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Narayana Hrudayalaya :

Purchasing strategy and


material management

PRESENTED BY:
Mythili V
Brijesh RG
Rasika Sonkusale
Chakshu Raj
Santosh Kumar
Dhivakar P
Rayudu
Harikrishnan R
Sriram A
Lokendra Singh Rathore
Venkatesh Karande
Narayana Hrudayalaya
Founded in 2001 by Dr. Devi Shetty

Started in Bangalore , Karnataka

God’s Compassionate Home ; Aims at providing medical treatment to the poor.

Vision : To provide high quality healthcare, with care and compassion, at an


affordable cost, on a large scale.

Mission : “A dream to making quality healthcare accessible to the masses worldwide

Values : I – CARE

“A dream of making quality healthcare available to the masses Worldwide”


NH : BUSINESS MODEL
LOW COST FACILITY WITH HIGH CLASS BENEFITS

Focused on volumes
Open Adults Children
Heart
Surgery More process innovation , less
product innovation , Cost
Prices
minimization
Rs. 90,000 Rs.
1,30,000
Reduced capital expenditure : Buying
low cost medical equipment ,
monthly rent , paid for reagents

Reduced electricity bills : Absence of


elevators and air conditioners
NH : BUSINESS MODEL

Infrastructure :
Compact
Number of Basic package
Lean staff : design, reduced
pathological including
entry spaces, Treatment and
Used generic test per day per 22 % of surgery and &
fabricated care same
drugs : 80 % machine brings revenues on hospitalization
structure, irrespective of
cheaper than down per unit staff salaries, charges Rs
simple tiles , general or
market rate cost due to fixed salary for 1,10,000 –
low cost seating private ward
economies of doctors. cheapest in the
(reducing cost
scale country
per bed to 12 –
18 lakhs )
CORE COMPETENCIES AT NH

Economies of Scale Volume Major Partnership

• Fixed salaries • Extremely high • Biocon


paid for surgeries volumes Foundation sells
to doctors instead • Increased number drugs 20 to 30
of paying/surgery of shifts and percent cheaper
• This helps bring higher number of to its members
down the cost per specialized • Indian Space
surgery. doctor, operation Research
theatre is utilized Organization
for longer hours
contributing to
high volumes
Current scenario – Operational review
Purchasing Strategies for
Narayana Hrudayalaya
Domestic And
Economies Of
Cost-efficient Frugality
Scale
Equipment

Central Buying
ERP Data Mining
Unit

Asset Light
Model
Domestic And Cost-efficient Equipment

• NH encourages domestic companies to manufacture inexpensive local versions of


costly imported medical supplies within India itself.
• It maintains a very tight control on its purchases, and drives down prices by negotiating
directly with the equipment manufacturers.
• Win-Win technique: For procedures like blood gas analysis, NH team convinced the
equipment vendor that, instead of selling the machine to the hospital, he could simply
park it there and make his money by selling the chemical reagents required for the test.
• NH came up with a model that leveraged economies of scale; Higher volumes cut per
unit cost of surgeries
Purchase of materials

• Ahead of the times :The hospital has moved to digital X-ray technology, saving on
the recurring cost of film
• Optimum utilization: Most hospitals use their CT scanners, MRI (magnetic
resonance imaging) and other machines for only eight hours a day, but Narayana
Hrudayalaya uses them for 14 hours
• It offers these tests to the patients at lower rates in the late evenings. As volumes
increase, per unit costs naturally come down.
• Overseas sourcing: Instead of buying surgical gloves in India, for example,
Narayana Hrudayalaya saves about 40% by importing them in container loads from
Malaysia.
• The new cancer hospital purchased two linear accelerators (for producing X-rays)
that typically cost US$6.4 million each for the price of one machine. The cost of the
machines was spread out, interest-free, over seven years.
• Minimal suppliers : Have single equipment maintenance partner (Trimedx) for NH
group, maintaining 400 crore worth equipment.
• This has made them to have equipment available all time and quick service in
case of emergency. NH has strategic alliance with many companies to provide
better equipment and service.
• An example is NH-HP partnership, which provides eHealth centre. This provides
quality health care services through telemedicine and teleradiology.
Frugality
• It does not buy all its equipment. It leases some on a pay per use basis. This keeps capital
costs low.
• Great emphasis is given to maintaining equipment and extending its life.
• The buildings are designed to keep costs low, too. NH's Mysore Hospital was designed
and built at a cost of Rs 18 lakh per bed, when the thumb rule cost of a similar hospital is
Rs 50 lakh to Rs 1 crore a bed.
• Many hospitals are on lease, for eg: NH Hyderabad.
• NH worked with L&T to build a 300-bed super specialty hospital for US $6 million (Rs. 35
crore) and completed the project in 8 months as against the normal time period of three
years.
• This was possible because the hospital was a ground floor construction, which helped
save around Rs. 100 per square feet on piling, foundation and fire clearances.
Economies Of Scale
• The bulk of the cost in healthcare is R&D cost; actual manufacturing cost is very small.
With higher volumes, the vendors can cover their costs.
• Across the NH network, there are 281 doctors handling cardiac surgery and cardiology
(81 are students) performing over 40 surgeries a day.
• The large volume of surgeries at NH allow them to achieve savings in consumables and
equipment. NH saves 40% on gloves by importing them by the container loads from
Malaysia.
• NH uses its infrastructure for 12 to 14 hours a day. Normally, hospitals do not run
services such as operation theatres and Cath laboratories for more than 8 hours.
• Lean staff : Low costs and less corruption.
Competitive strength
Technology and successful supplier
partnerships
• NH realized that the CT scan and high-end MRI machines need to be used to the
maximum to get the advantage on the capital deployed.
• Digital X-rays to save recurring cost of the film.
• 10 per cent of heart surgeries done in India are done by NH; When NH become a
client to any company which makes products for heart surgery, they capture 10
per cent of the market.
• In the case of valve replacement surgeries, NH implants the largest number of
heart valves in the world. Any valve manufacturing company around the world
would give the products at a lower cost to NH.
Other cost-cutting techniques

• There are some other methods that NH has adopted to reduce cost, such as
• Use pre-fabricated building materials
• Build for natural ventilation, no air-conditioning
• Centralise purchase of drugs and consumables
• Leverage IT, share data on Cloud
• Create replicable systems and procedures
Central Buying Unit

• NH did not store consumables and got suppliers to deliver them just in time. There
were problems and the measure was reversed, and an in-house store set up.
• The hospital has set up a central buying unit (CBU) and standardised purchase of
consumables and devices.
• Almost 95 per cent of the inventory is standardized across all the hospitals. Just 5
per cent is left to the local hospital to buy.
• Close to 80 per cent of all purchases are through the CBU
• This has cut inventory costs by 15 to 40 per cent and ensured quality.
ERP

• NH has implemented Cloud-based ERP System. This has provided:


• Single Patient Record for all life
• Integrated across all units
• Real time access of data
• Lower maintenance efforts

• Doctor Engagement Model: Dedicated teams of doctors are able to handle higher volumes
through assembly line approach. Doctors have standard processes and procedure.
• Monitoring : The IT system helps NH in many ways: An sms is sent at noon daily to senior
doctors and administrators informing them of the previous day's revenue, expenses and
EBITDA details.
Data Mining

• NH also mines data to raise quality levels. Its business intelligence model throws up
real time data on 30 different parameters that the management may want to track
for improving efficiency.
• Through business intelligence, performance of each doctor is mapped in terms of
clinical outcome and financial data such as consumable used during surgery, time
patient has spent in ICU and duration of stay in the hospital
• NH has best collaborators, such as Indian Space Research Organization (ISRO)
provided satellite services to link small local hospitals in the country with NH so
that immediate advice, in the case of cardiac arrest, may be sought by local
hospitals from NH.
Asset Light Model
• Adopted Asset Light Model, where they have adopted various strategies
from greenfield projects to management contracts.
• Their individual bed cost has reduced from 48 lacs, which is industry
average, to 27 lacs INR.
• Cash flow is always a problem as over 50 per cent of the outstanding is from
the government.
• This has forced the hospital to shift to an asset light model for expansion.
Operating efficiency through the years
Suggestions

• Economies of scale helped NH accomplish partnerships with low cost


suppliers. To increase economies of scale or volume, NH should focus on
hospitals in tier 2 and tier 3 cities.
• Vertical integration: Acquiring manufacturers rather than importing from
overseas sources like Malaysia