems stands as the foundation for the use of barcodes in
supply warehouses informational and material flows, bar codes
are essential in industries such as manufacturing, health care and
pharmaceuticals. Thus suppliers who are doubtful in the risks
involved in the bar code market should reevaluate their stand as
stated by Kemler . The massive amounts of information managed
by human workers might be likely to errors. Accordingly the
procedure of replacing this with scannable bar code technologies
facilitates end users to substantially diminish handling time and
transposition errors. Furthermore, since the data is recorded and
stored in an instantaneous technique, the end users will gain an
enhanced and precise tracking in the supply chain whereas
compared with outdated manual techniques.
3 ANALYSIS OF IT PROCUREMENT IMPORTANCE
Since the use of IT effects have developed physically and
organizationally, a similar growth has arisen in the supply chain
for IT products and services. The IT supply chain has been less
integrated because of the big system manufacturers supremacy has
reduced. As a result the development of distinct economic
patterns in the hardware, software and services market places
began to emerge. Moreover, the fast technological developments
have made it practically impossible for companies to sustain all
the technological expertise they need and compete successfully. In
order to beat this challenge, they turn to outsourcing. Hence, not
only the number of suppliers increased but also the proportion of
IT costs which are directed out into the marketplace also
increased. Although procurement professionals generally accept
the fact that strategic procurement is plays a key role in the
success of a firm, the ways that procurement can add value to a
firm always remains as a topic of debate and interest . It is
significant to continue and observe the ways IT procurement can
be valuable to a firm so that it should be involved in high-level
decision making inside the firm. A significant way that IT
procurement can add value to an organization is through
sustainable purchasing. A competitive advantage is one of the
factors that illustrates that IT procurement is exquisite to a firm. It
can also prove that procurement should be a strategic tool of the
organization.
Figure 1: Major processes in IT procurement by Robert Heckman.
Competitive advantage can be defined as "the ability of a firm to
achieve and maintain its chosen competitive position or
objective". Competitive advantage is maintained by "erecting
barriers for newcomers, enhancing your powers towards both
buyer and supplier, and out-positioning competitors". There are
three main strategies for competitive advantage: differentiation,
cost leadership and focus. Cost cutting through efficiency is also
considered as one of the ways to achieve competitive advantage.
By offering products or services that have superior or exceptional
qualities, the firm gets an advantage by using the differentiation
strategy. Competitive advantage through cost leadership is
attained when the firm offers the same product or service at a
lower cost compared to other competitors. A different model of
competitive advantage which is used now a day is the Resource
Based View (RBV). It bonds the resources and capabilities of a
firm so that it is unique and impossible to duplicate. It can be
concluded from the discussions that IT procurement is essential to
create a competitive advantage for an organization which can be
achieved in a wide variety of approaches. In this research, we
consider some of the important aspects which provides
competitive advantage in both health industry and hospitality
industry.
3.1 Organizational
As discussed in the Purchasing selection and procurement for the
hospitality industry, organizational factors has not given much of
the advantages. Issues such as the problems with product
identification standardization, concerns with the third party
dot.com companies, issues of depersonalization and the inability
to afford the equipment for e- procurement has been the main
reasons. But with the development of the Efficient Foodservice
Response (EFR) initiative, it has a great potential to reduce
organizational costs .
3.2 Legal
3.3 Material Management
Materials management is an important factor in procurement.
The functions included in the materials management concept
include:
Materials planning and control
Production scheduling
Receiving
Stores
Traffic
Disposal of scrap
Quality control
Inventory control.
Just In Time (JIT) system is one of most important aspect of the
healthcare industry. It is a system based on the highest supply
turnover rate that can be maintained by a department without
suffering an interruption in service .
3.3.1 Inventory Management
From the financial and operational perspective, inventory
management is vital to an organization. It symbolizes the financial
asset of a company and the same time it is crucial for the delivery
of goods and services to a customer. Tight control of inventories
is extremely essential for the maximum profit for a firm. If the
level of inventories held are lower, then the profit can be
augmented without increasing the level of sales.
Hospitality industry normally adopt labor and time saving
electronic equipment to enhance the overall inventory control
process. The use of computers and softwares for managing vast
amounts of data has made the management of inventories more
efficiently. It also helped the hospitality workers to order products
online. It makes the process easier for both the buyer and the
supplier. Another aspect is the use of computerized Point-of Sale
Systems (POS). These systems can organize and arrange huge
amounts of sales data very quickly. Some of the advanced POS
systems incorporate with inventory tracking systems that can
automatically delete the amount of inventory used. It makes the
job of the manager easier because he can compare the inventory
usage later with the actual physical counts. In addition to this,
some POS systems has the ability to permit purchase orders to be
drafted directly to the suppliers, based on sales and inventory
reduction . Using Bar Code Reader is another important feature of
the hospitality industry which is used to update the inventory
control process. Wireless inventory management system is also
another element in hospitality industry.
The inventory management in Singapore Hospital shows that
they use IT assistance, software developed in-house, electronic
item requisition forms (EIRFs) and the SAP system in order to
manage internal customers. But there is no linkage to the IT
system as most of the suppliers have no advanced IT system
installed. This should be just a unique case as now a days, the
health care industry uses IT systems as an important tool to
manage inventories so that it provides effective reduction in costs,
time and better quality products.
3.4 Purchasing procedures
Today hospitality buyers can select and purchase many superior
quality goods and services from suppliers all over the world with
the advent of Information Technology. These buyers and sellers
can come together in an e-market place, where the vendors get an
opportunity to sell their products to a variety of hospitality
operations. Information technology has made the purchasing
procedures in hospitality industry and healthcare industry very
comfortable. The advent of technologies internet, email, World
Wide Web and instant messaging have significant effects in the
hospitality and health care procurement as it allows buyers to
instantaneously communicate with the suppliers and vice versa.
The use of automated tools such as Electronic Data Interchange
(EDI) and procurement cards, reduction of cycle time in
contracting processes, development and use of asset tracking
systems and other electronic systems have brought competitive
advantages to a major extent in both Healthcare and Hospitality
industry.
3.5 Ongoing vendor evaluation post procurement
According to Evaluation of Information Technology Vendor
Services: An Empirical Study ,the three main criteria used for
vendor evaluation by IT professionals are vendor performance,
vendor accessibility and vendor back up services whereas the
three least important were vendor conversion services, vendor
system development services and vendor training services.
4 CONCLUSION
In order to remain competitive in the current business
environment, hospitality managers must understand the
advantages of Information Technology and must invest their time
and effort to use new technologies. To accomplish this goal, they
should keep up a good relationship with their suppliers and
customers by using appropriate IT technologies.
5 REFERENCES
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