Kaiser Permanente Develops Strategy to Manage Suppliers
Case Type: improve profitability; operations strategy.
Consulting Firm: Bridgespan Group first round full time job interview.
Industry Coverage: healthcare: hospital & medical; insurance: life & health; non-profit organization.
Case Interview Question #00462: Your client Kaiser Permanente is a large not-for-profit HMO (health maintenance organization, an organization that provides managed care for health insurance contracts in the United States as a liaison with health care providers such 
as hospitals and doctors). Based in Oakland, California, United States, Kaiser Permanente is made up of three distinct groups of entities: the Kaiser Foundation Health Plan and its regional operating subsidiaries; Kaiser Foundation Hospitals; and the autonomous regional Permanente Medical Groups. As of 2006, it is the largest managed care organization in the United States with 8.7 million health plan members, 167,300 employees, 14,600 physicians, 35 medical centers, and 431 medical offices.
Recently, the client Kaiser Permanente is interested in developing a strategic approach to managing all their suppliers. Their suppliers fall into four broad categories:
- non-medical supplies (printers, printing paper, copy machines, etc)
- non-medical services (janitorial, lawn-care, etc)
- medical products (Q-tips, MRI machines, sutures, medical devices, etc)
- medical services (specialist doctors, nurses, etc)
The client wants to know: how should it manage each of these four suppliers groups to improve its overall proï¬tability. How would you approach this case? What recommendations will you give to the client?
Possible Answer:
1. Note to Interviewer
This case is purposefully ambiguous. Let the interviewee struggle to grasp what you are looking for. The key is to let the interviewee determine different approaches for segmenting their supplier base. A tip to give to the interviewee is to ask “What do you want from your suppliers?” The interviewer should help guide the interviewee towards the solution outlined below.
2. Possible Solution
This case is a difficult one because it doesn’t provide any details. How a large health insurance ï¬rm manages its suppliers will vary according to what the ï¬rm seeks from its suppliers. A simple way to frame this problem is to think about what a ï¬rm wants from its suppliers. An obvious desire is to obtain the lowest cost possible, not the lowest per unit price, but the total costs after taking into account defect rates, late deliveries, etc.
Another key variable you would desire that is less obvious is revenue enhancement. This means that suppliers can provide value-added supplies/services that help you gain some competitive advantage in the market place.
What you end up with is a simple 2×2 matrix shown in Figure 1. The text within each corner describes how you would want to manage the different groups of suppliers.