Tag Archives: supply chain management

How to Find Opportunities to Advance Your Supply Chain Organization

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

A recent supply chain survey conducted by UPS found that only 18 percent of companies could produce a current supply chain strategy document with a detailed project roadmap. Why? Much of it has to do with the fact that supply chain, especially in the case of healthcare, is extremely complex and challenging in terms of scope and development. Just that initial fact is enough to keep organizations from getting started. But it is extremely important for healthcare executives to understand, that with the coming pressures of healthcare reform, supply chain management will need to become a competitive differentiator for many organizations. Externally purchased materials and services represent 40-45 percent of a company’s total cost structure, making supply chain best practices adoption the most powerful cost-reduction and quality lever available.

So what are some of the steps that an organization can undertake, whether through their own initiative, or by partnering with a consultant or facilitator, that can more easily get the ball rolling? Let’s take a look at some solid steps to follow, starting with data analysis and pre-assessment:

  • Conduct a qualitative assessment across the people, processes and technology of the organization.
    • People – Understand gaps or hand-offs between internal customers and materials. What, if any, staffing limitations exist? What are the currently defined roles and responsibilities of current staff and what might cross training needs be? What’s the scope of influence of your supply chain across the non-labor spend of your company? What’s the talent level of your supply chain resources, and can they lead strategic improvements in categories beyond med-surg?
    • Processes – In this area, you need to gain a full understanding of the current state of supply chain skill sets, resources and communication dynamics, with an eye toward coordinating the organization in all service areas related to procurement processes and possibly formulating a plan for standardization of products. Understand how/why clinical staff outside of supply chain order product, what the current policies and procedures are, how space is being utilized in terms of inventory, and what is being done to mitigate product waste or to reduce the touches of products from “dock to doc.”
    • Technology – Identify metrics needed for each area – med surg, pharmacy, etc. – to help those managing understand what they should be measuring to gauge performance. Identify tools that can assist in integration and help to operationalize tracking of spend, and other related details.
  • Quantitative assessment of supply chain data. Depending on what size and type of facility you have, it is important to understand where you are currently in terms of relevant supply chain benchmarks. Some areas to consider in setting benchmarks that can help you establish next steps:
    • Procedure volumes, including encounters by specialty and encounters by physician.
    • Spend – Spend analytics is the foundation of supply chain management. It’s important to know the volume, by category, of all the non-labor spend within your organization. Other data needed would include inventory volumes by areas, supplier/vendor spend and spend volumes by unit cost and month.
    • Inventory – par levels, inventory velocity, waste management and reduction.

With these basics established, you can begin to gain a clear picture of where you are and where you may need to go. In subsequent posts, we’ll examine how you can use this information as the building block to take you from your current state of supply chain operations to a more fully integrated and advanced future state.

Learn more about Intalere’s supply chain solutions.

Four Key Capabilities for Supply Chain Excellence

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

Healthcare entities have long been behind the curve when it comes to supply chain success. But in recent years, I have noticed we are beginning to “turn the corner,” and focusing on equipping our organizations and people with the resources and knowledge to elevate the supply chain as a strategic driver of change. At the forefront of this movement, the Association for Healthcare Resource and Materials Management (AHRMM), the premier membership group for healthcare supply chain professionals, began an initiative several years ago built around CQO – Cost, Quality and Outcomes.

Supply chain is now at the intersection of CQO and is best positioned to be a champion of it within their organizations. As such, supply chain professionals should understand and teach the importance of CQO to physicians, stakeholders and other supply chain employees. In a fee-for-value world, progress towards true CQO is absolutely critical. It’s never been a better time to be a supply chain professional. With that in mind, what are some of the foundational capabilities that will best position your healthcare supply chain organization for success?

      1. Analytical Excellence – Understanding links between cost and clinical outcome is impossible without advanced data, analytical and reporting capabilities. Appropriate, applicable data forms are the foundation for financial clarity and also provides the evidence to tie together clinical and operational functions so that all those involved can see the true picture from both aspects. Investing in and utilizing high quality data and spend analysis tools is imperative to reducing costs and maintaining clinical outcomes.
      2. Infrastructure for Physician Collaboration – Effective physician collaboration depends on specialized technological, political and administrative capabilities. Physicians must have a “seat at the table,” from the outset so that they can understand the tools, processes and challenges that affect all decisions. Physicians and others will be better able to support any initiatives because they have collaborated from the outset through collection and analysis of data, identifying opportunities, vendor selection (if necessary) and strategy development. Success depends on their full confidence in the integrity of the process and their voice in determining acceptable solutions. Above cost, their primary concerns include maintaining quality of care, quality outcomes and product/process choice to suit patient needs.
      3. Value-Oriented Culture & Processes – Understanding cost implications of clinical decisions across the care continuum is an indispensable capability in new markets. The ultimate focus should be on patient and clinical benefits, with savings as a secondary consideration. What you will find in most cases is that if you also keep an eye towards minimizing variation in product, service and process, significant savings will be achieved as well. A value-oriented culture which involves stakeholders throughout the organization allows supply chain to be an equal partner in important decisions. Goals must be closely aligned throughout the organization, which allows for leveraging shared strengths and encourages growth and expansion across the continuum of care.
      4. Collaborative Supplier Relationships – “Beating up” suppliers on price is a profoundly limiting strategy. Success depends increasingly on creative, collaborative partnerships. Suppliers reward commitment, so focus on a contracting strategy and portfolio where volume will drive pricing, especially in the case of commodities. Develop appropriate relationships with suppliers that support your mission, vision and values and endeavor to use suppliers as extensions of your teams and capabilities.

Visit Intalere’s website to learn more about our supply chain solutions.

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 (#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.

Supply Chain Strategies in Healthcare Reform Will Require Much More than Price Management

Brent Johnson
by Brent Johnson, Intalere President and CEO

Supply Chain Management is practiced by most large companies with significant financial success, but what exactly is Supply Chain Management? More than just seeking to pay a lower price on products and services, it entails a disciplined, systematic process of analyzing corporate expenditures and developing strategies to reduce the total costs of externally purchased materials and services. It involves:

  • What you buy.
  • Who you buy from.
  • How you buy.
  • What you inventory.
  • How you use the products and services you buy.
  • –How you can make those products and services better.

This is where the idea of “strategic sourcing” comes in and represents a core step in elevating the supply chain function. It generally includes basic steps such as collecting data and analyzing spend, as well as research of the market including suitable products and suppliers. Within this step, it is important to understand the total cost of ownership. This generally includes purchase costs, which are much easier to see and basically how much you pay at the time of transaction. Less apparent are things like internal business costs and joint supplier/customer costs.

Internal business costs include things like inventory carrying costs, expired products, physician preference costs, procure to pay costs, lack of standardization and non-compliant utilization. Joint supplier/customer costs can include logistics and distribution, damaged products, expediting and special delivery and payment.

Total cost of ownership forms the basis for strategic sourcing, which yields numerous benefits all aimed at lower costs, higher quality and greater customer service. In term of supplier interactions, it can lead to a reduced number of suppliers, and perhaps some new ones, but also stronger relationships with those who remain partners, including better service levels and longer-term contracts.

On the business side, consolidated buying and rigorous negotiation naturally yield lower prices. But beyond that, with an expanded focus on value, strategic sourcing offers elimination of redundancies, refinement of business processes, ideas for continuous improvement and formalized savings tracking systems. But most important to the end user – the patient – standardized product specifications can help lead to more predictable and positive patient outcomes.

Access Intalere’s library of resources to learn more about various supply chain related topics.