Data Synchronization in Healthcare: A Solvable Problem

AN EXECUTIVE PRIMER

by William L. Rosenfeld & John L. Stelzer

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 TABLE OF CONTENTS

Executive Summary ............................................................................................. 3

Data Synchronization in Healthcare..................................................................... 6

Introduction............................................................................................................................................6
It’s Unacceptably Bad............................................................................................................................9
Specifically, How Bad Is It? .................................................................................................................10
The Infection in Healthcare..................................................................................................................13
Is Anyone Doing It, Yet?......................................................................................................................18
WIIFM..................................................................................................................................................20
WIIFM for Healthcare ..........................................................................................................................23
So, What Needs To Be Done? ............................................................................................................30
Summary.............................................................................................................................................32

Appendix 1 – Glossary of Terms......................................................................... 34

Appendix 2 - Results of DoD Pilot—Problems Found......................................... 35
Appendix 3 - Data Sync Implementation Overview............................................. 36
Internal Synchronization ......................................................................................................................36
External Synchronization.....................................................................................................................39
Ongoing Synchronization ....................................................................................................................40
Appendix 4 - Savings Calculation Overview ....................................................... 41
Sell-Side Company..............................................................................................................................41
Buy-Side Company .............................................................................................................................41
Estimating Per Partner Value ..............................................................................................................42
Purchase Orders And Invoices:...........................................................................................................43

About The Authors .............................................................................................. 44

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EXECUTIVE SUMMAR-
Leaders in the healthcare supply chain are rapidly coming to the same conclusion as those in a growing number of
other industries. That is, inconsistent inaccurate business information within and between companies directly
undermines critical business objectives (e.g., revenue, profit, time to market, customer satisfaction, etc.). Supply
chain masters the likes of Wal-Mart, Walgreen, CVS, Rite Aid, Eckerd Drug, Kroger, Albertsons, Johnson and
Johnson, Pfizer, Kimberly Clark, Wyeth Health, Procter and Gamble, and thousands of others are achieving new
levels of business efficiency and effectiveness.

The secret to their success is rooted in something called global data synchronization. By establishing a foundation
of accurate, consistent business information within their organizations and between themselves and others with
which they conduct business, these companies are posting heretofore unheard of performance improvements.
What is, perhaps, even more important, though, is the fact that this foundation of reliable business information is
driving enormous upside potential for process streamlining and automation to further improve business
performance.

What was only a promising vision as recently as 1999 has since become a proven reality with documented results,
standardized methodologies, and literally thousands of companies actively practicing data synchronization
worldwide. In fact, the number of participating companies went from a mere 25 in January of 2002 to 2,607 in
January of 2004. By the beginning of 2005, that number had risen to include more than 4,000 U.S. suppliers and
retailers.

In Canada, manufacturers and retailers in retail pharmacy, food/consumer packaged goods (CPG), and food
service have been synchronizing their product information and images for several years. By the end of 2004, more
than 30 retailers/distributors were engaged and more than 2,000 suppliers had been certified. More than 297,000
trade items had been published. And, more than 66,000 unique item images had been loaded. Now, data
synchronization in Canada is expanding to include hardlines, home improvement, and housewares.

But, this is not just a North American phenomenon. As of this writing, 23 other countries—beyond the U.S. and
Canada—have formal data synchronization initiatives in place. The industries/communities involved span a wide
variety including—but certainly not limited to—retail mass merchandising, food/CPG, chain drug, direct store
delivery, apparel, hardlines/home improvement, housewares, office products, electrical, and automotive
aftermarket. In the face of this global adoption of data synchronization as a foundational element of effective
business, many other industries—including healthcare—are launching pilots to perfect the process in preparation
for rolling out the initiative to their entire community.

At long last, with this many industry sectors getting on board and successfully synchronizing their business
information, it’s no longer a question of whether it can be done, whether it will work, or whether it’s worth the
investment to do it. Instead, the open question is how long it will take for those industries that still haven’t
addressed their information integrity problems to begin to do so.

The great news for the healthcare industry is that visionary representatives from all facets of the industry’s supply
chain1 have been working to fashion healthcare-specific standards to accommodate this industry’s unique needs
and challenges. The stage is finally set for medical, surgical, pharmaceutical, and all other healthcare supply chain

1 Manufacturers, distributors, GPOs, providers, etc. have worked together to fashion specific approaches for the healthcare
industry to practice global data synchronization.

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operatives to benefit from the litany of advantages that come from conducting business on a foundation of “clean”
information.

With numerous other industries—that are well past the point of wondering whether data sync might be beneficial—
busy posting impressive results from global data synchronization, it’s high time for the healthcare industry to step up
to the plate and begin to leverage this powerful tool to drive down costs, increase efficiency, and raise the quality of
healthcare. With the leaders in the healthcare industry having made such significant progress in defining
standardized approaches for synchronizing business information in the healthcare supply chain, there’s never been
a better time to get involved to ensure that your company doesn’t fall woefully behind the rest of the industry in this
pivotal initiative. And, with the technology of the Internet now making it possible for even the smallest organization
to participate with little more than Internet access, the stars have finally aligned for the healthcare industry to
achieve information integrity throughout its supply chain. “There is now an opportunity to show how using new
technology to ensure accurate product data will result in lower costs to the consumer.”2

The industry has now reached the point where it’s critical for industry executives to enable their organizations to
benefit from this significant progress by focusing the most appropriate personnel on achieving the following goals:

! Contribute to industry standards to ensure their organization’s best interests are accommodated in
those standards.3
! Get in sync internally throughout the organization (Internal Synchronization).4
! Get in sync externally with partners (External Synchronization).5
! Stay in sync internally and with partners (Ongoing Synchronization).6

The need is clear. Bad data not only adds cost to all members of the healthcare supply chain and makes it
impossible to reliably track clinical outcomes (thus undermining patient welfare), it unnecessarily taxes valuable
limited medical resources who could otherwise be administering to their patients (again, undermining patient
welfare). So, as citizens, each of us pays the price for bad data in the healthcare supply chain through increased
healthcare costs, increased taxes, undermined patient safety, and distractions from patient care.

Fortunately, the standards for synchronizing critical business information are established and in use worldwide.
The technology has evolved to allow every company to benefit. And, the documented savings shown by those who
have already begun synchronizing their information are undeniable. “The numbers behind this are so compelling
that it is frightening to think we would be reticent to move forward. If we do not…we are doing an injustice to our
customers, our shareholders, ourselves, and our associates.”7 Now is the time to address the business and ethical
imperative of reducing healthcare costs by establishing accurate, consistent business information across the entire
healthcare community.

2 Source: Paul Higday, VP Program Development, Owens & Minor

3 While healthcare guidelines have been created for the industry, each company should invest a resource to ensure that the
current guidelines adequately accommodate its particular needs.
4 Establish consistent, accurate information throughout your organization.
5 Ensure that the business information values you deem to be “true” are consistent with those of your supply chain partners (be
they suppliers, customers, GPO’s, etc.).
6 Establish proper internal and external processes to ensure that any new or changed information is properly updated
throughout your own organization and your partners’ organizations quickly, accurately, and consistently.
7 Source: Bill Grize, president and CEO, Ahold U.S.A., Inc.; Grocery Manufacturers of America (GMA) Executive Conference
presentation, June 10, 2002

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In fact, the case is so clear that external pressure for the industry to address this problem has already begun and
will continue to mount. Citizens, payors, etc. continue to wonder what the industry will do about rising healthcare
costs and when they will become proactive about it. Dennis Byer, Senior Director of IT for Consorta, observes that,
“Either the healthcare industry does this on its own or it will be mandated by the government because the issues of
patient safety are too severe not to act.”

The Federal government has, in fact, shown an appetite for addressing the lack of data synchronization in
healthcare. In 2004, Congress authorized funds to begin work on solving the problem (i.e., work with the industry to
fashion an industry-wide standard; identify and implement a solution for data sync; and build an internal solution for
addressing data synchronization across targeted government organizations). The funded amounts and targeted
organizations are as follows:

2004 2005 2006 2007

OSD Health Affairs $3.5M $2.5M Anticipated $2.5/year8
DoD/VA Joint Incentive Funding - - $2.25M $2.25M

In addition to this, in June 2005, the DoD, VA, and FDA met to discuss the critical importance of standardized and
synchronized data throughout the healthcare supply chain and acknowledged that industry-wide data
synchronization was a necessary precursor to other industry initiatives such as implementing RFID (radio frequency
identification) for devices to improve patient safety.

This realization begins to highlight a more provincial area of business concern related to data synchronization.
Consider the fact that everything a company tries to do with information is directly dependent on the accuracy and
consistency of that information within that company and across all companies with which that company does
business.9 As such, any information-based healthcare industry initiative—be it RFID, the electronic health record,
etc.—is dependent on accurate consistent product information throughout the entire healthcare community. Fail to
establish a foundation of information integrity throughout the healthcare community and any information-based
industry initiatives will fail, as well.

As if all of this weren’t enough, there’s a competitive aspect to data synchronization, as well. Trying to compete
without synchronized data as your business foundation is like trying to run a marathon with only one shoe. You
might be able to look good in the early going, but lack of preparation will become painfully evident well before the
end of the race. In healthcare, the race for industry-wide synchronized information has begun. The only remaining
question is where you’ll choose to be: in the race, in the locker room suiting up, or in the stands watching it pass
you by.

Data synchronization is a problem that is, indeed, solvable. The status quo is clearly unacceptable. And, the
benefits to be had from synchronized data completely dwarf the effort required to achieve them. As Victor Hugo put
it, “There’s nothing so powerful as an idea whose time has come.” All that is needed for this industry to effectively
address data synchronization once and for all is at hand. It’s time for the healthcare community to step forward and
heal itself. After all, neither the problem nor the pressure to solve it will go away.

8 Final annual amount pending final resolution

9 Source: “The Corporate Book Of ‘Duh’”

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DATA S-NCHRONI2ATION IN HEALTHCARE
Introduction
For years, citizens, employers, and government representatives have openly complained about the rising and
unacceptably high costs of healthcare in the United States. The figures to substantiate concern over the matter
have been so often cited that—through over use—they’ve practically lost their ability to shock. For instance, a
recent study revealed that: 10

! Health insurance premiums in the U.S. are skyrocketing and there is no relief in site for businesses or
employees. Average annual premiums for family coverage were $10,880 in 2005.
! With corporate healthcare continuing to rise, the percentage of small businesses offering health
benefits to employees dropped to 59% in 2005 (down nine percentage points since 2002). The same
statistic for large corporations dropped by one percentage point in 2005 to 98%.
! Census Bureau data show that the number of uninsured Americans stood at 45.8 million in 2004, an
increase of 800,000 people over the number uninsured in 2003 (45.0 million)11.

Meanwhile, another recent survey12 showed that:

! 50% of large US companies surveyed said that increased healthcare costs have contributed to slower
profit growth over the past 12 months.
! More than 75% said they may ask their employees to pay a greater share of health insurance costs.
! 25% said double-digit healthcare cost increases may force them to lower wage increases for
employees.
! 20% expect to slow hiring of new permanent employees in the year ahead.
! Healthcare costs per employee had risen by an average of 12% over the past year, and the companies
surveyed project another increase of 11.1% over the next 12 months without any changes to plans.

But, the negative impact is not just on private businesses. A recent report13 which cited a “crisis in municipal health
costs” indicated:

! Cities and towns have seen a 63% increase in health insurance costs since fiscal year 2001. This is:
o Nearly double the rate of increase in state healthcare costs
o More than four times the growth rate of local budgets

Industry analysts quickly and frequently point to the high costs and lack of efficiency in the healthcare industry.
“The {healthcare} system has $11 billion worth of waste in the supply chain each year.”14 Analysts point out that the

10 Source: Chuck Marvin; “Small Businesses Struggle With Rising Healthcare Costs; September 15, 2005; summarizing a study
that was recently released conjointly by the Kaiser Family Foundation and the Health Research and Educational Trust
11 See http://www.cbpp.org/8-30-05health.htm for more information.
12 Source: “Rising Healthcare Costs Cut Into Profits For Half Of Large U.S. Businesses”; July 18, 2005; reporting on

PricewaterhouseCoopers’ Management Barometer Spring 2005.

13 Source: Lisa Wangsness, Globe Staff; “Rising Healthcare Costs Stagger Cities”; July 20, 2005; reporting on a July 2005 report

from the Massachusetts Taxpayers Foundation

14 Source: Darren Marhula, Analyst at U.S. Bancorp Piper Jaffray

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industry has “largely resisted” attempts to “streamline notoriously bloated and inefficient medical procurement,
billing, and record-keeping procedures”.15

But unlike other industries—such as retail mass merchandising, CPG/grocery, chain drug, hardlines/home
improvement, office supply, automotive, etc.—that have been able to aggressively leverage technology to trim
waste out of their supply chains, healthcare is suffering from a much more fundamental problem…wide-spread
inaccurate, non-standardized, inconsistent business information—both within individual companies and across the
entire healthcare supply chain.

Inconsistent inaccurate information creates confusion in the healthcare supply chain. And, as Dennis Byer, Senior
Director of IT for Consorta, reminds us, “Confusion in healthcare adds cost.” So, whether or not the industry wants
to use technology to streamline and automate its slow, manual, error-prone processes, it is effectively barred from
doing so as long as the information in the supply chain is bad. As Dennis Black, Director eCommerce for BD
(Becton, Dickinson and Company), puts it, “Bad data is preventing healthcare from taking advantage of
technologies that increase supply chain efficiencies. There is a growing awareness that this needs to be fixed in
order for healthcare to function as efficiently as other industries.”

As Mike Mahoney, CEO of Global Healthcare Exchange (GHX), points out, “Better data synchronization leading to
lower supply chain costs for providers can have a significant impact on the national economy. Consider this: On
average, supply chain costs represent between 25-30% of a hospital’s total costs, and hospital spending accounts
for approximately 1/3 of total healthcare spending in the U.S. With national healthcare expenditures currently
accounting for more than 15% of the gross domestic product—and with that percentage expected to exceed 17%
by 2010—controlling supply chain costs through data synchronization can have financial benefits for more than just
the healthcare industry.”

The bad news is that healthcare cost figures keep rising each year as the problem continues to worsen. Worse yet,
the industry has not yet chosen to collectively do something about it. The promising news is that there is a clear
and straightforward path for addressing the problem. Data synchronization initiatives in other industries (e.g.,
CPG/grocery, retail mass merchandising, chain drug, hardlines/home improvement, office supply, etc.) have
demonstrated real and significant decreases in supply chain management costs.

The data sync mechanisms and techniques utilized by these other industry sectors are easily transferable to
healthcare. The path to consistent, accurate, timely data has been clearly marked. Unfortunately, in spite of
extensive efforts to pull the industry together to begin making progress on this initiative, the majority of healthcare
community members have not stepped up to the plate to begin working on an entirely addressable problem.

Fortunately, there’s a decided shift toward taking action. Influential representatives from each of the four major
sectors within healthcare (providers, GPOs, distributors, and manufacturers) have been actively working with
associations, service providers, standards organizations, and each other to define a solution to the one problem
that lies at the heart of any attempts to improve efficiency, costs, and effectiveness in the US healthcare supply
chain, namely the lack of data accuracy and consistency throughout the industry and its members.

The Technical Advisory Group (TAG)—made up of a cross-section of the healthcare community—has established
the technical specifications for how data synchronization can be implemented in healthcare. A thorough feasibility

15 Source: Hal Plotkin citing analyst comments; Silicon Valley Insider

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study was created to validate the fact that this is, indeed, a solvable problem in this industry. And, a pilot was
conducted to further prove the point.

But, in spite of all the promise and the compelling evidence, it will still require the participants in the healthcare
supply chain to pull together and actually do something about this serious point of erosion that eats away at the top
and bottom lines of all those who allow it to continue unchecked. In the long run, the problem will be solved
eventually, one way or the other. Either the leaders within the industry will proactively move to solve the problem in
a mutually beneficial manner or the significant progress made by other industries will make the lack of progress in
healthcare seem unconscionable…and the industry will have to act.

This paper focuses on a significant, widely acknowledged driver of cost and inefficiency in the healthcare supply
chain, namely, the widespread lack of information integrity and synchronization within and between organizations.
It highlights why the problem must be addressed. And, it shows how it can be proactively fixed once and for all.
Solving the data synchronization problem is no longer uncharted territory. Other industries have initiated programs
that have resulted in significant decreases in supply chain management costs. From these, a clear path with
demonstrable results already exists. What remains to be seen is when the healthcare industry will finally choose to
act on this problem.

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It’s Unacceptably Bad
For those just beginning to realize the significance of the sad state of affairs of information in healthcare, it’s time to
admit that the poor condition of such simple and yet, foundational information elements as vendor identification,
product ID, unit of measure/packaging, and price can no longer be condoned.

A given hospital often has several IDs and prices in their purchasing systems for the same product. The contract
information established between a manufacturer and a GPO is frequently not conveyed to the distributor and/or
hospital in anything even vaguely approximating a timely fashion. This leaves the distributor and provider in the
dark about contract specifics and, in turn, creates mistakes that must be investigated, reconciled, and resolved after
the fact…thus inefficiently using precious limited human resources. As Frank Fernandez, Asst. Vice
President/Corporate Director of Materials Management at Baptist Health South Florida, puts it, “There’s no reason
why it should take more than a day to load pricing.16 Today, the shortest time could be 30 days. It often takes as
much as 60 days to get pricing and contract information. GPOs are trying to shorten this time, but it will require the
cooperation of all participants in the supply chain to do so.”

These delays result in a parade of preventable mistakes that require time The fog of information
and money to investigate, identify, and resolve. And, all of that results in inaccuracy and
higher healthcare costs to you and me, our employers, our government, inefficiency in which the
and you and me again as taxpayers. Mr. Fernandez points out that, “The healthcare industry has
conducted business for
impact of upstream mistakes and inefficiencies is ultimately felt at the
decades can no longer
level of the healthcare care giver. This is forcing inefficiency and higher be ignored or tolerated.
costs on the shoulders of the hospital and, ultimately, the payers and the
patients.”

Worse yet, in an age where technology is being used extensively in other industries to reduce errors, cut cycle time,
remove costs from the process, etc. the exchange and maintenance of this and similar critical item data is slow,
highly error-prone, and disappointingly disorganized in healthcare. In fact, the fog of information inaccuracy and
inefficiency in which the healthcare industry has conducted business for decades can no longer be ignored or
tolerated.

At a time when industries such as retail, automotive, high-tech, and others have long been demonstrating how
supply chain participants can drive efficiency and growth based on a foundation of consistent accurate business
information, the majority of the healthcare supply chain remains inexplicably stuck in the data synchronization
equivalent of creeper gear. The result is that attempts to streamline supply chain costs by implementing new
technologies are sabotaged by inaccurate item data. In turn, these efforts merely accelerate the generation of
errors. It’s what Craig Wigginton, Vice President, Chief Technical Strategist at Neoforma, calls “garbage at the
speed of light”.

At a time when organizations like Dell report that they: (a) are integrated with over 85% of their suppliers, (b) issue
a bill of lading every twenty seconds (and receive materials within two hours), and (c) have decreased inventory
shelf life from thirteen to seven hours, healthcare plods along awash in a sea of inaccurate information with
avoidable costs that are passed down to you and me, our employers, and our government.

16 In fact, Wal-Mart reported a reduction in item maintenance time from 15-30 days down to 1 day courtesy of data
synchronization.

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Now, it should be noted that painting anything with a broad brush runs the admitted risk of not giving credit to those
sectors that have made progress in the midst of near consistent failure elsewhere in the community. The
pharmaceutical sector, for instance, has managed to make admirable strides toward standardizing participant
identification17 and product identification.18 But, even as commendable as these steps are, that sector—like the rest
of healthcare—still has yet to address a myriad of other issues related to information synchronization.

For instance, even with a standardized item numbering system and with electronic data interchange (EDI)
standards defined for the timely accurate consistent exchange of GPO contract data amongst all participating
parties in the pharmaceutical community—like medical/surgical—the industry still has yet to choose to synchronize
contract data in a timely way to wrestle chargeback/rebate issues to the ground.19

But, the problem isn’t just with activities surrounding changes to existing items or dealing with obsolete items. New
item information is still exchanged in inefficient, highly error-prone, manual, proprietary methods that (1) take weeks
to update the systems of those parties involved and (2) unnecessarily delay the introduction of those new products
into the supply chain. [Meanwhile, organizations—like Wal-Mart—report having pared item maintenance times
down from fifteen days to just one day courtesy of their data synchronization initiatives with their suppliers.20]

So, even in a sub-vertical of healthcare, like pharmaceutical, that has made admirable strides in areas that the rest
of healthcare still needs to address, there are still numerous examples of preventable problems needing to be
corrected…problems whose costs are ultimately passed down to you and me, our employers, and our government.

Specifically, How Bad Is It?

As intuitively obvious as the negative impact of the lack of information integrity is in healthcare, humans have a
proclivity to want to quantify things.21 Unfortunately, compared to other industries that have invested extensive
amounts of time and money to perform detailed analyses of the problem and estimate the dollar value of solving the
problem, healthcare has amassed comparatively few statistics. Fortunately, there are more than enough similarities
between the healthcare supply chain and others (such as retail) that have been thoroughly studied to be confident
of the results that healthcare can expect from data synchronization.

When asked whether the problems surrounding data integrity in healthcare are more or less severe than those
extensively documented in the retail supply chain, Joe Pleasant, CIO at Premier, said, “The information problems in
healthcare are more severe than in retail because of the added complexity of the products and the supply chain.
And, the multiple purchasing agents at the provider level (e.g., dietary, laboratory, surgical, etc.) make it even more
complex.”

In fact, nearly everyone interviewed from the industry agreed that it is reasonable to expect that—because of these
similarities and the added complexities of healthcare—the benefits to be realized by the healthcare sector would be

17 Through their use of DEA numbering

18 Using NDCs, product bar coding, and now, pilots with RFID (radio frequency identification)
19 Note: Standards have been in place since 1985 to facilitate the electronic exchange of GPO contract information.
20 Source: Cincinnati Business Courier – “Data Sync Might Be In Your Future”; Michelle Seibert
21 In fact, several of those interviewed from the industry emphasized that the issue of bad data and the need to address it is a no

brainer. Comments often cited the amount of waste in the industry being so significant and obvious that further study of the
problem would, in fact, be a waste of resources that could otherwise be applied to solving it.

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comparable to—if not greater than—those accrued in other industries that have already moved forward with data
synchronization initiatives. Frank Fernandez, Asst. Vice President/Corporate Director of Materials Management at
Baptist Health South Florida, emphasized that the benefits healthcare could expect to realize from data
synchronization would be “at least as good, if not better {than those being reported by retail}. Once the problem is
resolved (i.e., standardize how data synchronization will be done in healthcare) we will have many more efficiencies
and lower supply chain costs in this industry.”

This information combined with what we do know about the data synchronization state of the union for healthcare
gives us a clear picture of just how sick the patient really is. In fact, in a series of interviews with providers, GPOs,
distributors, manufacturers, and industry associations conducted in preparation for this primer, every respondent
indicated that they felt the information quality and synchronization problems in most of the healthcare supply chain
were at least as bad as—and likely much worse than—in the retail sector. Fortunately, we have numerous
examples of just how bad the state of data was in the retail sector before they began addressing it with data
synchronization.

As a benchmark, then, we look at the U.S. consumer products community which has invested heavily to determine
the negative impact of bad data and the benefits that could be anticipated by companies addressing that bad data.
Results from one of those studies show that according to an A.T. Kearney investigation in the retail consumer
products supply chain:

! $40 billion or 3.5% of sales are lost each year due to supply chain information inefficiencies.
! 30% of item data in catalogs used by retailers and manufacturers for replenishment of stock is in error.
And, each of those errors costs $60-$80 to address.
! Companies invest an average of 25 minutes per SKU (stock keeping unit) per year manually cleansing
out-of-sync item information.
! 60% of all invoices generated have errors. And, each invoice error costs $40-$400 to reconcile.
! 43% of all invoices result in deductions.
! It takes an average of 4 weeks to roll out a new product—in large part due to the inefficient and error-
prone approaches for the exchange and updating of new item information in buyer and seller systems.
The source of the business problems described by these dismal statistics is the erroneous information contained in
the systems of the buy- and sell-side companies trying to conduct commerce through their distribution channels.
Bad item numbers, incorrect prices, inaccurate units of purchase/use, etc. are costing individual companies literally
millions of dollars a year, are unnecessarily driving up the cost of healthcare in the U.S., and will continue to do so
until they’re addressed.

So what is bad data costing companies in the retail supply chain? Based on findings in a recent study from
CGE&Y, the answer is plenty! The study revealed that the impact of out-of-sync information within and between
businesses in the retail supply chain is costing the industry an average of 1-3% of supply chain performance. Mike
Haas, Vice President of Information Management, Johnson & Johnson Consumer/Personal Care & Consumer
Pharmaceuticals Group noted in a Logistics 2001 article titled “Planning for the New Global Compliance Standards”,
that “item synchronization issues cost manufacturers ½% of sales annually.”

For decades, corporations have used technology to remove the manual element from information processing to
squeeze delays, errors, and resource inefficiencies out of the supply chain. But, amidst best efforts on this front,

11
organizations are realizing that they are still plagued by information exceptions that force manual intervention and
erode the ROI they might have otherwise realized—had it not been for the information discrepancies. For example:
! A major wholesaler estimates that 37% of its roughly 2.5 million invoices a year error out with either
bad prices or bad item numbers.22 [Meanwhile, one of their major competitors estimates a discrepancy
rate of only two-tenths of one percent. Consider the competitive mismatch!]
! A large retail chain indicates that it has item information strewn across more than a dozen internal
databases—none of which are in sync with one another…let alone with suppliers. To make matters
worse, 30% of their inbound shipments contain items whose numbers don’t match item numbers on
file. This (1) forces manual research and correction and (2) slows the receiving process—which
normally takes only 24 hours, but extends to eight days when such exceptions are found. Such
mistakes drive up Days Inventory, drive down Inventory Turns, and risk out-of-stocks. Of course, such
inventory deficiencies have much more dire consequences when the end consumer is a patient in need
of the product to address a health issue.23
! One consumer products manufacturer—which has long used electronic data interchange (EDI)24 to
receive orders electronically and process them through an integrated automated interface—admitted
that 20% of their EDI orders kicked out with either bad item numbers or prices. The supplier noted that
after having invested the time, effort, and dollars to implement EDI with their most important customers,
their out-of-sync item information has relegated them to manual exception handling for 1 in 5 of their
otherwise integrated orders. What’s worse is that not only did the processing costs for those erroneous
orders increase substantially25 as a result of downshifting to manual mode, the cycle time to process
the order was extended26, as well, causing excess inventory carrying costs—or, worse, stock outs27—
on their customer’s side.
! One $500 million retail chain averages 100,000 manual purchase orders each year. They are able to
match only 53% of those to the supplier invoices they receive.
! A 400-store retail chain found that 72% of the invoices from their suppliers kicked out with pricing
exceptions with a 1% allowance for discrepancies. Even when they raised the discrepancy buffer to
5%, 68% of their invoices still couldn’t make the cut.

22 A study by the National Wholesale Druggists Association (now, the Healthcare Distribution Management Association (HDMA))
estimates the average cost to research and correct a single reconciliation exception ranges from $15 to $50 per error (a cost
that is shared between the buyer and the seller). Taking just half of the lower number and applying it to 37% of the 2.5 million
invoices yields an annual cost of rework equal to nearly $7M. This, of course, assumes that the erroneous invoices had no
more than one error each.
23 Case in point: At a local emergency room, my 3 ½ year old grandson was just denied the customary shot of antibiotics—that is

normally administered to treat children on the verge of blood poisoning before starting them on oral antibiotics—because the
emergency facility was out of serum. He recovered, but more slowly than he would have had the emergency facility been
better at supply chain management.
24 See Appendix for a definition of EDI.
25 A McKinsey and Company study of 1,200 companies showed that on average a manually processed order was nearly seven

times more expensive to process than an integrated order.

26 A McKinsey and Company study of 1,200 companies showed that integrated automated processes averaged five days shorter

cycle time (2 versus 7 days)—from order to product receipt—than the same processing steps performed manually.
27 A 1/16/96 Accenture study on out-of-stock merchandise in the grocery sector showed that “Out-of-stocks cost retailers more

than 15% of potential sales of advertised items.” “The net impact of consumer responses to out-of-stocks is to reduce
consumer purchases 3.1% per shopping trip.” “Sales lost on out-of-stock merchandise account for 6.5% of category sales
volume.” “A retailer’s primary customers shop at competitors’ stores 25% of the time.”

12
In describing how a senior executive might react to such situations as these, Bob Evans, editor-in-chief at
InformationWeek, wrote in his June 2002 article, “Business Technology: The $40 Billion Question”, “Wouldn't that
trigger a vein-throbbing, spittle-spewing, fire-breathing tirade from the CEO, who'd seem to have good reason to
threaten to fire every person in the company—starting with himself—unless fixing the problem became the top
priority of the entire organization?”

But, how bad is the problem in your particular company? Well, it depends on a number of factors. One quick way
to assess the size of just the tip of the iceberg in your organization is to ask your heads of order processing and/or
accounts payable what percentage of your orders and/or invoices kick out with just bad pricing or item number
discrepancies.28

The answers you get from your inquiry (i.e., percent of erroneous documents) multiplied times the number of
physical orders or invoices you process a year will provide an immediate sense of the magnitude of the problem in
your company and between you and your customers and/or suppliers. Now, expand your scope to include the
litany of other information types used within your company and between you and your partners in commerce.
Finally, consider how you obtain product information from your suppliers or how you provide such information to
those who request it. Chances are that it’s manual, slow, inconsistent, and flawed. Now, ponder the volume of
pricing- or partner identification-based exceptions that you wrestle with in your chargeback/rebate reconciliation
efforts. Indications consistently confirm that bad data is rampant throughout those processes.

When you consider these aspects of your product information management, exchange, and use, you begin to have
a basic idea just how bad it really is. The reality is that in most organizations, it’s shockingly bad! In fact, the sheer
number of organizations—compared to other industries—dedicated to analyzing and cleaning up the data in the
healthcare industry is a testament to the current sad state of affairs across the industry.

The Infection in Healthcare

As compelling as the reports from the consumer products channel are, there will invariably be those who will claim
that the healthcare supply chain is sufficiently unique to render the consumer products statistics meaningless to the
healthcare community. While this is most certainly an inaccurate sweeping generality, there is some merit to the
added confidence that statistics from one’s own industry engender. With that in mind, consider the following pieces
of evidence about the state of information disarray in the healthcare industry.

A data synchronization pilot conducted by the Department of Defense29 was designed to get a sense of the state of
critical product information within and between healthcare supply chain sectors. The pilot included industry
participants from manufacturing, distribution, GPOs, and providers.

At a high level, the pilot identified the alarming state of inconsistent and missing information within and between
companies in the healthcare supply chain. In a community with frequent product changes, products becoming
obsolete, and new products being introduced on a continuing basis, the pilot revealed a spider web of information
disarray across all levels in the industry.

28 We’ve included a brief questionnaire in the Appendix to assist you with estimating the minimum savings your organization
could expect to realize as a result of implementing even the most elementary form of synchronization (i.e., item number,
partner IDs, and price).
29 Conducted between January 2003 and May 2004

13
“There is an accelerating flow of new products into the healthcare industry. There needs to be a way to get these
products quickly into the hands of the consumers by eliminating the delays of manual transfer of new product data
which results in delays and errors in product delivery throughout the industry.”30

In particular, three categories of “data disconnect” were identified between participants: part number disconnects,
packaging disconnects, and description disconnects. Findings showed the following:

Manufacturer And Part Number Disconnects: When comparing manufacturing data with that which was held by
the participating GPOs, distributors, and providers, striking inconsistencies were found.

! 7% of the part numbers in the pilot were found in the GPO’s data but not the manufacturer’s data.
! 5% of the part numbers in the pilot were found in the distributor’s data but not in the manufacturer’s
data.
! The pilot showed that providers have the greatest problems with manufacturer name matching. In fact,
manufacturer naming problems were found 30% of the time at the provider level.

The pilot indicated that there were four key causes for manufacturer names/part number mismatches:

(1) Obsolete products in the GPO’s, distributor’s, and providers systems

(2) Lack of a common manufacturer name or manufacturer name code across the industry. Everybody
creates their own name for the same manufacturer
(3) Inability to identify the manufacturer of a product in GPO, distributor, and provider’s systems when the
supplier of the product is different than a manufacturer. Normally, GPOs, distributors, and providers
only have a supplier name field in their systems
(4) Distributors and hospitals assign their own part numbers to
products Clearly, a mechanism
for healthcare supply
Not surprisingly, such lack of consistent identification for a supplier creates chain participants to
trouble when trying to map the common name of a supplier to the correct part establish, exchange,
number for a product. Clearly, a mechanism for healthcare supply chain and maintain a unique
participants to establish, exchange, and maintain a unique ID for each supply ID for each supply chain
participant (including
chain participant (including manufacturers) would address the naming
manufacturers) would
aspects of this problem.31 address the naming
aspects of this problem.
The inability to reliably reference participants in the healthcare supply chain
has other implications. Craig Wigginton, Vice President, Chief Technical
Strategist at Neoforma points out that, “There is a critical need to implement
an industry-wide trading partner identification standard in the supply chain. Without a consistent numbering
standard, such as the HIN or GLN, we will continue to see ordering errors within hospitals and added expenses for
suppliers in contract administration, invoice reconciliation, and rebate processing. Unfortunately, these costs are
not adding any value for suppliers and the millions spent performing contract administration is not visible to their
hospital customers.”

30 Source: Christine Vincent, Global Healthcare eBusiness Director, AGFA

31 Note: Other industries that have solved this problem have established a globally unique global location number (GLN) to refer
to a specific organization’s logical, legal, or physical parts.

14
Indeed, many agree that the industry regularly relies on the resourcefulness of the primary healthcare provider to
prevent supply chain issues like product stock-outs from becoming issues that could negatively impact the quality of
care given. Michael Stanley, Director SCIS Content & Business Process for Trinity Health, explains, “Incorrect
shipments are a problem because of bad item numbers. Hospitals have to carry additional inventory (especially
through hoarding…e.g., items placed in cubby holes) or having to pay extra for expedited acquisition and delivery of
needed products. These are just some of the many problems around inventory control that originate from
inaccurate item identification.” Sadly, these “resourceful” recovery measures create excess inventory or trigger
higher-cost exception buying practices to ensure supply availability and, thereby drive up the overall cost of
healthcare costs.

But, the problem with part number disconnects is not solely attributable to the lack of a consistent supplier
identification mechanism. The lack of standardized part numbers and the lack of synchronization of the part
numbers themselves is an enormous culprit, as well. The pilot showed that every one of the five distributors studied
had a different part number for a particular product. To make matters worse, many of the hospitals involved had a
different Product ID for this same product. This clearly points to a troubling waste in human capital throughout the
healthcare supply chain that is spent making up for—or cleaning up from—the lack of standardized item numbering
in this industry…again, an entirely fixable problem!

In one hospital that was studied, a particular product was listed in the hospital’s systems with eight different Product
IDs…each of which had a different price (only one of which was the correct contract price). An audit of the
hospital’s purchasing showed that they had paid as much as 30% above contract price simply because they used
the wrong Product ID to order the product.

As Joe Pleasant, the CIO at Premier, points out, “Hospitals are spending a lot of money having to repackage and
re-bar code their products because they can’t rely on the relationship of their own databases to the product’s id.” Of
course, all of this further exacerbates the rise in healthcare industry costs which ultimately results in higher
healthcare costs for all of us.

The CPG/grocery industry standardized on the UPC as its common means of uniquely referencing products and
tying them back to a specific manufacturer. The annual savings realized by that industry as a result of
standardizing their product ids is $30 billion—more than 50 times greater than the originally projected annual
savings promised in the 1975 business case.32

Packaging Disconnects:

! 20% of the items checked during the pilot suffered from missing middle level packaging.33 This is
clearly a problem since “Most hospitals buy at the box or pack level. They cannot use the GPO price in
their MMIS without knowing how many boxes or packs are in a case.”34 Surprisingly, manufacturers in
the pilot could not provide middle levels of packaging on 20% of their items.35

32 Source: PriceWaterhouseCoopers 1999 Study: “17 Billion Reasons To Say Thanks: The 25th Anniversary Of The U.P.C. And
Its Impact On The Grocery Industry”
33 For example, the GPO’s file showed a case of 150 eaches while the manufacturer’s file showed a case containing three packs

of fifty each.
34 Source: DoD Pilot Results presentation; John H. Clarke, February 3, 2005
35 Source: DoD Pilot Results presentation; John H. Clarke, February 3, 2005

15
 ! An additional 2% of the items had incorrect packaging information (e.g., incorrect number of eaches in
a box or case) in the GPO file compared to the manufacturer’s data. Of the packaging data provided to
the DoD by manufacturers, 18% is wrong or incomplete.36

Several of those interviewed indicated that far too many manufacturers have real problems providing complete
packaging data. In such cases, they chose to abdicate that responsibility to distributors to figure it out on their own.

Description Disconnects: It was common for most of the product descriptions used throughout the supply chain
for a particular product to differ from company to company. For most items, the pilot discovered different item
descriptions for the same product for each of the pilot participants. Very rarely did two participants have the same
description for a product. Normally, everybody in the supply chain creates their own item description for an item—
manufacturers publish multiple item descriptions on items and distributors and providers normally create their own.
Automated systems that are used to support the supply chain have varying description lengths (ranging from 20 to
500 characters) that require manual truncation of otherwise good item descriptions.

For the products inspected in the pilot, the following lists the percentage of items with incomplete item descriptions
at the various community levels:

! Manufacturers: 5-15%
! Distributors: 3-12%
! GPOs: 5-15%
! Providers: 10-20%

But, it gets worse. To further compound the problem, every supply chain sector in the pilot had missing product
brand names. For the products inspected in the pilot, the following lists the percentage of items missing product
brand names at various supply chain partner levels:
What should be most
! Manufacturers: 2-5%
troubling is the fact that
! Distributors: 5-10% for nearly every data
! GPOs: 5-10% quality metric studied in
! Providers: 20-25% the pilot, the problems
were worst closest to
Not surprisingly, the problem worsens the farther down the supply chain the patientP
you go. [After all, garbage dumped upstream invariably creates greater
pollution downstream.] But, what should be most troubling is the fact that
for nearly every data quality metric studied in the pilot, the problems were worst closest to the patient!37

Of course, such mismatches have the very real potential to mislead the purchaser into buying the wrong item, thus
risking stock-outs, creating inefficiency in the supply chain, and, therefore, driving up operational costs for those
involved.

When you glue these foundational elements of information (part number, supplier ID, packaging, and description)
together and consider the litany of problems that emanate from inaccuracies in one or more of these elements, you
36 Source: AHRMM presentation by Kathleen Garvin, DoD, “Department of Defense A Case for Data Synchronization and
Product Data Utility (PDU)”; July, 2005
37 NOTE: See Appendix for a table summarizing the findings from the pilot.

16
can begin to appreciate what the lack of data synchronization is doing to manufacturers, distributors, GPOs, and
providers in the healthcare supply chain.

The following real life examples demonstrate the pain caused by bad data and the benefits hospitals achieved after
synchronizing their data with suppliers:38

! One 700-bed hospital with two distributors experienced purchasing errors caused by lack of data
synchronization that contributed to higher freight costs that equal more than $400K annually.
! One hospital—that reportedly has multiple people updating its item master (containing 15,000
products) using a variety of sources for data, e.g. vendor catalogs, sales reps, etc.—reported a 90%
error rate due to inaccurate data in the purchase order/purchase order acknowledgement reconciliation
process.
! Hospitals that underwent a data synchronization process averaged the following results:
o 50% reduction in discrepancies between purchase orders and purchase order
acknowledgements
o 33 to 50% reduction in invoice discrepancies
o 25 to 50% less time spent by buyers and Accounts Payable staff on researching invoice
discrepancies

! Prior to cleansing their data, one out of every 5 orders from a key Integrated Delivery Network (IDN)
had an error. Now only 1 out of every 25 has an error. The IDN also cleansed and reduced the size of
its product item master from 75,000 to 45,000 items—in part by eliminating obsolete and duplicate
items. Today, they say they have virtually no price discrepancies or unit of measure errors with
vendors it transacts business with via the exchange.
! A mid-west provider cleansed and consolidated eight item masters into one. They now report cleaner
data with orders placed through the exchange accounting for less than four percent of their invoice
exceptions—this is compared to 75 percent that are attributed to fax orders and the balance to orders
by phone. The reduced work and fewer exceptions qualify the provider for early payment discounts
which total $50,000 a year with their prime vendor alone.

Consider the experience of the DoD as it went about trying to outfit the hospital ship, USS Comfort, as it prepared to
depart in support of Operation Iraqi Freedom. The Medical Directorate, Defense Supply Center Philadelphia
(DSCP), was tasked with outfitting the ship with all pharmaceutical, medical/surgical, and capital equipment items
required for war within 7 calendar (3 ½ business) days. This timeline presented a formidable challenge, even for
DSCP.

DSCP's Pharmaceutical Business Unit was able to quickly identify and match the Pharmaceutical items requested
with sources of supply for purchase by using the National Drug Code (NDC). The pharmaceutical industry must
use this federally mandated standard number which identifies every drug and the different packaging quantities with
a unique number. Unfortunately, this same "standard" does not apply to the Medical/Surgical product line. As a
result, the Medical/Surgical Business Unit struggled simply to determine what exactly was required for the ship—a
task that involved extensive manual research and continuous discussion and feedback from Navy customers.

Of the 995 Medical/Surgical items ordered, 224 had unidentifiable product identifiers and 205 had obsolete product
identifiers. Because of a lack of a universal product number, the DoD was unable to electronically cross-reference

38 Source: Global Healthcare Exchange (GHX) from experiences with their customers

17
for equivalents. It took 15 people two days to manually resolve the issues and order the needed items. A UPN
would have enabled electronic processing in seconds.

Is Anyone Doing It, Yet?

As depressing as all this bad news is, the good news is that for years, many of the world’s industries have been
working to define a process and set of standards by which they could cleanse and synchronize the business
information that they collectively used to conduct business. For the last several years, these industries have been
implementing and executing data synchronization in full production. This is significant for healthcare because as
Garren Hagemeier, Executive Director, Health Care EBusiness Collaborative, points out, “We can leverage the
experiences of other industries to avoid mistakes and get to a solution quicker than if we were the pioneers in
synchronizing product information.”

This initiative is known as global data synchronization (GDS). It includes standards for the information that trading
companies maintain about the items they buy or sell, an orchestrated process to ensure that all concerned receive
the information they need, and the partner information they use to conduct commerce with one another (e.g.,
correct contact information; purchasing, shipping, and receiving locations; bill-to/pay-to data; eligible contract
participants; etc.).

The benefits of this effort are well documented and substantial. [Note: See the next section for documented results
reported by companies that are already synchronizing their business information.] As a result, participation in data
synchronization is growing worldwide at a near exponential rate.

The number of companies launching data synchronization initiatives in the U.S. alone rose from 25 in January of
2002 to 2,607 in January of 2004. By the beginning of 2005, that number had risen to include more than 4,000 U.S.
suppliers and retailers. In Canada, manufacturers and retailers in retail pharmacy, food/CPG, and food service
have been synchronizing their product information and images for several years. By the end of 2004, more than 30
retailers/distributors were engaged and more than 2,000 suppliers had been certified. More than 297,000 trade
items had been published. And, more than 66,000 unique item images had been loaded. Most recently, data
synchronization in Canada is expanding to include hardlines, home improvement, and housewares.

As of this writing, 23 other countries—beyond the U.S. and Canada—have formal data synchronization initiatives in
place. Industries involved span a wide variety including—but certainly not limited to—retail mass merchandising,
food/CPG, direct store delivery, chain drug, apparel, hardlines/home improvement, housewares, office products,
electrical, and automotive aftermarket. Many other industries—including healthcare—are launching pilots to perfect
the process before rolling the initiative out to the entire community.

With the rapidly growing interest in RFID (radio frequency identification), there will be many more industries jumping
on the data synchronization bandwagon—since a foundation of clean, consistent data is essential to RFID success.
As Forrester put it, “Companies that view RFID projects as the panacea for their lack of visibility will be disappointed
with the outcome of their investments. Before any RFID deployment, companies must invest in data
synchronization.”39 Or, as was reported by Information Week in an article on Wal-Mart’s RFID initiative, “Critical to
the RFID effort is global data synchronization to enable communications with the industry.”40

39 Source: Forrester Research report, "RFID: Icing On A Half-Baked Cake," Noha Tahomy
40 Source: “Wal-Mart’s Way”, Information Week, September 27, 2004

18
A survey of the direct store delivery community conducted in early 2005 revealed that 89% of the respondents
placed data synchronization as the undisputed necessary first step before attempting RFID.41 And, in a survey
conducted by ATK/KSA, nearly 70% of manufacturers and 66% of retailers surveyed indicated that data
synchronization should precede RFID.
If you and your partner
Whether the healthcare industry pursues EPC, UID, UPN, RSS, etc. within an attempt to implement
RFID initiative, it must first establish accurate consistent data throughout the RQID without first
supply chain or the RFID projects will fail. After all, if you and your partner synchronizing your
attempt to implement RFID without first synchronizing your product information product information
internally and between your two organizations, you’ll be able to know exactly internally and between
your two organizations,
where the product is. You just won’t be sure whether you agree on what it is.
you’ll be able to know
As Joe Pleasant of Premier put it, “Discussing RFID before addressing data exactly where the
synchronization is putting the cart before the horse—particularly since the product is. -ou just
industry still doesn’t have standardized units of measure or a common means won’t be sure whether
of identifying products.” you agree on what it is.

Given the worldwide shift toward establishing a foundation of accurate,

consistent business information within and between interacting companies, it’s clear that neither the need/inclination
nor the ability to do something about this problem is an apparition. Organizations the world over have come to
recognize that any internal automation or external collaboration initiatives they might launch are directly dependent
on the quality of the information used as input. As the old 50’s adage reminds us, “garbage in equals garbage out”.

Fortunately, several key healthcare providers, GPOs, distributors, and manufacturers have begun to take action.
These industry leaders clearly understand the undeniable need to remove the shackles that industry-wide data
disarray imposes on their daily business performance. For example, the DoD has launched a data synchronization
pilot with a number of companies in its supply chain to address the current data dilemma in healthcare. As COL
Don Buchwald puts it, “To be an effective supply chain manager for the DoD, we need to be able to communicate
quickly and accurately with all our trading partners. Our Data Synchronization efforts are important not only for
DoD, but for the entire healthcare industry."42

Debra Thompson, Deputy Chief Materiel Branch, Brooke Army Medical Center, Fort Sam Houston, Texas,
participated in the DoD pilot. She was pleased with the results, and said, "Synchronizing our logistics system data
with the supply chain has allowed us to monitor contract compliance by ensuring that we were getting the best price
for the products we order and purchasing from e-commerce sources of supply whenever practical. In addition to
pinpointing business process variations between sites, data sync also identified where we were buying the same
product under multiple order numbers, item names, as well as multiple manufacturers or distributors. As we
continue to synchronize our data, it will prove helpful down the road as we prepare for industry-wide data
standardization. Our data is currently in very good shape, and is much easier to group by manufacturer for
standardization actions. This entire effort puts us in a great position to enjoy all the benefits of seamless supply
chain management as well as communication to achieve optimal savings."43

41 Source: GCI-DSD Process Group Survey, January, 2005

42 Source: DMLSS news“flash”; “The Case For Data Synchronization”; March 2004
43 Source: Kathleen Garvin, DoD; “The Time is Right To Reap the Benefits of Data Synchronization”

19
Bob Perry, 2006 President of the Association for Healthcare Resource & Materials Management of the American
Hospital Association (AHRMM), notes, “Ten years ago, the healthcare industry wasn’t ready for data
synchronization, but with so much technology, so much knowledge of the value of data synchronization and e-
commerce, so much use in other industries, the momentum and all factors point toward using this. The buyers of
healthcare products need to encourage their manufacturers to join the effort to synchronize all the product
information with an industry ‘gold standard.’”44

WIIFM
Of course, no business blindly climbs aboard a bandwagon solely because of the list of others who have chosen to
do so before them. It’s only natural that participants in any supply chain—healthcare included—would want to
assess the anticipated benefits for their particular company before supporting a particular initiative.

The challenge, of course, comes in the form of the proverbial chicken and the egg dilemma. In communities that
are just getting started with an initiative, there are precious few industry-specific examples available to help a
company calculate “what’s in it for me”. This dearth of quantified industry-specific ROI data invariably fans the
flames of the inevitable naysayers who are all too quick to declare a problem unsolvable before the first cure can be
administered.

This lack of a slam-dunk argument specific to a given industry is also quite convenient for those foot-draggers
who—for a variety of provincial reasons—don’t really want the initiative to take flight at all. They are usually among
the first to point out the absence of a detailed cost/benefit analysis for their particular industry. They are also
usually the ones to most quickly point out that the ever-so-compelling success statistics reported by other industries
have little applicability to their own industry because of its many unique aspects.

Matters are made worse if such resistant elements hold ill-founded misconceptions about a negative impact that the
initiative in question might have. For instance, those first learning about data synchronization often cite concerns
over losing competitive advantage as a result of the initiative. But, as Joe Pleasant of Premier points out, “The
fears that data synchronization would cause a loss of competitive edge for those that implement it have simply not
materialized in industries that are well down the path of doing it.” Dennis Byer, Senior Director of IT for Consorta,
notes that, “Manufacturers and distributors are learning that data synchronization isn’t something to be feared.
Other industries have proven this.”

Though the closet opponents of a new initiative are usually able to delay industry-wide adoption without having to
openly oppose it, eventually, enough representatives in the community take the evidence at hand to be sufficient to
warrant action and start without their reticent colleagues. Once sufficient critical mass is achieved, such reluctant
holdouts readily climb aboard quickly in order to avoid falling too far behind the rest of the industry.

It must be noted that it is unfair to presume that every company that is not doing something about global data
synchronization in healthcare is secretly trying to undermine progress in that area. On the contrary, it’s wholly
understandable that companies faced with multiple priorities must juggle and prioritize those initiatives according to
the benefit that they can deliver. As such, it’s reasonable to want to know what one could expect to net from an
investment in global data synchronization. In doing so, however, it’s important to recognize that while the penalties

44 Source: Kathleen Garvin, DoD; “The Time is Right To Reap the Benefits of Data Synchronization”

20
of not addressing data synchronization are relatively self-evident, the benefits that companies implementing global
data synchronization are realizing are frequently seriously underestimated.

To begin with, the benefits from data synchronization are not limited to the Qailure to address
immediate, significant, and intuitively obvious positives that come from reducing information
order and invoice content exceptions. Instead, they go on to generate synchronization first
improvements in any part of your organization that is dependent on accurate item directly undermines the
and trading partner information to perform their business function effectively. ROI from any of their
automation initiatives
because of the impact of
But, the benefits don’t stop there, either. Many of today’s companies are
inaccurate information.
launching substantial process reengineering efforts to further drive redundancy,
inefficiency, and cost out of their distribution channels. What they’ve found is that
failure to address information synchronization first directly undermines the ROI
from any of their automation initiatives because of the impact of inaccurate information.

While this realization may seem to many like a quote from “The Corporate Book of ‘Duh’”, growing numbers of
healthcare leaders are beginning to turn their attention toward cleaning up their internal information discrepancies
first so that they can get on with further revolutionizing their processes. Millions of dollars are spent each year in an
attempt to clean up and synchronize internal data stores. Unfortunately, without a process in place to keep
information synchronized between these companies and their supply chain brethren, the information quality begins
decaying the moment a change is made in one system without it being updated in all other systems.

Programs such as vendor managed inventory (VMI), automated product receipt and check-in, evaluated receipt
settlement (ERS), electronic funds transfer (EFT), collaborative planning, forecast, and replenishment (CPFR),
radio frequency identification (RFID), electronic product code (EPC), and other initiatives that are successfully
driving time, cost, and inefficiency out of chains all have their “roots” in an inextricable dependency on accurate
information.45 The remarkable potential that each of these—and similar—initiatives have to catapult an
organization to previously unheard of levels of performance efficiency and effectiveness is completely reliant on
whether each participant is in sync internally and with their partners in commerce.

As PricewaterhouseCoopers put it in their paper “Scan-Based Trading—Moving Toward a Demand Driven Supply
Chain”, from February 2001, “Going forward, the problem of data synchronization will have to be dealt with, not only
for SBT (scan-based trading) to be successful, but also for VMI (vendor managed inventory), CPFR (collaborative
planning, forecasting, and replenishment), and other collaborative supply chain initiatives to reach their potential.”

But, let’s back up from what some like to think of as being “pie-in-the-sky” pictures of how business can be
conducted in a modern supply chain—in spite of the fact that there are documented examples of leading buy- and
sell-side companies successfully benefiting from each of these more advanced process approaches once they
clean up their data. What can an organization expect to realize from just addressing data synchronization?

In fact, let’s narrow the scope even more to show just how remarkable the ROI from a synchronization effort aimed
at item information only can actually be. [NOTE: Because of paper-thin profit margins, intense competition, and the
complexity of daily business interaction, many of the early adopters of global data synchronization were in the
grocery arena—hence the higher concentration of success statistics from that sector. Not surprisingly, innovators
like Wal-Mart have also been quick to leverage this powerful tool.]

45 See Appendix for a brief explanation of each of these strategic initiatives.

21
Quotes from companies having implemented item synchronization underscore the kinds of impact such an initiative
can have:
! “We have already added $1M to our bottom line as a result of the work done. That figure could grow to
$30M, or 1% of sales, once everyone is on.” leading U.S. retailer
! “Cleaning up and standardizing internal data has generated benefits, even without {external}
synchronization.” leading Canadian manufacturer
! “Synchronized data between us and our customer results in drastic reduction in rework due to errors.”
leading U.S. manufacturer
! “Electronic collaboration is inevitable: It is not a matter of whether we will do it, but rather when we will
do it…. In our case, I just have one regret: we should have started one year earlier.” major retailer

Why the regrets for having waited to start? Consider the following documented results produced by companies that
have already launched data synchronization initiatives.

An item synchronization pilot between Procter & Gamble and their customer H.E. Butt yielded the following:
! 75% reduction in invoice deductions due to invoice pricing and product delivery discrepancies
! 30% improvement in the number of accurate purchase orders received
! 80% improvement in “speed to retail” for new items, price changes, and promotions46
! 99.8% retail scanning accuracy achieved (versus 85% before the pilot) [Of course, this increase in
scanning accuracy would apply to point of shipment receipt for non-retailers.]

According to an A.T. Kearney paper on data synchronization47, Proctor and Gamble expects synchronization to:
! Eliminate 30,000 to 50,000 hours per year in unnecessary transcription work
! Reduce stock-out incidence by 10%
! Reduce the time required for new item introduction by 80% in the U.S. alone
! Save them a minimum of $25 million a year

At the Retail Systems 2002 conference, Randy Salley, Wal-Mart’s vice president of merchandising, reported that
their item synchronization pilot with Procter & Gamble netted the following results:
! Reduction in data maintenance time from 15-30 days down to 1 day
! 98% up-to-date synchronization

46 Reduced the average time required to communicate and execute changes from 10 days to 2 days
47 Assessment and recommendation paper prepared by A.T. Kearney for the GMA-FMI Trading Partner Alliance titled, “Action
Plan To Accelerate Trading Partner Electronic Collaboration”

22
 ! 15% market share (up from 5%) in the early weeks of a new item introduction
As Salley put it, “The ability to compete at the speed of information will determine winners and losers.”

Sara Lee reported a reduction of 59% in cost mismatches after the initial 90 days of their price synchronization pilot.
Item mismatches were eliminated. The remaining mismatches were resolved in half the normal time (down from 5+
days to 2-3 days for resolution).48 Additional benefits realized include:
! Short pays down 86%
! Over pays down 81%
! Errors resolved in 2 days versus 10-30 days
The results from a study in the foodservice industry on the anticipated impact of data synchronization reported that:
! As much as 63% of manufacturer invoice errors can be prevented if item, price, and promotion data
can be aligned
! Misalignment of item and price data is responsible for 21% of distributor invoice errors
At the Grocery Manufacturers of America (GMA) Executive Conference in White Sulphur Springs, WV June 10,
2002, Bill Grize, president and CEO, Ahold U.S.A., Inc. speaking of the need for manufacturers and retailers to
move forward with global data synchronization said, “The numbers behind this are so compelling that it is
frightening to think we would be reticent to move forward. If we do not…we are doing an injustice to our customers,
our shareholders, ourselves, and our associates.”

WIIFM for Healthcare

But, are there any statistics that begin to describe the benefits that organizations in the healthcare community could
expect to realize? Fortunately, some documentation is available. And, though much of it is anecdotal, collectively it
provides a glimpse into the muck and mire that is the state of information in the healthcare community, today, and
the positive impact that addressing these conditions could have on every aspect of the healthcare community.

Garren Hagemeier of HCEC describes an overview of the benefits healthcare supply chain members could realize
as follows: “Providers would get the products they order at the right price (fill rates would go up and pricing errors
would be decreased). Providers would eliminate invoice discrepancies and rework. Providers and GPOs would
improve contract compliance which would reduce product costs. Distributors and Manufacturers would eliminate
rework of orders, returns and duplicate shipments, reduce telephone calls from customers, and improve contract
reporting, improve rebate accuracy, and reduce errors in transactions between manufacturers and distributors.”

A study was conducted for the medical/surgical supply chain to (1) determine the feasibility of adequately
addressing the data synchronization problem in healthcare and (2) identify the benefits that could be realized by the
industry if standards and a centralized information repository (i.e., a product data utility) were put in place and
utilized. 49 The study identified the following benefits for each industry segment:

48 Source: Martha Uhlhorn, EVP eCommerce & Category Mgt, Sara Lee presentation to the Magazine Publishers of America
3/18/2002.
49 Source: Medical PDU Feasibility Study; CHeS – HCEC; 2003; Attachment D: PDU Value

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Manufacturers:

1. The electrical industry conducted a benefits assessment after their industry PDU was implemented.
Annual savings to manufacturers were documented to be $97,000 for every $10 million of sales—
0.97% of sales.
2. Substantial direct cost savings through elimination of product errors, accelerated time to market, and
unprecedented market visibility of products to the industry.
3. Reduction of errors and bad data between trading partners and freeing up of staff time for more
revenue producing pursuits
4. Single point of distribution of product information to all participants in the medical supply chain.
Eliminates multiple customized product data feeds.
5. Single point for accurate UPN data to get distributed to the supply chain so value of UPN markings can
be derived.
6. Easier to integrate product information after manufacturer mergers and acquisitions.
7. More rapid distribution of product data on new product introductions to increase sales of new products
and reduce invoice errors on new products. Also applies to new products acquired through acquisition
8. Rapid distribution of information on discontinued and replacement products.
9. Cleansing internal information reduces errors in product data distributed to the supply chain thereby
eliminating invoice errors to the supply chain.
10. Small business manufacturers: single source for product information distribution. Much easier for their
products to reach more Distributors/providers in the supply chain.
11. Multi-divisional companies without a single ERP system: single source of catalog data for all divisions
within the company.
12. Manufacturer Direct Vendors: reduced invoice errors because of more accurate product data used by
provider organizations.
13. Validation and data field matching in a PDU enables more accurate ordering, bill paying, rebates and
administration fee calculations, etc. Processing transactions could then become more efficient and
accurate.
14. The creation of a web accessible healthcare PDU data element to link provider’s organizations,
distributors, etc. back to manufacturer’s web site for enriched information on each of their products.

Distributors:
1. The electrical industry conducted a benefits assessment after their industry PDU was implemented.
Savings to distributors were documented to be $73,000 for every $10 million of sales—0.73% of sales.
2. Substantial direct cost savings through elimination of product errors, accelerated time to market, and
unprecedented market visibility of products to the industry
! Wal-Mart – Identified and eliminated 30% of items that were discontinued.
! Shaw Supermarkets – Saw a 5-10% increase in market share by the more rapid arrival of new
items. “If we did nothing but changed the way we transact new item information, this in itself
would be worth the investment.”
3. Single source for accurate product data from hundreds of manufacturers reduces:
! Multiple data feeds
! Data cleansing efforts
! Personnel manually loading catalog data
4. Timely product data on both new products and discontinued products
5. Enables the following business enhancements:

24
 ! Fewer invoice errors with suppliers and customers
! Reduction in reconciliation of rebates/charge back mismatches with manufacturers
! Automatic replenishment by suppliers
! Closer integration with customer’s systems
! Tighter integration with eCommerce exchanges

Hospital IDN:

1. Accurate and consistent item information throughout the healthcare supply chain
2. Easier and faster sourcing of products from prime vendor distributors, healthcare exchanges, and direct
from manufacturers
3. Matching of product data master files to GPO and local contract files to ensure that hospitals are being
charged the lowest contracted prices for purchases.
! A Novation study estimates 2%+ reduction in product pricing because of reductions in payment
of greater than contract pricing.
4. Automated loading of new items with accurate product information and maintenance of existing items
5. Standardized identification of product information throughout the supply chain
Enables:
! Leveraged purchasing to achieve lower prices based on visibility of purchased volumes
! Increased patient safety
! Improved product standardization
! Improved product utilization
! Increased overall operating efficiencies
! Reduction in invoice errors by 50%
6. Master file of UPN bar codes enables use of automated identification throughout the supply chain to
increase patient charges and reduce medical errors

eCommerce Exchanges:

1. Customers able to source and order products from the exchange easier, faster, and more accurately
2. Single source for accurate and robust product data from hundreds of manufacturers
3. Reduction in multiple data feeds
4. Reduction in data cleansing efforts
5. Reduction in personnel manually loading catalog data
6. Open and neutral repository
7. Standardized data for all members of the supply chain
8. Eliminates multiple standards for product data
9. Gives a single point for standards organizations
10. Potential for numerous value added services to member hospitals once product data is accurate and
consistent
11. Opportunity to offer enhanced data mining and reporting capabilities
12. Data cleansing services can include catalog master maintenance
13. Product information accuracy for all members of the supply chain including
14. Hospitals who order through the exchange
15. Distributors who receive orders through the exchange
16. More rapid new product introductions and sales

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 17. Current UPN bar code standards are recognized

GPOs:

1. Increased Sales of GPO Items/GPO distribution Contracts.

! Easier for customers to match items they are buying to items on GPO contracts
! Easier for customers to identify product standardization opportunities
! Easier for customers to identify items stocked by their GPO distributor
2. Single source for accurate product data from hundreds of manufacturers
3. Reduced and simplified data feeds from potential manufacturer contractors
4. Reduced data cleansing efforts
5. Better product identification for sales tracking to capture administrative fees and rebates for GPO
6. GPO is able to more quickly determine and aggregate information on the new items members are
buying that need to be added to GPO contracts
7. Enhanced relationship with members:
! Better product data for members
! Healthcare PDU will become the basis of product item master in all customer Materiel
Management Systems and Contracts systems
! Easier sourcing of products by members
! 100% eCommerce by members (to include invoicing)

But, there is additional evidence from the healthcare industry that points to the benefits of having and utilizing a
standardized approach for synchronizing data in the industry. “Standardization lowers the costs of implementation
for everyone.” 50 “Many hospitals, GPOs, and suppliers spend millions of dollars annually synchronizing product
information. Unfortunately, the data matching is often done against non-authoritative sources.”51

Paul Higday, VP Program Development at Owens And Minor, concurs, “The current state of the industry is to
cleanse/synchronize product data ‘after the fact’, i.e. months after an order is placed and the product is delivered.
While this process can help ensure an accurate historical analytical view of purchasing, inventory, etc., it doesn’t
solve the real-time supply chain issues that inaccurate product data causes…. The retail industry has chosen to
adopt a set of standards and technologies that solve their {data synchronization} problem efficiently and effectively.
In Healthcare, we’ve largely chosen to address the problem individually, resulting in a significant increase in cost
without much success.”

And, since there’s no standardized mechanism for keeping the cleansed product information up to date over time—
as values change, new products are introduced, older products are discontinued, etc.—the companies suffer from
data decay (i.e., get back out of sync with themselves and their supply chain partners as information changes).
This recurring expenditure to clean up information that (1) once was clean and (2) could have been kept clean—had
a standard for ongoing synchronization been put in place and implemented by the industry—is unnecessarily
wasteful. Certainly, the money saved by avoiding the need for annual data clean up will more than offset the costs
to implement a data synchronization solution.

50 Source: Dennis Black, Director eCommerce, BD

51 Source: Presentation by Craig Wigginton; VP, Chief Technical Strategist; Neoforma; “The CHeS/HCEC Product Data Utility
Feasibility Study”

26
A study conducted by Consorta on a group of its member hospitals revealed similarly promising savings. They
pulled the hospitals’ data and looked at their processes and annual spend. By benchmarking against other
industries, they identified the savings that hospitals could glean if they had good data. Even though the hospitals
studied had already centralized their purchasing and had improved much of their data internally, the study still
showed that the potential opportunity for annual savings ranged from 3.6-12.6% of their total spend.52

In a July 2004 briefing53, Kathleen Garvin, Program Manager for the DoD Data Synchronization reported findings
from internal data analysis. She highlighted three seemingly straightforward information elements that could make
or break an organization’s ability to effectively order, receive, and pay for products (manufacturer name, a standard
item part number, and an accurate unit of measure). She indicated that for one representative medical/surgical
manufacturer, the DoD had over 400 different manufacturer names on file.

She highlighted the problems created by not having standardized item numbering in med/surg. She showed eight
different product ids for the same product. Each id came from a different distributor. No two were alike. And, none
of the ids were the actual product id used by the manufacturer. She highlighted the inconsistency of unit of
measure data by indicating that “10% of packaging data provided to DSCP by manufacturers are wrong or
incomplete”.

Summarizing the results obtained from their global data synchronization (GDS) initiative with Wal-Mart, Johnson &
Johnson Consumer reported the following:

Before GDS After GDS

Percent of out-of-stocks that were data integrity related 2.5% 0%
Item set up Manual; averaged 10 days Automated
Item maintenance Manual; averaged up to 10 days Automated; less than 24 hours
Percent of deductions that were data integrity related .1% 0%

Commenting about the project, Johnson and Johnson representatives said, “Along with RFID, GDS is one of the
greatest opportunities for collaboration throughout the value network that should be rapidly adopted.”54 “We
learned how critical data management and data quality are to the trading partner relationship”55

No wonder, the savings potential for hospitals that choose to address the data integrity problem is enormous.
Consider that for hospitals, 7% of all purchases have invoice errors. If this affects just 30 to 50% of the entire
potential, healthcare can save between 1.72 to $2.9 billion a year.56 The Department of Veterans Affairs (VA) and
the Department of Defense (DoD) jointly spend $800M a year on medical/surgical (med/surg) items and
conservatively estimate that their facilities could reduce the cost of med/surg item purchases by 1-4% or $8-$32
million a year using synchronized data to leverage joint buying power.57

52 Source: Dennis Byer, Senior Director of IT, Consorta

53 Source: “Department of Defense: A Case for Med Surg Data Synchronization and Product Data Utility (PDU)” Kathleen Garvin,
July 2004
54 Source: Michael J Haas, Vice President of Information Management, Johnson & Johnson Consumer/Personal Care &

Consumer Pharmaceuticals Group

55 Source: Kyle Thompson, Global Data Strategy Manager, for Johnson & Johnson Consumer Companies, Inc.
56 Source: CHeS GLN Marketing Plan, page 3
57 Source: Veteran’s Administration and Defense Supply Center Philadelphia Directorate of Medical Materiel (DSCP) Joint

Incentive Funding Data Synchronization For Medical Surgical Items

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“Suppliers can benefit by reducing the EDI errors that occur when customers attempt to order the incorrect product
quantity or purchase a discontinued product. Errors in product data also lead to pricing errors. Reducing the
number of pricing errors would be a significant benefit for the entire healthcare supply chain.”58

Paul Higday, VP Program Development at Owens & Minor, highlights the benefits of data synchronization to
distributors. “As an organization that sits in the middle of the supply chain, accurate and timely product information
is vital to our success. The better ‘synchronized’ data is between our customers and our suppliers and us, the
lower our operating costs will be. Accurate product data helps us by reducing order processing time, decreasing
invoice discrepancies, and ensuring that the correct product gets to the customer in a timely manner.”

But, perhaps even more significant than the cost savings are the patient safety impacts associated with lack of data
synchronization. As Christine Vincent, Global Healthcare eBusiness Director for AGFA, notes, “Delivery of the right
product at the right time and place is critical to the consumer and their health. This goes beyond the economic
benefit of synchronized data. Correct data may also result in decreased liability for errors in identification and
delivery of healthcare related products.”

We all acknowledge that, in the end, the collective responsibility of everyone in the healthcare supply chain boils
down to taking care of the patient’s needs. As Steve Gundersen, Vice President, Corporate National Accounts, BD,
points out, “Ultimately this all comes down to the end customer, the patient. Quality of healthcare and the cost of
healthcare are the most important concerns.” Of course, the effectiveness, cost efficiency, and safety with which
this industry is able to operate directly or indirectly affect every one of us.

Christine Vincent of AGFA emphasizes, “The cost savings are certainly important. But, the health of the ultimate
consumer must be a consideration, as well. Reducing errant data can result in improved physical health. By
eliminating errant invoices and the administrative effort it takes to fix those errors, staff members are allowed to
focus on more productive activities. Reconciling invoices and rebates through the GPOs and contracting agencies
is an unacceptable drain on resources.”

Mike Mahoney, CEO of Global Healthcare Exchange, emphasizes that “The nature of healthcare, however, creates
even greater problems {than in retail} when buyer-seller product data is not synchronized. For example, when a
product is not available, potentially life-threatening procedures may need to be rescheduled. Even postponing non-
critical procedures can have a negative impact on the financial health of hospitals, which are under increasing
financial pressures.”

But, there’s another aspect to patient safety that’s directly related to the accuracy and consistency of information
throughout the healthcare community. For instance, “patient safety improvements can be had through better
identification of products targeted for recall or items that have reached their expiration dates”.59 In addition, the
efforts to establish the electronic health record (EHR) have led to a growing realization that the data collected must
go beyond mere clinical information to also reflect correct product utilization for specific patient needs. “National
efforts around electronic health records will push the need for reliable information (including supply information
about what a particular patient might have received during a hospital stay).”60 “The electronic health record is
clearly dependent on synchronized data.”61

58 Source: Dennis Black, Director eCommerce, BD

59 Source: “The Case for Data Synchronization”; MHS Assistance; March, 2004
60 Source: Joe Pleasant, CIO, Premier
61 Source: Dennis Black, Director eCommerce, BD

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EHR organizers are rapidly recognizing that this added intelligence is impossible without accurate product ids and
synchronized data across the supply chain. Failure in this area hits at the very heart of every healthcare supply
chain participant’s ultimate concern (i.e., patient safety). Consider the following:62

! More than two million patients (1 in 20) contract infections in the U.S. annually (est. 103,000 die).
! Hospital infections add $28 billion to the nation’s health cost per year.
! Hospital infections are now the fourth leading cause of death in the U.S. behind heart disease, cancer,
and stroke according to the Centers For Disease Control.
! An Institute Of Medicine report stated that “as many as 44,000-98,000 people die in hospitals each
year as the result of medical errors”.63

Consider just one example of the role that inaccurate information can play in keeping these numbers high.
Inconsistent or inaccurate product information—from one healthcare provider to the next—can easily mask a
pattern of negative interactions between products or between products and particular patient conditions. Such a
pattern would easily go undetected if the providers supplying such evidence identified the products involved
differently.

But, the problem is broader than just tracking unexpected interactions. The Clearly, decisions based
differences between sterile and non-sterile, latex versus non-latex, single versus on faulty data will yield
mistakesV mistakes
multiple use, etc. have dire implications for patients. As such, inaccurate
that can have life-
identification of products can lead to the unintended misapplication of those threatening
products in the healthcare process. consequences for the
patient.
The fact is that lack of consistent accurate information across the supply chain—
and most critically in the hands of the provider—is pivotally positioned as a
potentially lethal contributor to these otherwise preventable medical errors. Clearly, decisions based on faulty data
will yield mistakes…mistakes that can have life-threatening consequences for the patient. And, as we’ve seen from
the results of the DoD pilot, the quality of the data across the healthcare supply chain is worst at the provider
level…precisely where it is most critical for patient safety!

Accurate—and, therefore, reliable—data throughout the supply chain (courtesy of data synchronization) is essential
for tracking medical procedures and the products used. Failure to achieve data synchronization in healthcare
prevents the ability to:

! Associate particular products to best patient outcomes

! Identify products that may contribute to infections or adverse events in certain circumstances
! Recall items in the most timely and complete manner
! Reliably track and link devices to patients (e.g., implants)
! Perform more timely surgeries (courtesy of product UPNs linked to physician preference cards and
reduced ordering time from OR Management Systems through MMIS)

62 Source: Materials Management In Health Care, May 2005 “The Dirt On Infections And Patient Falls” referenced in presentation
at AHRMM by John Clarke, SAIC; titled “Department of Defense A Case for Data Synchronization and Product Data Utility
(PDU)”; July, 2005
63 Source: Journal of Healthcare Management, Vol. 18, No. 4

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If only one of the estimated 44,000 to 98,000 people who die in hospitals each year as the result of medical errors
does so as a result of inaccurate product identification, then the problem is well worth fixing. Of course, the
likelihood is that it’s much worse than that.

Now, it should be noted that because product information is so inconsistent and inaccurate throughout the
healthcare supply chain, it’s hard to quantify the degree to which data synchronization in healthcare will improve
patient safety. But, it’s safe to say that data synchronization will clearly have a positive impact on this area of
critical concern. And, given the industry’s stated commitment to quality patient care, it would seem that data
synchronization is an area where the industry should voluntarily step forward and improve patient safety.

But, as important as safety is, it’s not the only area where the patient is affected by bad data. As Mike Mahoney,
CEO of Global Healthcare Exchange, points out, “When clinicians have difficulty finding the right product to order,
they have less time to spend on patient care.” Kathleen Stickane, President of the Association of Healthcare Value
Analysis Professionals, emphasizes that when it comes to data synchronization, the biggest issue for her
membership is that “Clinicians and purchasing agents speak different languages. This misunderstanding can result
in the wrong product being delivered with a delay in receiving the product that’s actually needed.” Clearly,
consistent accurate data made available to all pertinent personnel within and between organizations would alleviate
this sort of disconnect and its negative impact on all concerned—including the patient.

So, bad data not only adds cost to all members of the healthcare supply chain and makes it impossible to reliably
track clinical outcomes, it also unnecessarily taxes valuable limited medical resources that could otherwise be
administering to their patients. Once again, we see that each of us ultimately pays the price for bad data in the
healthcare supply chain through increased healthcare costs, increased taxes, undermined patient safety, and now,
distractions from patient care.

In June 2005, the DoD, VA, and FDA met to discuss the critical importance of standardized and synchronized data
throughout the supply chain. It was recognized that industry-wide data synchronization was a necessary precursor
to successfully implementing RFID for devices and other information-based initiatives aimed at improving patient
safety.

So, What Needs To Be Done?

To begin with, we know that inaccurate information drives exceptions that, then, require manual intervention. But
the impact of these exceptions is even worse for companies that have invested in external and internal integration
(e.g., EDI, enterprise application integration or EAI64, etc.). Having invested the money and resources to remove
key-entry and manual involvement from the process, these expenditures are rendered worthless every time there’s
bad data. The sports car is forced to downshift to creeper gear for the remainder of the process.

64 See Appendix for an explanation of EAI.

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Whether these information inconsistencies exist between systems or databases, departments, divisions, or
companies, they are exceptions nonetheless and force manual intervention to address them. Therefore,
successfully addressing data synchronization must include three phases (1) synchronizing your information with
yourself (internal synchronization), (2) synchronizing your information with your trading partners to get on the same
page with one another (external synchronization), and (3) establishing a process by which the two of you will stay in
sync with yourselves and with each other as your data changes over time (ongoing synchronization).65

Internal synchronization ensures that item and partner data are consistent throughout the organization. It enables
humans and business applications to access and act upon information that does not vary from system to system,
database to database, department to department, division to division, and so on. Both you and your trading
partners must complete internal synchronization before embarking upon external synchronization.

65 See the Appendix for a more detailed description of each of the global data synchronization phases.

31
External synchronization ensures that the information in both your and your trading partners’ companies is
consistent. Synchronizing with just yourself—but not your partners—will not eradicate the parade of exceptions that
are plaguing you and your partners. Indeed, the fact that information is not in sync across company boundaries is a
key contributor to why today’s businesses find themselves steeped in errors and inefficiencies. And, these
processing exceptions and the resulting manual rework will continue to undermine effectiveness and bottom lines
until they are addressed through cross-company data synchronization.

To appreciate the impact that external synchronization can have, consider the results reported by Proctor and
Gamble. They reported having saved an estimated $25 million since they began uploading item, location, and
trading partner information.66

It’s important to recognize that internal and external synchronization do not mean getting just one department on
either side of the relationship in sync—purchasing and order processing, for instance. If either party leaves one or
more portions of its company out of the synchronization “loop”, exceptions will remain when dealing with that area.

Imagine, for instance, that a purchaser has internally synchronized its purchasing, inventory management, and
accounts payable areas and their supplier has internally and externally synchronized their order processing,
inventory management, and shipping areas—but not accounts receivable. Both the buyer and seller would most
certainly realize and benefit from a marked improvement in the accuracy of order processing. The reduction in
exceptions would minimize manual intervention and drive improved fill rates, reduced order cycle time, etc.

However, with the accounts receivable area of the seller still being out-of-sync with other areas in their own
company—as well as, those of their customer—the invoice/pay process would still be laden with errors, delays,
exception research and correction, etc.

Of course, without ongoing synchronization—a process by which the source and the recipient can remain in sync as
information changes—all the effort to get in sync to begin with will be undermined and eventually eradicated as the
information decays over time and the two organizations gradually fall back out of sync with one another (and
themselves).

This three-legged process of (1) getting in sync with yourself, (2) getting your and your partners’ data in agreement,
and (3) staying in sync internally and between organizations is the essence of what generates all the benefits from
global data synchronization. It ensures that exceptions are minimized and integration and automation investment
returns maximized. It’s the “secret sauce” in your recipe for process improvement and supply chain efficiency.

Summary
The impact of “out-of-sync” item information is felt everywhere that information is used in your and your trading
partners’ businesses (e.g., contracts, orders, invoices, shipments, payments, rebates, advertising, promotions,
product use analysis, inventory management, market intelligence, etc.). Whenever there’s a discrepancy between
the information your company has on file and the related information held by a trading partner elsewhere in the
supply chain, an exception occurs.

66 “Time for a Change”; Jennifer S. Kuhel; Supply Chain Technology News; July/August 2002

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Exceptions can be purely information-based (e.g., incorrect price on an order or invoice). Or, they can be physical
(e.g., the incorrect product shipped to the customer or an incorrect bar code printed for a product). Regardless of
the category, each exception requires manual intervention and creates delays…which increase the cost of doing
business and undermine the quality of the trading relationship. As Michael Stanley, Director SCIS Content &
Business Process for Trinity Health, puts it, “Throughout this industry, we have expensive people doing repetitive
things just to make up for mistakes generated by the bad data.”

The fact is, the problems of information inaccuracies in the U.S. healthcare community are extensive. Most every
one in the industry secretly admits it, and in the past publicly downplayed it. But, that’s changing. There’s a
growing admission that this supply chain-wide information disconnect directly contributes to higher costs, lowers
service levels, and ultimately affects every citizen, their employer, and the government. As Mr. Stanley puts it, “The
lack of accurate information throughout the healthcare supply chain is a tremendous cost burden across the
industry.” And, there’s a growing appetite to address the problem. As Dennis Byer, Senior Director of IT for
Consorta, puts it, “This isn’t really the next ‘killer app’. It’s more just common sense. We should have fixed this
years ago.”

The good news is that this is, in fact, an eminently fixable problem, and the mechanisms to address the problem for
the entire industry are well within reach. Data synchronization standards are in widespread use in a variety of
industries and the technology of the Internet has made it possible for even the smallest organizations to participate.
If one year from now healthcare has still not addressed this problem, the members of the industry will need only to
look into a mirror to see who to blame.

But, solving this problem will require proactive participation on the part of all industry segments. Neither providers,
GPOs, distributors, or manufacturers can sit on the sidelines and still expect the problem to be resolved.

It is incumbent on the leaders from each of the key segments in the industry to work together to demonstrate to the
rest of the healthcare community how it can and should be done. Collaboration among the key stakeholders is
critical to define mutually beneficial processes that will maximize the ROI for all concerned.

Think about it. If the most competitive buy- and sell-side companies in the retail sector can successfully work
together to rollout an industry-wide data synchronization initiative, the healthcare community certainly can, as well.
Citizens, payors, etc. continue to wonder what the industry will do about rising healthcare costs and when they will
become proactive about it. Dennis Byer, Senior Director of IT for Consorta, observes that, “Either the healthcare
industry does this on its own or it will be mandated by the government because the issues of patient safety are too
severe not to act.” When it comes to data accuracy and consistency across the supply chain, our advice to the
healthcare community is, “Physician, heal thyself.”

Sor those interested in finding out more about the current state of data
synchronization standards in the healthcare industryVand those
wanting to help mold those standardsVgo to www.chestandards.org

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APPENDIX 1 – GLOSSAR- OQ TERMS
TERM DESINITION
EC Electronic commerce. The strategic application of technology to
facilitate internal and/or external business processes to achieve
organizational objectives.
Business Application Computer software that automates one or more business functions.
(Examples include order processing, accounting, inventory
management, logistics, contract management, and other applications.)
Integration The automated exchange of information between business applications
without requiring key-entry or manual intervention.
EAI Enterprise application integration. The integration of internal business
applications and the automation of pre-processing steps that facilitate
that interaction (internal electronic commerce).
B2B Business-to-business. The electronic interaction between to companies
(external electronic commerce).
EDI Electronic data interchange. The electronic exchange of time- and
content-critical business information between the business applications
of the sender and the receiver. The information is formatted in a
standardized format. (Examples of domestic and international EDI
standards include ANSI X12, UN/EDIFACT, ODETTE, CII.)
VMI Vendor managed inventory. The use of point-of-sale/use data and
customer replenishment algorithms to allow a supplier to automatically
trigger the shipment of product to the customer without first requiring the
receipt of a purchase order.
ERS Evaluated receipt settlement. The use of receiving information and pre-
negotiated pricing and payment terms by the customer to allow for
payment without requiring an invoice.
CPFR Collaborative planning, forecast, and replenishment. A collection of
processes that enhance supply chain efficiency by facilitating
buyer/seller interaction through improved information visibility and
utilization. Most steps precede the actual purchase step.
SBT Scan-based trading. The use of point-of-sale/use data to (1) determine
what is owed by the retailer to the supplier and (2) drive the payment
process. It also includes improvement in various point-of-purchase
operations to reduce cycle time and speed product flow.
EFT Electronic funds transfer. The electronic transaction and exchange of
value (money) between two or more financial institutions. EFT is also
used to describe the electronic triggering of funds movement by the
payor (company paying the money) to their financial institution. It may
also include the exchange of remittance information between the payor
and the payee (company receiving the payment).

34
APPENDIX 2 - RESULTS OQ DOD PILOT]PROBLEMS QOUND

Type of Problem Mfr Dist GPO Provider

Missing Middle Pkging Levels 15-20% 1-4% 20-25% 15-25%
Hard “Pkging Quantity” Errors 1% 1% 2% 2-5%
Unit of Measure Confusion/Misuse 2-6% 1-3% 2-5% Unknown
Missing Packaging—not middle level 3-8% 3-8% 3-7% 5%
Manufacturer Name Problems n/a 2-5% 1-4% 30%
Obsolete Products 1-4% 2-5% 1-8% 5-15%
Missing Product Brand Names 2-5% 5-10% 5-10% 20-25%
Incomplete Item Descriptions 5-15% 3-12% 5-15% 10-20%
Wrong Customer Unit Prices Unknown 1-2% n/a 1-2%
Customer Paid More Than Lowest Contract Price n/a Unknown n/a 3-6%

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APPENDIX 3 - DATA S-NC IMPLEMENTATION OVERVIEW
Global data synchronization (GDS) focuses on achieving consistency of target information values within and
between organizations. Of course, such synchronization cannot be accomplished without the foundation of
standards to clearly define (1) the information to be synchronized and (2) the processes by which such
synchronization will be carried out. With such standards in place, synchronization is executed in three stages,
internal synchronization, external synchronization, and ongoing synchronization—performed in that order.

Internal synchronization ensures that each of the target information elements that will be synchronized (e.g., item
number, price, description, etc.) is consistent throughout your organization. Said differently, when internal
synchronization is successful, anytime a given information element is accessed anywhere within your company, it
will have the same value wherever else it is used in the organization.

External synchronization ensures that the target information elements will be consistent between any two
participating organizations—most often a buy-side and a sell-side trading pair. The core players in external
synchronization are the source (the seller of the product) and the recipient (the buyer of the product).

Ongoing synchronization establishes a process by which participating organizations can stay in sync with
themselves and with their data sync partners. It ensures accurate, consistent information within and between
organizations even as that information changes and/or new items are introduced.

External and ongoing synchronization typically include the use of a central registry—sometimes called a product
data utility (PDU)—and/or one or more service providers acting as onramps to that registry. The registry or PDU
provides a central repository for all item and participant (called “party”) IDs. It verifies that each item or party ID is
globally unique (e.g., a particular ID points to one and only one entity). The central registry and onboarding service
providers enforce the standards that the industry defines in order to ensure that each industry participant adheres to
those rules.

Typically, the central registry houses the least possible amount of the information about an item or party. It
provides a pointer to the entity that controls that information. The “source” of the information (also called the
“publisher”) controls which “recipients” (also called “subscribers”) will have access to see what information. In this
way, a manufacturer—as the source of product or party information, for instance—can control what Customer A
sees and what Customer B sees. Furthermore, the source of product information can provide different information
to Customer A than Customer B where business requirements warrant.

Internal Synchronization
Step One: Internal synchronization begins with the identification of all internal storage locations (e.g., files,
databases, desktop spreadsheets, cross-reference and look-up tables, catalogs, etc.) where the target information
elements can be found. The end goal of internal synchronization is to make sure that these internal data stores
remain in sync with one another on an ongoing basis after the launch of the data sync project.

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Step Two: The second step of internal synchronization is to identify (1) every business application that uses any of
the target information elements and (2) every point where any of the target information elements can be modified.
Whether it’s initial input, value changes, or deletions, it’s essential to leave no stone unturned when determining (1)
who or what might alter a particular element’s value and (2) where that modification might occur.

Having identified who uses the target information and where that information can be modified, you are now
prepared to determine how you will control change access to the information and coordinate updates throughout
your organization as information values change. In this step you will select one of three likely approaches.

1. In the first option, all applications will be modified to interact with a central data store that houses the
data of record for the organization. In many instances this is highly impractical or difficult given the
potential lack of flexibility in the existing business applications.

2. The second option is to change nothing about the files or databases accessed by your business
applications. Instead, this option elects to keep the organization’s various internal data stores in sync

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 with a central data of record. This approach requires an internal sync engine to keep the organization’s
many data repositories in sync with one another via the central data of record repository. This can be
accomplished in many ways, but most often includes the use of a catalog or product information
management tool.

3. The third option is to keep existing files or databases in place and change nothing about where your
business applications go to access information. However, this option elects to establish a virtual data
of record. It selects one location per information type (e.g., product ID, description, dimension, etc.)
where changes will be allowed. Change access for all other instances of that same information type
will be prohibited. Like the second option, when a change takes place in the location of record for a
given information type, all other satellite locations for that same data attribute are updated.

Step Three: Now that you’ve (1) located all instances of the target information to be synchronized, (2) controlled
who or what can modify the information, and (3) established a coordination mechanism that ensures that all
instances of the information will be updated whenever a change occurs, you’re prepared for the final step of internal

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synchronization. In the third step, you will cleanse the data. When this step is completed, two conditions will be
true. First, every instance of the target information will be accurate. Second, where multiple instances of the same
piece of information exist throughout your organization, every occurrence of that particular information element will
have a consistent meaning across all occurrences.

External Synchronization
Once you’re confident that you can keep all of the target information elements in sync internally, it’s time to embark
upon external synchronization. Once both the buy- and sell-sides of the relationship have synchronized internally
with themselves, they must reach agreement on the correct values for each of the information elements (typically
called attributes) they wish to keep in sync. There’s a high likelihood that the two companies will find a number of
discrepancies with the values that each believes to be “the truth”. [These, of course, have been the culprits behind
the parade of exceptions you and your partner have been experiencing all along.]

For each information element that is found to be “out of sync” between the two companies, you and your partner
must each agree on what the correct value should be. There are four categories of information elements. An item
information element that is:

1. Globally true for all subscribers (buyers)

2. True for all subscribers in a particular industry or trading community
3. True for all subscribers in a particular target market (e.g., geographic area)
4. Variable for each relationship (i.e., from partner to partner).

For information that is not different for each partner, the seller (source) usually establishes what the “truth” should
be—since the seller is the source of the item. For information that is partner specific (e.g., price, saleable unit,
allowances or charges, etc.), the values that are agreed upon are often negotiated, as necessary. While this can

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certainly be a rather pedestrian process, it is a one-time effort that nets an ongoing return in every area that
previously had to research and correct information discrepancies.

Ongoing Synchronization
Once external synchronization is complete, the final phase of data synchronization, ongoing synchronization, is put
in motion. This phase involves the ongoing process of the seller (the source) (1) notifying the buyer (the recipient)
that there has been a change to one or more of the information elements that the parties are trying to keep in sync,
(2) conveying the updated information, and (3) ensuring that the recipient understands, agrees with, and has
implemented the change.

The mechanisms by which this source/recipient interchange takes place vary by industry sector implementation.
They range from direct information exchange between sources and recipients to the use of a global registry for ID
and standards policing. They may or may not include one or more intermediary service providers and allow for
several of the internal functions to be handled in a hosted (versus in-house) setting.

Regardless of how the source and the recipient connect with one another to keep their data stores in sync, each
must complete the internal, external, and ongoing synchronization stages described. With mechanisms in place to
ensure that all internal data stores remain in sync (1) within each organization and (2) between each organization,
the interchange approach can be initiated.

It should be noted that any data synchronization approaches that do not utilize some sort of central repository or
product data utility (PDU) rely solely on the willingness of all participants to voluntarily follow the standards
established for that community. This “honor system” approach has typically met with varying degrees of failure
compared to approaches that rely on a single central registry to enforce adherence to agreed-upon standards.

In addition, using more than one organization as certified “onramps” to access (1) the registry and (2) all
participants using the registry has traditionally proven more effective than having only one onramp. This avoids
concerns over potential monopolistic conditions, keeps competition alive, and generally ensures higher quality,
lower prices, and freedom of choice for all concerned.

Regardless of the number of onramps to the registry, there can only be one central repository. As soon as there is
more than one registry, you introduce the added challenge of trying to keep the multiple registries in sync with one
another. Historically, this has proven to be an undesirable and less effective approach.

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APPENDIX 4 - SAVINGS CALCULATION OVERVIEW
What could global data synchronization mean to your organization? Here is a high-level outline to help you identify
what it is costing your organization to manually handle item exceptions in your orders and invoices. [NOTE: This is
by no means the only area of savings that you can expect to accrue from successful data synchronization.]

Manual intervention is costly not only in terms of the literal cost of human resources involved, but also in terms of
the opportunity cost of the missed work that that resource would have otherwise been able to do—had he or she
not been interrupted to address the exception. By reducing item exceptions, we liberate expensive human
resources to be applied to other, higher return tasks.

The following questions are designed to arrive at a rough estimate of the value of synchronizing core information
elements between a buyer and a seller. These savings come from reducing item exceptions between the four
interacting departments of the buyer and seller: purchasing, order processing, accounts receivable, and accounts
payable. Additional administrative savings will be realized in areas such as contract management, rebate
reconciliation, shipping/receiving, etc.

Sell-Side Company
Questions to be posed to the head of order processing for a sell-side company:

! If we could remove inaccuracies in the base item information—by synchronizing with our customers—
would it make a noticeable difference in your exception handling?
! On average, what percent of our inbound orders kick out with exceptions caused by discrepancies in
one or more of these base item elements? [Example: item number, partner IDs, or price discrepancies]
! Approximately what percentage of time—per staff member—is spent researching and resolving these
exceptions? How many of your staff members are affected?

Questions to be posed to the head of accounts receivable for a sell-side company:

! If we could remove inaccuracies in the base item information—by synchronizing with our customers—
would it make a noticeable difference in your exception handling?
! On average, for what percent of our outbound invoices do our customers call with exceptions caused
by discrepancies in one or more of these base item elements? [Example: item number, partner IDs, or
price discrepancies]
! Approximately what percentage of time—per staff member—is spent researching and resolving these
exceptions? How many of your staff members are affected?

Buy-Side Company
Questions to be posed to the head of purchasing for a buy-side company:

! If we could remove inaccuracies in the base item information—by synchronizing with our vendors—
would it make a noticeable difference in the exceptions found in our orders?

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 ! On average, what percent of our outbound orders kick out—on the vendor’s side—with exceptions
caused by discrepancies in one or more of these base item elements? [Example: item number, partner
IDs, or price discrepancies]
! Approximately what percentage of a buyer’s time is spent researching and resolving these exceptions?
How many buyers are affected?

Questions to be posed to the head of accounts payable for a buy-side company:

! If we could remove inaccuracies in the base item information—by synchronizing with our vendors—
would it make a noticeable difference in your exception handling?
! On average, for what percent of our inbound invoices do we have to call our vendors with exceptions
caused by discrepancies in one or more of these base item elements? [Example: item number, partner
IDs, or price discrepancies]
! Approximately what percentage of time—per staff member—is spent researching and resolving these
exceptions? How many of your staff members are affected?

Knowing (1) the percentage of orders or invoices that are affected by these discrepancies, (2) the
percentage of an average staff member’s time spent resolving the discrepancies, and (3) the number of
staff involved, we can calculate a rough estimate of the value of avoiding the discrepancies.

Estimating Per Partner Value

Separately calculate the following for purchase orders and invoices. Then combine the results to determine the
total value of converting a particular partner to item synchronization.

\ Of Documents w/ Errors =
[Total # Docs] x [Average % of Docs w/ Errors]

Total Employee Hours per ^ear_ `

[40 hours/week] x [50 weeks]

* Note: Adjustments may have to be made for (1) normal work hours/week or (2) average total workweeks available per year.

Total Staff Hours Spent on Errors =

[# Of Staff Involved] x
[Avg. % of Time Spent on Errors per Staff Member] x

[Total Employee Hours per Year]

Staff Member Cost per Hour =

[Annual Fully Loaded Cost per Employee**]/[Total Employee Hours per Year]

__ Note: The fully loaded cost per employee varies from company to company. Numbers typically used range from
$80,000 to $120,000 per year per employee.

Total Cost of Errors___ =

[Total Staff Hours Spent on Errors] x [Staff Member Cost per Hour]

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 ___ Note: This is only the cost of the time of the staff involved in the research and resolution. There are other costs
not considered here.

Average Error Cost per Document =

[Total Cost of Errors]/[# of Documents w/ Errors]

Purchase Orders And Invoices:

Annual Value of Converting a Particular Partner to Item Synchronization =
([Avg. Error Cost per PO] x [Avg. % of POs w/ Errors] x [Avg. # of POs per Year]) +
([Avg. Error Cost per Invoice] x [Avg. % of Invoices w/ Errors] x [Avg. # of Invoices per Year])

It should be noted that there are additional savings that can be realized from item synchronization that are not
considered here. These additional savings can include the impact of order delays, incorrect shipments, late
payments, etc.

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ABOUT THE AUTHORS

WILLIAM L. ROSENSELD

William Rosenfeld is Vice President of Retail Practices for Sterling Commerce. He has over 30 years of systems
experience. He has spent the last 6 six years fully engaged in implementing data synchronization. As a solution
provider, he managed the development of the core UCCnet system and is listed by the US Patent Office as one of
three inventors of the “Commercial Data Registry System”. For the last several years he has provided technical
direction for the teams that created Sterling’s data synchronization products. He currently serves as a voting
member of the Global Data Synchronization Network (GDSN) Task Force that directs the international standards
efforts in this area.

Earlier, he managed and provided technical direction to AppNet’s Business Intelligence practice. For 18 years he
focused on management reporting, warehousing, planning, and decision support applications for a wide variety of
large companies and functional areas. He has particular expertise in Consumer Package Goods industries and the
Sales and Finance functions within corporations.

Prior to joining AppNet’s predecessor company (Research & Planning), Mr. Rosenfeld worked for Shawmut Bank.
There he managed the bank’s initial Automated Teller Machine implementation and was responsible for
coordinating the numerous impacted organizations. He also managed a team of programmers and analysts
responsible for the bank’s checking and savings systems, among others. Earlier, he worked for SofTech, where he
became experienced in analyzing and designing massive systems. One such large project was the redesign of all
financial systems for the Federal Government’s Energy and Research Development Administration (predecessor to
the Department of Energy).

JOHN L. STELeER

John Stelzer is Director of Industry Development for Sterling Commerce. Since 1984, he has been providing
education and consulting on electronic data interchange, electronic commerce, and e-business—to date, educating
more than 27,000 professionals from over 16,000 companies.

Since 1998, Stelzer has been extensively involved in global data synchronization, serving on a number of data
synchronization standards committees. He's authored several executive primers on the topic. He writes a monthly
data synchronization column for Frontline Solutions. His article on "An Executive's Eye View Of Global Data
Synchronization" was published as the cover article for Business Integration Journal. He's a Certified UCCnet
Implementation Consultant. He has created and conducts a full-day course on "How To Implement Global Data
Synchronization". To date, he's conducted dozens of Webcasts and delivered more than 100 presentations on the
topic.

Stelzer is also widely recognized as an expert on supply chain integration and collaboration in the retail sector—
having worked in that area since 1984. He is widely interviewed on the topic, writes a monthly CIO column for
ebizQ’s Executive Corner, pens a bi-monthly column for the AHMA Eagle, and contributes ad hoc articles to a
variety of other publications.

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