PeCCing Order

PeCCing Order

It's the grandest of all grand visions: an attempt to harness supply chain management (SCM) to the task of slamming the lid on expanding costs in Australia's $45 billion health sector.

Participants in the Pharmaceutical Electronic Commerce and Communication (PeCC) initiative are building Australia's first industry-wide B2B Internet trading community, and there's nothing modest about their ambitions. Eventually they plan to revamp the entire health industry supply chain to deliver major efficiencies to every participant, but especially to publicly funded hospitals.

And they'll do it - at least as long as vested interests, empire building, interoperability problems, vendor intransigence and bucket loads of player scepticism don't get in the way. The story so far, and the lessons already learned, highlight some of the problems facing many industry sectors as they attempt to achieve industry-wide SCM.

PeCC, facilitated and administered by CSIRO, is the first project of its type in Australia to try to revamp an entire industry supply chain to take advantage of the Internet and Web-based technologies. The project is based closely on the supermarket model, where products are bar-coded and scanned on purchase. PeCC is funded by a number of government agencies and many industry participants and associations. Both PeCC and the demonstration projects operating under its umbrella have an impressive track record. Under the scheme, the Pharmaceutical Extranet Gateway (PEG) project has already established a gateway and common e-forms for the exchange of $5 billion of orders between suppliers, distributors, manufacturers and hospitals. Other pilots have demonstrated the value of a common number system (EAN) for e-commerce trading between the supply and hospital sectors and between the retail and supply sectors and shown the worth of establishing a single and central data repository for all health care projects.

Inspired by PeCC, some hospitals designated centres of excellence are approaching the health system holistically and finding innovative ways to harness technology to patient care. One Victorian private hospital is using radio frequency beacons installed in ceilings to link physicians, pathologists, and even dieticians, to networked computers located through the hospital.

The benefits are also broadening into areas beyond health care. At the Defence Department, PeCC principles have been preferred as the basis for contract compliance and the department is using the universal EAN product numbering system identifiers in e-commerce trading relationships.

However, there's still much work to be done before the vision can be fully realised. Not only is there an issue of getting everyone from GPs to hospitals computerised, there's urgent need to standardise all the systems being used.

Massive Savings

PeCC is looking for a huge payoff from its efforts. If project director and supply chain expert Patrick Gallagher gets his way, the pharmaceutical industry can eventually expect to slash $70 from the cost of every order.

In time, PeCC will enable savings of at least $340 million from an annual $1.4 billion budget, through avoidable waste and inefficiency associated with consumables in hospitals alone. It will help avoid the loss of up to 15 per cent of consumables that are currently "stolen or shrunk". Increased accountability and lower stock levels could dramatically reduce the tendency for consumables to disappear. Just-in-time ordering would ensure stocks were limited and losses quickly noticed. PeCC will also achieve an open standard system where all players can readily communicate at the same time as it is facilitating uniformity across the entire pharmaceutical industry sector.

The initiative will go beyond cost savings to improved patient care - and not just by allowing more money to be transferred into the area. Improved supply chain management is expected to ensure medical records are more complete and readily available, to enhance understanding the cost of providing patient care inside hospitals, and to improve other hospital systems including patient billing systems.

PeCC consultant Judy Paterson of Judy Paterson Consulting Services says the best way to understand the potential benefits is to consider the purpose of the supply chain as supplying health care professionals with the tools of their trade. "Aligning the clinical activity and making sure that the supply chain is reactive to the swings and the changes and the technology that happens on the clinical side is very important," she says. "PeCC is marrying the supply chain to the clinical infomatics to achieve that aim."

According to Paterson, it's a highly layered process that is closely focused on the role of the supply chain in achieving health outcomes. However, progress is mixed. "A lot of people are moving down the track extremely fast and there are some people who have had good vision, good capture of what's going on," Paterson says. "They've looked beyond just the supply chain issues to look at the health system holistically, and they're trying to value-add, value-add, value-add to the software packages they're getting."

Nevertheless, Paterson says it's very much a "feast and famine" situation, with some hospitals charging ahead and others showing no sign of making significant change. That's a problem, because the full benefits won't be achieved until everyone is being proactive across the entire health industry.

"It's no good having these super-duper e-commerce supply tracking systems if the real cost of health - which is the outcome side: what happens in the operating theatres, what happens at the actual patient outcome side - isn't all worked in together," she says. "The supply chain is a non value-add part. The whole idea is to try and cap those costs as much as possible so that the dollar in health can be transported to those holy grails which are the time in the operating theatre and improved outcome measures for the patient."

Barriers to Progress

The processes PeCC is promoting can play a lead or flagship role in introducing IT-based change into medical systems by demonstrating the practical application of agreed industry standards and by giving hospital administrators and health care practitioners hands-on experience in IT applications. At least, they can if those administrators and practitioners can be brought on side. Like all grand visions, there are numerous barriers - technical and practical - to be overcome if the effort is not to be stymied and players locked out of promised benefits.

Gallagher says nearly all the information currently in use in the health supply chain is dated and inaccurate. E-commerce could change all that, giving timely and accurate information to everybody: from doctors to wholesalers, dieticians to nurses. Eventually, e-commerce could be used across the entire health system, doing everything from processing a doctor's electronic prescription to etching a standardised number on pharmaceuticals in order to track orders and supplies.

All that's blocking it are a few minor impediments: like interoperability issues, CEO resistance, vested-interest-inspired badmouthing by vendors and a lack of industry support.

"PeCC is not a project that attracts universal friends," Gallagher says. "We're a well-known brand, but that doesn't mean that we are liked by everybody. One of the reasons for that is that, whether through wilfulness or ignorance, a lot of people do not want to hear this message of having an interoperability problem."

Some of those resisting are, not surprisingly, the hardware and software vendors who fear that rocking this particular boat will have an impact on their ability to derive massive profits from the sector.

In a study of PeCC funded by the Australian Research Council and released in May, called Health & Industry Collaboration: the PeCC Story, Macquarie University's Professor Elizabeth More found some suppliers had chosen to ignore early invitations to participate in the project. Subsequently, those same suppliers were found to have engaged in "ongoing rumours, innuendo and ‘badmouthing' of PEG".

Other sources of resistance are highly personal and political in nature, coming from people working in all areas of health care who can't see the reason why pathology, X-ray, finance, theatres, wards, and pharmacy and store people should exchange information. That's not so different from the problems facing other industries, Gallagher concedes. However, when it comes to health care, those barriers and rising levels of resistance amount to a scandal, for numbers of reasons.

"First of all, this is not shareholders' funds we're wasting here, this is taxpayers' money," Gallagher says. "Second, health comes first or second every time The Bulletin or The Age run a news poll on voting intentions. Third, the issue is citizens' health care. We're taxpayers. We have wards being shut and nurses being fired, and all this virtual loss is just enormous."

If anyone can improve the return on taxpayers' health dollars, it is Gallagher. Two and a half years ago he sold his company and took a six-month sabbatical to begin research for the federal government on e-commerce and IT in the health industry. He's been director of PeCC ever since. The Australian Research Council report describes him as most vocal in articulating the PeCC vision: "the champion, mobilising an array of networks, contacts and creating the buy-in scenario the project required" and a "textbook charismatic change leader who has spread the vision of the way to do things better".

However, the report notes his efforts have also alienated some players, who have their own reasons for reluctance to sign on to the vision. "Simultaneously and, perhaps, inevitably, Gallagher has also angered, irritated, and frustrated some; particularly those industry players uncomfortable with the pace and direction of the changes that PeCC hopes to accelerate, or who wish for more control," the report says.

Interoperability Looms Large

It's currently impossible to put an accurate figure on Australia's annual health care spend, with estimates ranging from $42 billion to $50 billion. In addition, interoperability problems reduce efforts to fully cost the sector to nothing more than inspired guesswork. The inability for disparate IT systems across the sector to exchange information signals problems with interoperability. Gallagher says that, of all the barriers standing in the way of the ambitious PeCC project, interoperability remains the greatest and, arguably, the most difficult of all to resolve. It's a problem that's global in both scope and nature.

"In health care, I'm benchmarking directly and indirectly against 42 countries, and we all have exactly the same problems except on different scales," he says. "If you're going to be sick, this is still the best out of 42 countries to be sick in; but what is the single core issue in every country? It commonly comes down to interoperability."

Across all areas of the sector, the need for standards and standardised systems is critical. Since business units within hospitals have historically purchased their IT systems unilaterally, it is not unusual for systems within the same hospital to be unable to communicate, let alone between hospitals or across the supply chain.

PeCC itself labours constantly to address the issue, with Gallagher saying the body is frequently seen as the terrier that continually "yaps and bites and drives people mad". PeCC is also exerting considerable effort to ensure that the National Health Information Management Advisory Council (NHIMAC), set up by Health Minister Michael Wooldridge and comprising Wooldridge and all state health ministers, moves at "more than glacial speed" to address the issue. NHIMAC is endeavouring to put in place standards for all areas of patient care: from billing and finance through patient records and the supply chain. The Commonwealth Department of Health and Family Services' Report of the National Health Standards Workshop also addressed the issue. The e-commerce group's recommendations covered four areas:

To establish a discipline of single identifiers for all transaction types that need to be shared and communicated across borders.

To insist that standards of IT operability are mandatory for all information platforms inside and outside a health care location.

To take this supply chain functionality seamlessly into the other aspects of health care delivery in order to support the overall clinical environment.

To create an effective billing and claims system that is also able to meet the wider requirements of the clinical environment as well as the administrative one.

Another primary barrier is the lack of engagement of CEOs from all areas of the sector, including supply companies, the IT industry and hospitals. "CEOs have a six-second attention span," Gallagher says. "They can understand the hype and see their kids doing exciting things online. But when they start to hear what we're proclaiming to be the big excitement, they say: ‘Well, how can that be relevant to me? I'm the boss of the business. I don't worry about nurses and storemen and truck drivers'."

To counter those perceptions, whenever Gallagher gives a public speech he asks people in the audience whether they have any logistics, warehouse or warehousing people on the board of directors, sitting alongside HR and IT and finance and sales. "To those that do - and there's few of them - I say: ‘Well, you're not doomed'. To the rest I say: ‘You are'."

Ultimately, it is the task of getting CEOs and board members focused on PeCC that must be ongoing if PeCC is finally to achieve its aims.

"I've got 170 paid-up members of PeCC, everyone from Arthur Andersen to KPMG to Telstra to General Electric," Gallagher says. "All these people are marching in step but not in a straight line down the same path. The idea, without being negative, but also without being glib and hiding the truth, is to keep this thing in front of everybody, every day, as they are trying to do in every other country." vFrom Modest Beginnings to a Larger ScopeInitiated in 1996, the multistage PeCC project was established to promote a coordinated approach to achieving supply chain improvements in one sub-sector of health care consumables: pharmaceuticals. Its aim was to encourage widespread uptake of e-commerce based on acceptable industry standards and use of the universal EAN product numbering system together with bar-coding technologies.

Initially the project worked with six wholesalers who supply to hospitals and the 700 manufacturers that they purchase from. Now the vastly expanded project is taking a much wider view of the health care supply chain.

PeCC has succeeded in highlighting the need for improved supply chain management and the possible solutions that are available. It has achieved agreement among pharmaceutical wholesalers on using the EAN numbering by themselves and their large supplier network, and about introducing a common Internet-based platform for electronic commerce. Guidelines for bar-coding in the Australian health care industry have also been drawn up, and a number of pilot projects are now up and running.

- S Bushell

A PeCC of Pickles

In a study of PeCC funded by the Australian Research Council and released in May called Health & Industry Collaboration: the PeCC Story, Macquarie University's Professor Elizabeth More found numerous challenges to the scheme. Among them were:

Change Management

"From a broad perspective today, the major challenge for PeCC is the complex one of ensuring appropriate change in the health sector," the report says. "This includes the real need for attitudinal and behavioural change, including e-commerce being regarded as a critical first-tier issue by senior executives and boards." Requirements include developing strong leadership and change management for e-commerce and process automation; having a key group coordinating the many streams of activity around the process; and educating senior and middle management about the benefits of SCM, and really grasping the change management aspects of implementing such alterations to the traditional health care supply chain.


Inter-government departmental differences, commonwealth vs state government approaches and states being slow to come on board have all been recognised as political barriers to PeCC.

Professor More notes government support for PeCC needs to be improved and government players need to be better informed about what is involved. Perceptions by state governments that they've been sidelined need to be addressed.


At the macro-level, cultural differences between an industry private-sector approach and the government approach, both in management style and process, creates a clash of cultures which is inhibiting progress.

At the micro-level, the issue of professional cultures can be equally problematic. For instance supply chain managers regard the involvement of nurses in SCM as "heresy", while others criticise IT professionals as insufficiently client focused and dedicated to the cause.


A lack of coherency and integration across PeCC projects is proving to be a pressing problem. Some PeCC trials have been largely unsuccessful because of the involvement of too many players and their tendency to bite off too much. Standards have also not been established before trials started.

As a result, the report found evidence of growing cynicism around a core benchmark project at Ballarat Hospital. Interviewees claimed "Ballarat is not working - a learning experience that should not be put in neon lights" and "Ballarat as a demonstration site may be perceived as a failure and could have been a negative for PeCC rather than a positive".


The report found concern over how open PeCC really is - whether it is truly open to the whole industry or focused on use by one trading group. This feeds into the perception of PEG being focused on the five major pharmaceutical wholesalers and their benefits from the system. In fact, PeCC has been created on an "open" basis with "any to any", "many to any" transmission interfaces and the capacity to share data with other networks through EDI, flat files and Web browsers.

More finds all stakeholders should have been involved from the start. Instead, many had no wish to fund the project and so were not as involved as they might have been.

"Other problems of participation relate to the involvement of industry associations. There are fears the Medical Industries of Australia Association may consider setting up a rival network to PEG and reports that one large multinational is lobbying the states to use a different US system.

The IT vs Strategy Perspective

The report found that much of PeCC's work and projects are still perceived in terms of IT rather than business strategy, which remains an overarching difficulty and a challenge for the future.

It quoted one interviewee as saying: "The present priority on PEG is incorrect. It needs to be seen as a cost saver, a more effective way of doing business and competitive advantage. It must be seen as central to the senior executives: they are not convinced but have not been given strong arguments about how to create business and wealth as broader than IT per se . . . Knowing what we know now, PEG should have approached CEOs with half a page of notes emphasising the shift of order costs from $75 to $5, emphasised money, resources, relationships, and strategy . . . It would have had a much higher profile."

E-commerce is seen as important largely because of the general hype surrounding it, More says. Too few players relate it to the business issue of timely, accurate and useful information making huge improvements to the supply chain. The report says much work needs to be done in this area. - S Bushell

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More about AndersenAndersenArthur AndersenAustralian Research CouncilAustralian Research CouncilCoding TechnologiesCSIROCSIRODefence DepartmentDepartment of HealthGatewayGeneral ElectricKPMGMacquarie UniversityMacquarie UniversityPharmaceutical Electronic Commerce and CommunicationTelstra Corporation

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