Customer Profile: The McLaren Health System, one of the largest integrated, managed care healthcare organizations in Michigan, includes 15 hospitals, ambulatory surgery centers, home health and hospice providers, pharmacy services, and much more. It was founded in 1914 and is headquartered in Grand Blanc, Michigan.
Customer Challenge: When Hurricane Katrina ravaged the Gulf Coast, McLaren Health System was impacted by the fall out of the devastation. McLaren had been procuring natural gas for its facilities through a single broker-supplier relationship. The hurricane exposed flaws with this type of buying strategy as the natural gas supply was devastated which tripled natural gas prices. McLaren called Stark Tech’s Implementation team from PRES Services to suggest an alternative approach to purchasing their gas commodity.
Stark Solution: The team at PRES provided an alternative risk management portfolio planning approach customized based on McLaren’s risk tolerance. Over the next 14 years, Stark’s PRES team has provided analysis and guidance for systematic purchases of short-and long-term positions in the market. Since working with the Health System, they have grown from four main hospital campuses to now 15.
The four critical components in the portfolio buying strategy include:
- Buy throughout a five year time horizon with staggered purchasing to diminish impact of poor market timing issues that may arise
- Use multiple suppliers for greater market price transparency and risk reduction
- Create an historical context for future purchasing agreements
- Adjust hedges to market ratios to achieve the appropriate risk profile
Results: McLaren was able to decline overall Corporate gas purchasing budgets while the healthcare system expanded from four facilities to 15. The strategy hedges more than 60% of future purchases of natural gas through year 2025 at historically low gas rates with the ability to manage purchases and store gas at reasonable costs.
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