Tag Archives: healthcare supply chain management

Supply Utilization Management (SUM) – Part 2: What it Takes to Achieve Improvement

Peter Cayan

By Peter Cayan, Vice President, and Tracey Chadwell, Senior Director, Advisory Solutions

In part one of our supply utilization management discussion, we began by defining the concept of supply utilization management and explained how so many aspects beyond initial price affect your true cost. In this post, we’ll review how you can build a culture to achieve sustained improvement in support of the quadruple aim of improving patient outcomes, improving patient experience, improving care team experience and lowering the overall cost of care.

An Intalere member at a regional medical center in the western U.S. uses an analogy to explain how to achieve “improvement” to his staff by using the sport of throwing darts. This sport requires practice and dedication, and the more you focus on throwing at the bullseye, the tighter the group will be over time. You might not ever get all the darts in the little red dot, but it will be pretty close.

This, generally, is the goal of any process improvement program – get everyone in the organization to throw those darts (products and services) as close to the bullseye as possible. Hence, maximizing the pursuit of “the aim.”

Utilization management is your bullseye and theoretically your darts could represent any of the products and services that exist within the organization. The end-state goal should define what it is the team wants to achieve. If the team is not involved in formulating the target plan, and goal, buy-in will be hard to achieve.

A key element of getting to “yes” here is the critical requirement of having a defined, transparent and measurable decision-making process. Without this key fundamental team process, all bets are off for hitting the bullseye. It takes the whole organization to make this happen. You want to stack the opportunities and build a standard for identifying prospective wins and tracking progress throughout the organization.

You must develop a function-oriented, systematic team approach for providing, designing or investigating the right functions (primary, secondary and aesthetic) for the products, services and technologies that are required to operate a healthcare organization. Your process should be one which:

  • Takes product/service/technology evaluation and management of supply expense from subjective to objective.
  • Uses a formal, customized and collaborative process.
  • Is data driven (related to clinical efficacy, safety, quality).
  • Is supported by clinical documentation and an evidence-based approach.
  • Determines true requirements/function/purpose.
  • Benchmarks against best practice.
  • Promotes the standardization of products that are clinically efficacious and provide the highest quality care, customer satisfaction and safety to patients in the most cost-effective manner.

Ultimately this builds a long-range planning process that identifies gaps in supply strategies and is successful in creating new behaviors that allow for adaptation, evolving policies and procedures that tackle hurdles threatening success and ultimately yield savings that are real and achievable.

We Can Help. Intalere helps you better understand the strategic nature of supply chain and provides resources that can assist in bringing efficiency and savings to every area of your supply chain. Reach out to see how we can help. Contact Customer Service at 877-711-5600 or customerservice@intalere.com or your Intalere representative.

Supply Utilization Management (SUM) – Part One: The Untapped Well

Peter Cayan and Tracey Chadwell, Intalere leaders

By Peter Cayan, Vice President and Tracey Chadwell, Senior Director, Advisory Solutions

While controlling cost and reducing variation will always be mission-critical functions to any and all supply chain managers, these tip-of-the-iceberg savings represent only about 37% of the total lifecycle cost of supply purchases. The preponderance of your product, service and technology life cycle costs, or 63%, is in your deployment and utilization, or how your commodities are employed by staff in your healthcare organization. 

Total lifecycle management has a beginning, middle and end. At the beginning, there is your value analysis process (i.e. deciding on best value); the middle is your utilization management system (i.e. controlling when and how the product is used) and at the end of the lifecycle you need to economically and ecologically dispose of the product.

While most hospitals, IDNs and other healthcare providers have focused on the beginning and end of this total lifecycle management process, only a few healthcare organizations have a system in place to rein in the middle of this process, or utilization, where most of their lifecycle costs are incurred. This fact could be costing your healthcare organization a significant amount of money each year.

Defining Utilization Management

By definition, utilization management is control of the wasteful and inefficient consumption, misuse, misapplication or value mismatches in the products, services or technologies you are buying. It’s all those things that happen after you deliver products to your customers. 

Waste and inefficiencies in the consumption of products is where 79% of all new supply chain savings are hidden – inferior products, value mismatches, and misused, misapplied, or misappropriated products must be identified and eliminated. What happens?

  • We evaluate, select and contract for a product/service/technology, then staff will often use too many, misuse or waste products, or choose feature-rich products that are more expensive. In addition, vendors may upsell new, higher cost products outside the new contract.
  • Redundancies in supplies and unnecessary deviations in inventory processes lead to variations in practice, many times sacrificing operational excellence for personal preference or comfort.

Let’s say, for example, that your I.V. pump set cost is $4.65 each and you use 100,000 sets per year. Then this $465,000 represents your annual utilization cost for this I.V. set. If your clinical staff is misusing or misapplying, or the I.V. set is a value mismatch (i.e. lower cost alternative available, but not being employed or purchased) of 10%, you are losing $46,500 annually in what we call a utilization misalignment.

Now, multiply this factor by the 7,000 to 15,000 products, services and technologies that you buy annually to help you to understand the impact of how not having a system in place to effectively, efficiently and easily manage and control your supply utilization is compromising your overall cost efficacy.

That’s why price is just the tip of the iceberg to be considered in your spend. This is because you could actually pay more for a product but have a lower utilization cost (e.g. electrode, bath system or lab test, etc.) and still be way ahead of the game. This fact is important to remember as we move to value-based purchasing.

In our follow-up post, we’ll take a look at what it takes to achieve real improvement.

We Can Help. Intalere helps you better understand the strategic nature of supply chain and provides resources that can assist in bringing efficiency and savings to every area of your supply chain. Reach out to see how we can help. Contact Customer Service at 877-711-5600 or customerservice@intalere.com or your Intalere representative.

Intalere Member Best Practice Spotlight-Special Tree Rehabilitation Center-Creating a ‘Win-Win’ For Patients and Providers through Supply Chain Management

ISSUE

In December 2014, the leadership team at Special Tree noted a 12% increase in year-over-year (YOY), 2013 vs. 2014, non-labor spend in spite of working with a group purchasing partner. During the same timeframe, the YOY revenue growth was less than 4%. Special Tree risked a negative impact on staffing levels and an unwanted, cascading impact on staff satisfaction and patient care delivery.

SOLUTION

Special Tree made a strategic decision to strengthen their relationship with Intalere by signing a sole-source provider agreement. The facility also implemented a comprehensive inventory control, purchasing management and ancillary tracking software solution. This solution was integrated with the facility’s EHR system. Special Tree centralized sourcing and procurement, and instituted enterprise-wide vendor contracting policies and procedures. By taking advantage of Intalere’s spend analysis solutions, Special Tree made adjustments to their supplier/distributor/vendor relationships.

OUTCOME

The new processes resulted in the following reductions in non-labor spend: 34.8% in medical-surgical supplies, 45% in office and printer supplies, 10.4% in nutrition/foodservice, 31% in janitorial supplies and 10% in house accounting. Staff satisfaction improved in 2015 as compared to 2014. Detroit Free Press (A Gannett Company) named Special Tree among the Top 100 large employers in Michigan in 2015 for the 6th year in a row!

 ABOUT SPECIAL TREE REHABILITATION SYSTEM

Special Tree Rehabilitation System (STRS) is a for-profit, post-acute care continuum for people who have experienced brain injury or spinal cord injury. Founded in 1974, STRS is a family-owned business that has grown to include 27 facilities serving the State of Michigan. STRS offers sub-acute rehabilitation, residential and apartment programs, outpatient therapy, community rehabilitation and home health services.

Check out the project video and view Special Tree’s page in the 2016 Intalere Best Practices Compendium.

The 12 Fundamental Best Practices of Supply Chain Management (#10-12)

Brent-Johnson-Amerinet-President-and-CEOBy Brent Johnson, President and CEO, Intalere

In my last post of this series, we focus on the final three fundamental supply chain best practices, around internal business costs and processes.

Manage inventory – The key to maximizing your strategy should include aspects of inventory control (access), management (establishing par levels, etc.) and integrity (expiration), and can take some trials and errors in your approach until you find the best fit. One particular example includes a very large hospital system that recognized its need to manage inventory and the basic steps that needed to be put in place which included establishing par levels. The challenge came with trying to apply a particular behavior across all areas. Not all general strategies apply to each department within the hospital. Specifically in high expense areas like Surgical Services, Radiology or Cardiac Cath Labs, the needs are specific to the patient load being serviced. What works in the general supply areas in relation to delivery frequency, numbers of locations of those products, and the number of users having access to the ordering process can vary across these highly specific areas. Make sure to account for that.

Manage distribution and logistics – Healthcare logistics costs are much higher than other industries and we are stuck in traditional practices with traditional models where there is a lack of best practices. Distribution and logistics can comprise up to 38% of supply costs in healthcare. For this reason alone, it is imperative that every touch be quantified and managed. To get a true picture of your logistics effectiveness, you must make sure to include and evaluate these ten dimensions:

  • Facility layout and design.
  • Use of equipment and design.
  • Warehousing processes.
  • Material storage and preservation.
  • Material transportation and routing.
  • Material handling and flow.
  • Use of 3rd party logistics providers.
  • Supplier integration and value-added services.
  • Performance management.
  • Organization and culture.

In healthcare, some systems pursue self-distribution as an avenue to inventory and logistics best practices and improved outcomes. In my previous role as vice president of supply chain at Intermountain Healthcare, we did build our own warehouse. Not everyone should pursue self-distribution, but everyone should have a passion to standardize products, reduce inventories and reduce the touches for each product before it reaches the patient. This can be done by working closely with your distributor. You should manage your distributor as an extension of your own business. But many of the touches are inside our hospitals and clinics, hence we need to do some good self-assessment. 

Establish and monitor controls – As part of the entire supply chain management operation, key performance indicators must be established and regularly monitored. The bottom line is that when you don’t have standards you pay more. You pay for every salesperson and every delivery truck. You pay for the cost of a backorder, late delivery, invoice problem, over-shipment, damaged product and recall. You should seek to be continuously improving in terms of qualitative assessment (logistic processes and practices) and quantitative assessment (key logistic costs, metrics and benchmarks).

This post concludes our look at the 12 fundamental best practices of supply chain management. Working from this strong base, you can adopt a best practice for your facility.

Also, remember that being able to move quickly on what you have learned is a best practice, and last, but not least, remember that in any situation, maybe the best “best practice” is eliminating “bad practices.”

To learn more about how you can become more strategic when it comes to supply chain, click here.

The 12 Fundamental Best Practices of Supply Chain Management (#7-9)

Brent-Johnson-Amerinet-President-and-CEOBy Brent Johnson, President and CEO, Intalere

In my last post, we covered performance management, establishing a strategic sourcing strategy and managing the total cost of ownership as fundamental best practices of healthcare supply chain management. This week, we’ll move on to some supplier focused best practices and one that focuses on the payment process. 

Establish key supplier alliances – Those in the healthcare supply chain must realize first of all, that “beating up” suppliers on price is a profoundly limiting strategy. The tug-of-war between facilities wanting to “buy fewer for less,” and the suppliers wanting to “sell more for more,” creates a zero sum game in which someone will ultimately feel that they have lost. Success depends increasingly on creative, collaborative partnerships, and setting up a win-win strategy that aligns incentives and enhances business, financial and process objectives. For example, Intalere member Northern Arizona Healthcare and Cardinal Health collaborated to form a cross functional team to formulate a best practice process focused on improving price match and days sales outstanding (DSO) rates in order to facilitate price accuracy and prompt payments. The effort paid great dividends for all stakeholders.

Develop a supplier management process – The objective here is an increased level of emphasis placed on proactively managing supplier relationships and developing a framework for measuring the ongoing performance of key suppliers, including performance metrics and analytical tools including supplier scorecards shared process improvements. It can also include a segmentation strategy where suppliers are generally categorized among managed business relationships, alliances, general procurement or bulk product sourcing based on complexity (in design, logistics or specifications) and value (in dollars spent, criticality to the business and market risk).

Streamline the order to payment process – It is also extremely important to implement a common and automated requisition-to-pay process that guides requesters through the steps of procurement, in order to automate approvals and reduce buyer involvement when purchasing through preferred suppliers. Key activities should include converting requisitions to purchase order, managing goods and services, and orders and processing invoices. The key outputs of the system would include an automated process, defined purchasing channels, approved requisitions, purchase order and approved invoice.

In my next post, we’ll close out the 12 best practices with managing inventory, managing distribution and logistics, and establishing and monitoring controls.

To learn more about how you can become more strategic when it comes to supply chain, click here.

The 12 Fundamental Best Practices of Supply Chain Management (#4-6)

Brent-Johnson-Amerinet-President-and-CEOBy Brent Johnson, President and CEO, Intalere

In my last post, I began highlighting the fundamental best practices of healthcare supply chain management, with the goal of helping you elevate your supply chain operation into a strategic resource. We started with a few building blocks – developing a strategy, aligning the supply chain organization and recruiting supply chain professionals. This week, we’ll move on to performance management, establishing a strategic sourcing strategy and managing the total cost of ownership.

Be dedicated to performance management – One of the building blocks covered previously is the importance of recruiting and developing well-rounded and multi-skilled supply chain personnel and fostering a commitment to innovation, excellence and growth. The organization should view supply chain as a high-value generator that responds to market changes and local requirements while keeping a focus on corporate needs. They should then provide incentives for procurement process excellence, linking procurement metrics to strategic objectives and to corporate results and proactively controlling procurement processes.

Establish the strategic sourcing strategy – This step applies advanced sourcing techniques and drives simplification and standardization of sourced products and services. This strategy should focus on elimination of redundancies, refinement of business processes, ideas for continuous improvement and formalized savings tracking systems. A strong strategic sourcing function offers numerous benefits around lower costs, higher quality and greater customer service, while also leading to more predictable and positive patient outcomes. In healthcare, both group purchasing organizations (GPOs) and hospital systems do strategic sourcing. Often hospital systems don’t have the resources to do strategic sourcing for all of the needed categories, products and services, hence they rely on a GPO. Strategic sourcing for commodities and basic med-surg products are best done by GPOs because they are less complex and can be aggregated for the benefit of many customers.

Manage total cost of ownership – More than just the purchase costs and what you actually pay at the time of transaction, supply chain professionals must develop a keen understanding and control of some of the more unseen costs involved in purchasing. For example, they must know, “How much do my usage patterns and processes add to cost?” Also, “How much does the way I work with my vendor affect my cost?” Understanding aspects like inventory carrying costs, expired products, physician preference costs, logistics and distribution, expediting and special delivery and payment, can bring further clarity and cost savings to your operation.

In my next post, we’ll review establishing alliances, developing supplier management processes and streamlining the order-to-payment process.

To learn more about how you can become more strategic when it comes to supply chain, click here.

The 12 Fundamental Best Practices of Supply Chain Management (#1-3)

Brent Johnson Intalere President and CEOby Brent Johnson, President and CEO, Intalere

In previous posts, I’ve shared with you how important a role the supply chain plays in the efficient operation of your healthcare facility. Over the next several weeks, I’ll be offering a series of posts highlighting the fundamental best practices of healthcare supply chain management, in the hopes that these tips can help you mold your supply chain operation into a strategic resource for your organization in 2016. We’ll start with a few building blocks this week – developing a strategy, aligning the supply chain organization and recruiting supply chain professionals.

Develop the strategy – This begins with defining needs and opportunities and then coming up with a game plan that allows for the ability to optimize the people, processes and technology within the organization to deliver greatest value. The supply chain mission and vision should align with the corporate mission and vision. When senior leadership recognize supply chain as critical to their mission and success, then supply chain becomes very important to them. Often the first steps of a good supply chain strategy starts with educating senior leadership on the benefits of implementing good supply chain strategies and practices in their company. If you don’t have that, it’s an uphill battle. One of the most important things that healthcare facilities can do to become more efficient and cost effective is to stop thinking like a healthcare facility. Look beyond traditional industry solutions and study proven business strategies used outside of healthcare.

Align the supply chain organization – Optimizing the healthcare supply chain may mean very different things, depending on the size and scope of your organizations, but at the very least, it mandates a change in thinking as well as practice. It means that supply chain management needs to define its strategic role and begin to execute value-added activities across all aspects of the supply chain. Advantages of optimizing your supply chain include:

  • Enhanced operational costs with a total cost of ownership focus.
  • Improved quality through increased compliance with contracts and reduced organizational risk.
  • Improved patient outcomes and safety through integrated systems to reduce errors and streamline procurement via automation.

Completing this should include C-Suite buy-in and support, setting clear leadership in terms of responsibility and authority, building supporting infrastructure and investing in technology.

Recruit and develop supply chain professionals – In healthcare we generally lack supply chain talent because of our focus on patient care and not best business practices. As possible, senior leadership must commit resources to bring in skilled and talented people as part of the supply chain function or partner with someone who can bring that expertise. By talent, I mean people who are strategic thinkers, analytical and have good interpersonal relationship skills. It helps if they understand supply chain best practices, but you can always give them the exposure or training to apply their talent to supply chain.

Developing well rounded and multi-skilled supply chain personnel and fostering a commitment to innovation, excellence and growth is a high priority. Provide incentives for procurement process excellence.

In my next post, we’ll look at performance management, strategic sourcing and managing total cost of ownership.

To learn more about how you can become more strategic when it comes to supply chain, click here.