Excerpts from a Conversation with Todd Larkin, Chief Operating Officer, Intalere
An interesting corollary to my experience in other industries is that supply chain has continued to evolve and grow its influence across an organization. When I joined the healthcare industry, I noticed that the primary focus of most supply chain organizations is very much on medical products and supplies. I saw this very same thing when I started my supply chain career at IBM.
They had a manufacturing supply chain organization that was very mature, very much integrated into their supplier relationships. However, their indirect procurement and supply chain organization was very similar to what we see in healthcare today – very much distrustful of their supply chain partners and did not have a level of integration & transparency that would have been beneficial. IBM, over the course of my 10-year career there, went through the transformation of taking the best practices from our manufacturing side of the house and applying that to our supply chain partners in software and telecommunications, IT hardware and services.
We’re seeing that more now in healthcare. When I speak to providers, almost 50% of their overall expense is related to purchased services. Ten to twenty years ago, that was called indirect spend in every other industry and there was a groundswell of supply chain organizations attacking those categories and applying supply chain best practices to indirect spend. We’re now starting to see that in the healthcare space, but in order to do that, we have to build relationships with internal teams and organizations that may not even know what supply chain is or may have a perception of supply chain as “that group that focuses on delivery of supplies to the point of care.”
It’s very important that we understand and communicate the value supply chain can bring to what I’ll call our “non-traditional categories,” applying best practices in terms of supplier relationship management, supplier performance management, category management, strategic sourcing and contract negotiation.
Speaking of the idea of category management, throughout my career I’ve interviewed individuals that have Category Manager titles on their resume. As I interview them and get more insight into the work that they actually do, more often than not they are actually Sourcing Managers. They’re effectively procurement individuals, running RFPs, negotiating with suppliers, etc.
The way I like to view category management ultimately is about a more future-focused, three, five and 10-year outlook on a specific category of spend. This involves having deep and robust understanding of the supply market and being able to predict where the supply market is going in future years and building strategies to address that. And when I refer to building strategies, I mean more than just which suppliers to award business or what is the proper price point based on benchmark A, B or C? A category strategy is really more around which value levers to target and then aligning those with overall organizational strategies. They can’t be separate and devoid of what the enterprise strategy may be. The category leads must very much become part of, and integral to, the overall organizational strategy.
Whether that’s revenue growth, cost reduction or changing the asset structure from fixed to variable. These are all things that I would say traditional sourcing and contract negotiation may not have visibility to or involvement in. Because of this, supply chain professionals have to broaden their view and have a better understanding of those organizational and enterprise strategies. When we constantly engage suppliers and are focused on product price reduction, we’re missing opportunities for improved value.
Obviously, the biggest cost reduction you can have is to not order a product that you don’t need, but there is also elimination of waste, changing the way a product is designed to be more effectively or efficiently used within the facility and eliminating risk. Category Managers need a broader understanding of where the C-suite for that organization is taking them so they can make sure that the supply strategies support the organization’s goals. They must then find the synergy between what’s happening over the next several years for the organization and what’s happening in the supply market during that same time frame.
We Can Help. Intalere provides resources that can assist in the area of supply chain and supplier relationships, as well as many other areas of your healthcare facility. Review our Financial Transformation Toolkit and reach out to see how we can help. Contact Customer Service at 877-711-5600 or firstname.lastname@example.org or your Intalere representative.