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Kicking off the Procurement Leaders Americas Forum in Miami, Intel’s Jackie Sturm, presented a fascinating case study on extracting value from complex areas. Looking specifically at healthcare, Sturm, VP, technology and manufacturing & group GM, global sourcing & procurement at Intel, explained that the company took a data-driven path into understanding this complex category and finding value within it.
The attention given to this previously overlooked category came about because of focus on healthcare provision in recruitment by senior management. "The betterment of all our employees is a goal that we all shared," Sturm said.
"We wanted to attract the best employees to our company," Sturm stated. "To do this we needed healthy people and we needed to develop people: which requires money."
This started with a significant investment in provision. Healthcare costs, however, were outstripping generated savings. Forecasts suggested that costs would double in the next 12 years. This outstripped other areas as well as benchmarked figures, but it was still too much.
This initiated a major analysis and breakdown of the company’s spend which revealed potential opportunities. "The fallacy is, everything you can see is not everything that there is," Sturm described. "The problem was when we weren’t dealing directly with the suppliers, but an intermediary, we were too focused on the fee, not the cost."
The continued effects of inflation, rising treatment costs, administrative fees and installation costs placed significant demands on healthcare costs right across the US.
"We had to outsmart this challenge and understand how we could get at the real cost. To get to the potential, we had to go deeper," Sturm explained. 25% of Intel’s healthcare costs were generated by just 1% of people, mostly with chronic conditions. Efforts were targeted here.
Yet, providing cost and price information was challenging. For example, pregnancy costs varied 114 times from the cheapest to the most expensive provision. But, the organisation had no value tests for this. The question being: what is the difference in the quality outcomes of these different treatments?
A new system, tested in Albuquerque, New Mexico, where Intel has a large presence, is where the procurement team looked to deal directly with the original suppliers and focus on the most commonly occurring conditions, such as back pain and headaches.
Coupled with this approach was a more active interest in preventative medicine, where healthy living is encouraged amongst staff. Already, Intel is receiving positive feedback from employees, who are receiving improved quality provision. Future initiatives will be rolled out in Florida and Oregon.
It’s an amazing story on how procurement professionals can tackle a difficult and complex area of spend and add real value but as Sturm advocates: "To make a difference as procurement experts, we need to need to lead and drive."