Spend Transparency to Save Jobs (ft. Jeff Heenan-Jalil)

Thanks for tuning to Digital Voices Podcast, where we chat digital transformation challenges and opportunities across healthcare and life sciences. And now, your host, Ed Marx.

Special drop, bonus drop, some of my favorite topics. And we're actually bringing back a guest for the second time. We've only done that like 3 times in our history, but I wanted to bring back my friend Geoffrey, and you might recall him from episode 36. So if you want to know his, his playlist, if you want to know sort of his story, his journey, all that kind of stuff, go back to episode 36 and you'll hear all about Geoff. But Geoff, welcome back to Digital Voices.

Thank you very much, Ed. Quite honored to actually only be the 4th person to actually do another edition. Very excited. Yeah, yeah.

You know, it's great to have you. And the reason for this bonus drop What I'm hearing out with all my colleagues, my former peers, my friends, and some of the challenges that are out there from both really a board perspective— I sit on a couple of health system boards now— so from a board health perspective, I was just at Chime and I had 2 or 3 CIOs come up and say, Ed, is there anything you can do to help us? We're just under this tremendous financial crisis right now. We've got to reduce our costs. I mean, they were given huge bogeys to reach. It's just, I felt really, really bad. I've gotten a lot of calls from some of my peers, former peers, and it's really the big thing that I'm seeing right now is this whole emphasis, not only on top-line growth, of course, but really on how to reduce costs. And the worst thing ever, Jeff, and I, I don't know if you've ever had to deal with it, and I certainly have had to deal with it, is letting people go. That's not a way to reduce your costs.

Yeah.

That, that's a really bad, way of reducing costs because you're just shooting yourself in the foot for the long term. So when I thought about it, I thought about our last episode we had together and really what were some of the things that, that I learned from you and that we can do to help reduce costs. And that's the other thing I want to be fully, fully transparent. So obviously from a business perspective, what we're going to be talking about helps Divergent, helps the company that I'm the CEO of. So I'm fully transparent about that. I want people to know that. But at the same time, my desire to help people outweighs, you know, that it's not really a conflict at all, but outweighs the fact that we try not to do infomercials or commercials on our program. We're really proud of that. But in this case, it's like what people need to hear. And let me give one other piece of background and then, Jeff, we'll jump right into, you know, some of the, some of the things that you and your company do. So I've been a CIO probably for 20 years and probably every 2 or 3 years Someone comes up with the idea, usually the CFO, but it doesn't matter who. It's not a bad idea, but they bring in a company, you know, typical accounting firm that we've all heard of, and they come in and they do this spend analysis. They come in and they look at the IT budget and it's pretty high level. And at the end of their engagement, of course, they have to come up with some bodacious goal because otherwise, why did we pay all this money to have them come in and do this analysis? And they'll say things like, Hey, IT, you spend 15%, 20% too much compared to your peers. Then you'll ask for detail, right? Tell me who my peers are. One time, literally, and I won't mention the firm, but we found the database that they were using and it was on sale. Anyone could buy it for about $400. It was ridiculous.

Yeah.

Yet that number stuck with the CFO because that's the number everyone wants to hear. Oh, let's take out millions of dollars from IT. And then my peers, when I would, when I would share with my peers at the C-suite and I would say, hey, I'm all about reducing costs. I'm sure there's opportunity in IT, but I don't think this was the best analysis that's been ever done. And I would tell them why. They honestly didn't care why, because they would rather have that money come outta IT than their own budgets. And I understand that as well. So they were like, no, they weren't going to feel sorry for me or Give me any dispensation. They were like, no, let's take all that money out of IT. The aggravating part, of course, is we're leveraging IT to enable better experiences, to actually reduce costs in other parts of the organization, but yet they were coming after IT to strip down IT. Then, again, I mean, I get really animated about this because they were the same—

I can tell.

Yeah, they were the same people coming to me begging for investment in digital transformation, which I'm all about, and we did. Then I would always be clear with them through the governance process, you understand that when we add this new piece of digital technology that it's going to impact the cost of IT for the organization. They're like, oh, we understand. We understand. We're right there with you. Don't worry. We'll support you. We carried all that on our books.

Yeah.

Yet, when the time came to strip out costs in the organization, it was always coming after IT and suddenly you'd lose all your allies. So when I heard about what you're doing, and it's real, and I don't wanna give away what you're gonna talk about, but it's at the detail level and you've seen success with many clients, and I know you can talk about them in general but not specific names, I thought this is what everyone needs to hear about because they're not hearing about it for one reason or the other. And so I wanted to create this bonus drop to really get into detail on this. So I know I covered a lot there in my introduction, but that's really the heart of why I wanted to share. So Jeff, tell me about your experience and give us your background so it kind of sets up, in fact, your credibility, why you started this company and what you're doing today that's doing exactly what I just, you know, alluded to. And that is to have a company that really gets down to the nitty-gritty, the detail, uses AI, ML, all those things, and really gets to true spend analysis.

Well, you know, I love the passion because at the end of the day, you started off with, we don't want to do an infomercial, you know, here. We're getting into— we are in this business for the right reasons, and that is to lower healthcare costs, to actually improve and save lives, right? And ultimately, that's why I did it, because I lost my brother to cancer. And on session 36, you know, you can listen into, you know, let's say, the pain and anguish that I felt. But now, since our last discussion, you know, just to have a bit of a backdrop for the new listeners, I'm ex-head of procurement for EDS and Unisys. I looked after direct and indirect procurement in the Asia Pacific. I also looked after logistics, distribution, and supply. And then I've spent the last 25 years in IT services, IT products, telecommunications, probably for the last 16, probably 16 years touching healthcare in one way or another, heading up Wipro Healthcare worldwide, Cognizant Healthcare worldwide, and working for some startup and AI organizations. Where I'm really passionate about this, I think last time I reported, you know, we have been in existence for about 2 and a half years now. And, you know, we have now partnered with Vizient as one of our major partners that we are going to market with. Vizient obviously service close to 50% of the US hospital markets. And, you know, the amount of data that we are processing for them and for other clients as well and through other sources is just extraordinary. So just to give you a bit of a backdrop with regards to why we feel so confident, we are processing close to over $200 billion worth of AP data. We're processing over $60 billion worth of invoice data across all purchase services commodities inside a hospital system. We have done analysis on a number of hospital systems and also health plans with regards to their spend and what the potential for them to save is. And those savings can come in many forms. It can come from transaction optimization. It can come from, let's say, price variation within a client for one singular product. It can also come with regards to what is all my spend that is actually on contract today Really on contract, and am I getting the appropriate GPO administration fee back into my back pocket to actually help? And so I can go on and on and on. You and I have had many conversations with CIOs, and to your point, they are so enthusiastic about what's your point of difference. And you know, really simple, Ed: we get into the granular level of detail. We are not interested with regards to. AP as the source document because AP is at a general level and at a supplier level and at most at a quantity and at a total dollar value perspective. We are focusing purely on the individual item level of what has been purchased inside a company. So we'll be able to tell you very quickly how much data is actually available for you to actually analyze down to an item level description. And then whatever is missing, point you to the right direction so that we can gather all the appropriate data so that we can do deep analysis. And I love your view, you know, Ed, about these great big consulting companies that are making an incredible amount of money based on, you know, big datasets that are so generic that then they offer you, you know, the next greatest step in their armory. Let's do a consulting engagement and spend 6 months to actually pull in the data. Then they go in and request, you know, can I get your invoice data? Can I get your PO data? Can I get this? Can I get that? And then 6 months later to maybe even sometimes a year later, you have a detailed analysis of this is where you can save money and this is how it's actually going to happen at a very broad perspective. And you as a CIO and as me as a head of procurement, And also as part of IT, from a viewpoint of delivering this, you realistically come up and say, that's not what I spent. That's not realistic with regards to the invoice. That's not what the detail is. So you don't truly understand this. And then all of a sudden you go through that whirlpool or tornado of let's get into deep conversation around your spend and you're wasting so much time. Before you even get to save one single dollar, you probably spent $1 million to $2 million in consulting fees. That is not a solution for what we're trying to achieve today. But I'm so passionate, Ed. I'll pause there because I can just keep on going on and on and on.

Yeah. And you alluded to a couple of things that I want to take a slightly deeper dive on. One is the time. So, yeah, you're right. When we did these engagements, they would come in, it would take 6 months to a year.

Yeah.

Millions of dollars. And then again, you know, you get You get really poor data that you're then beholden to. But you all work much faster. What's a typical engagement? If I'm a hospital CIO and I'm like, hey, Jeff, Ed, I'm struggling with X, how fast does this whole process take?

The great partnership that we have with Vizient today is just amazing. They already have access to the financial data of the hospital systems. No PII data, no HIPAA-based information, but it's just transaction data. If you are a Vizient user from a GPO perspective and you're already processing data with them, literally you're talking the space of 5 working days maximum to actually get initial insights into your spend. And like I said, insights. So we should be able to tell you how much broadly you've spent, How many categories of your spend is in how many items that we can actually get down to an item level and then start to really peel back the onion of this is where you need to focus and quickly, and this is the reason why, right? And so if we can tie the purchase order, invoice, and AP data together so that you've got that complete closed-loop solution in the space of 5 working days. And you can actually sit down and say, Jeff, that's not correct. That data isn't exactly what we see. All I can do is say, this is the data that we have got. And then let's see where those data gaps are. And let's answer those questions if you don't think that dataset is the correct dataset.

Yeah, it's powerful because I've seen it. We've actually had a couple of clients that we've worked with, and it was a very fast turnaround. We stopped showing slides. We just showed their data. It was remarkable. There's not a cost to do this. It's like, if you can give us the information, if you're already with Vizient, that really helps out. You can give us this information. We can turn back, instead of looking at slides talking about theory or really high-level analysis, we're actually looking at your specific data. in a database. It's quite—

Absolutely. As you know, Ed, I don't know how many conversations that you've been in when someone comes up to you and says, I know your data, and they've based it on AP. They come up with some pretty broad categorizations. They might say, hey, here's all my AP spend broken into real estate, finance, IT. And then let's take IT. They might break IT down into hardware, software, telecommunications, printing, whatever. And then you actually say, okay, well, what else did I spend it on? I said I spent it on potentially notebooks or, you know, laser printers, and it stops there. Even if in some instances it doesn't even get to that point. What are you going to do with that? What are you going to do with that data? It's not actionable data.

Right.

The actionable data is going to say, hey, actually, inside all of your data from an invoice perspective, we located all of this manufacturer spend in Dell in your capital spend budget. Are you getting that rebate? Completely for all your Dell spend. Now, this is the invoices that you've actually received from direct within Dell as an example. And then the other question is, did you realize that you were spending 20% of your spend with Dell with your evaluated resellers like, you know, the big organizations that are out there? Right. So all of a sudden your Dell spend is, let's say, 50% more than what you actually expected. So the question that we would ask, are you getting the rebate that you might have discussed directly with your GPO or with the OEM? And, you know, there are countless examples of where all of that is actually hidden. And let alone the fact that, you know, you get an OEM report from the manufacturer and they say, this is what we'll pay your rebate on, and you have no way of reconciling it back. So, you know, you have no way. You, there's literally no way. So, you know, these are quick insights that we can deliver. Yeah.

And, and Jeff, you mentioned something else too that was really helpful when we first started doing this. And that is while it started from a tech point of view, the categories that you get these insights now goes across the supply chain. So it's not just IT anymore. It's not like you're calling in fire on yourself. That's a military term from my past where on my own position, I would call in fire. But you can call and fire on the entire supply chain because there's so much opportunity across the board. So it's not just technology.

100%. But, you know, as always, you know, you start from your position of strength. Mine was IT. And to your point, Ed, you know, we've gone from, let's say, IT services, which we started off with, but then we saw a quick demand for, let's say, desktop laptops and printers. Then we saw a quick demand for value-added resellers. So everything from You know, mice to batteries to, you know, liquid screens, and then orange juice, then services around laundry, now across food and EVS services. So, breaking down, you know, the spend to a chicken bone with feathers on with a fat content of this is no different to breaking down a laptop that might have 16 gigs of memory and a screen size of 12 inches, right?

Yeah.

You know, it is truly using AI to the maximum.

And it's not just— the other thing that I found really beneficial working with clients is that it's not just retrospective, but it's prospective, right? So if I get— I'll pick on Divergent. If I get a contract from Divergent for consulting resources and I can put it into the system, right, and see what the average cost— more detailed than that. But let's just on this example, average cost of Divergent across the whole database. And so, you know if you're getting good price or not.

And there are many metrics that we use that will allow the client to really adjust their thinking. A simple metric can be AP to revenue ratio. Are you in line with the industry? We've found variances of anywhere between 10% to 26% to 28% for on that ratio. Invoice to AP ratio. How many invoices have I actually got that compares in rates to my AP? The number of, let's say, the detail associated with the classification of your data. We've got data classification ranging from 12% to 75% for the same supplier. So the same supplier is giving you an invoice, but our AI can only read 12%. But with the same supplier, with a different member, we can get up to 75%. You know, lots of questions can be asked around that, that maybe internally you only log X amount into your system, or alternatively, you're only getting a small percentage of the data from the vendor and he's deliberately doing that, right? The more that you're in the dark, the less that they actually have to pay. That's what we want to try and expose from a transparency perspective.

I know that you have many clients already, so this is not just theory. You've already worked with dozens of hospitals and health systems out in the marketplace, many of whom you'd find in the U.S. News World Report for top hospitals and health systems. What sort of expectation do you think, for the average client, In terms of savings? Like, so if their, if their budget, their supply budget is $10 million, you know, what percent might they save?

So, you know, savings comes in many varieties, but if I just take a broad number between 12% and 18% that you can actually see, it can come in multiple ways. One, it could come from reduction of price variation. Like I mentioned, it is not uncommon for us to have one single product inside a hospital system And the price variation for that same product could be between 5% and 75%. We might find price variation across, let's say, 20% to 30% of all transactions. So that's quite a stunning piece just by itself. Rebate recovery, right, is another. Credit recovery. How many credits are actually outstanding against purchase orders? Now, to your point, Ed, we are working with Vizient and they are utilizing the tool so that they can provide insights to their members. And we are providing, let's say, significant analysis across many of the major household names out there today, as well as also other clients from a health payer perspective as well. We've done that analysis as well. So it is very real and it is something that they are working to deliver the executable savings, because at the end of the day, right, it is the identification of what spend can be moved to contract. What is the identification of the spend that can actually be transpired into possible savings? And so savings can occur with contract negotiation with the supplier. It can be, you know, savings associated with price variation. It can be savings associated with transaction optimization.

Yeah. If I were to sum it up, Jeff, you're really looking at, one, speed to market delivery. If you're tasked out there, hey, we need you to reduce your budget, you're talking about 5 business days to do the analysis and then you can spend whatever time you need to internally, 2 days. For me, this would be a no-brainer, like a 1-day turn, but this goes pretty fast. We're not talking about a 6-month engagement. 2, the savings are real. You already have done it on many household names, as you mentioned. You're looking at 12% to 18%. I know there's some examples that are even more extreme than that, but when you look at sort of this average, 12% to 18%. And what I love best about this, and we helped one of these hospitals do this, in that they were tasked with digital transformation, right? So they came up with a budget, everyone threw in everything that they wanted, and I'm going to make up the dollar number, but just for sake of example, they wanted $10 million worth of digital transformation. Of course, there's no budget to do anything, but using this spend analysis capability, we're able to identify, let's say, $20 million worth of savings. When they went back to the C-suite and the board and said, I heard you. We need to do digital transformation, better experience for our clinicians, better experience for our patients. We need to move things to the cloud. We need to do all these different things. It's going to cost $10 million, but I know we don't have any money to cover these sort of things. However, we found $20 million we can pull out. of our supply chain without— and that's the beautiful thing— is without making a sacrifice. You're just being smarter with leveraging the data you have, being smarter with your supply chain. We're not only going to fund the digital transformation, but we're giving money back for the general operating to do other things. It's just a very simple business case, very powerful. It's sort of hard to believe, though, Jeff. I think that's one of the things when I talk to to my peers and colleagues about it, they're like, there's a little bit of skepticism because it does sound too hard to believe. Is there still that kind of low-hanging fruit? But I think because of the AI and the capabilities that the system brings, there was low-hanging fruit that was never discovered previously because we didn't have the tools to find it.

I'll give you an example, Ed, because I think you mentioned right at the very beginning, the worst situation that any C-suite should be in is to reduce their headcount. because of, let's say, of the market conditions, and they're forced to actually get into that. And as we all know, you know, we've been P&L leaders before, you know, being in that situation is not a nice situation. And, you know, you want to make sure that you've done some scenario planning to, you know, ensure that this is the very last resort, you know, besides a, you know, full transformation because you, you know, are restructuring your resources in a different way, which is a completely different topic for discussion. But at the moment, you know, we've got one category, and within that category, it's got 14 million transactions. And from a record perspective, it's got over 50 million actual line item transactions. How can you tell someone that you know how much you're paying unless you're utilizing AI at a line item level to determine price variation, etc. I would beg to differ that there are so many invoices with one organization that might be a major supplier that you're relying upon EDI for payments and transfer, but who's doing the analysis of what you have actually received and actually been paying for at an item level? So that in itself is, you know, room for someone to actually come up and say, hey, let's use technology to the smartest way possible so that we can at least come up with, you know, answers around price and, sorry, cost reduction. And, you know, and if I also think about it as well, you know, Ed, when I look at cost reduction exercises and programs today, you know, many people come up and say, well, I don't have time and I don't have money to actually do it. I don't have the resources to find the invoices. I don't have the money and resources find the data, but you're going to reduce your workforce by 10%, right?

Right.

Before you even explored this, right? And so, to your point around, can I actually take $20 million out of my costs and by doing this analysis, putting in a hard executable sourcing strategy, taking $10 million of that and putting it back into, for example, business transformation partner like Divergent so that you can transform your business? Makes a very, very simple business case, right? And, you know, we are, from our viewpoint, are not asking for any data that is not available today. And, you know, the ability to access the data from your ERP with, you know, scripts that have actually been written to extract information out, or like I mentioned, going through your GPO that you might already be providing that data already. You know, use the resources that are there today, right? Use the data that's available today. We're not here to fabricate data or to advocate that you need to allocate, you know, tens of resources to actually make this happen.

This is great. And Jeff, I really hope that our colleagues got a good understanding of this capability in the last 25 minutes or so. because it'll definitely help them. If they have any interest, you can contact me directly at marx@divergent.com. I'll make sure that I'm personally involved with any CIOs that utilize this resource to make sure that they get this amazing opportunity. Jeff, thanks for sharing again. Like I said, you were on episode 36, and now you're going to be on episode 100-something. I just see it as this great tool for for all of our colleagues that are doing the best that they can trying to juggle digital transformation and creating these great experiences and, at the same time, reduce their costs. Thank you for being on our Digital Voices.

Absolutely.

All right.

Hi, Ed. Thank you very much.

Thanks, Jeff. That wraps up Digital Voices. I hope this is helpful to you. Again, reach out to me directly if I can be of any help in this area.

Thank you for listening to Digital Voices podcast with Ed Marx. If you enjoyed this Subscribe on your preferred streaming service and leave a rating and review. And most importantly, thanks again for listening.