STRATEGICSUPPLY CHAINMANAGEMENTR E S E A R C H B Y L E E A N N J A R O U S S E

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STRATEGICSUPPLY CHAINMANAGEMENT

C aU it a silver lining, of sorts. The economic downtum has given tiie supply chain renewed prominence,boosting it in many hospitals from the basement to the executive suite. Organizations that have placedstrategic focus on the disdpline are reaping significant savings, but that's not all. A high-functioning

supply chain can improve employee satisfaction — particularly nurse satisfaction — and positively impactpatient safety and outcomes.

"The supply chain affects so much ofthe hospital organization that it needs to be embracedas a G-suite, strategic issue," says Jamie Kowalski, who worked on supply chain initiatives in

a variety of health care settings before founding his own consulting firm. Adds DeborahSprindzunas, executive director ofthe Assodation for Healthcare Resource & MaterialsManagement "Organizations need to raise the bar for the supply chain and get the GFOto pay more atiention. It's an uphill battle. Many GEOs do not look at the supply chainfi-om a strategic perspective."

Taking a holistic view can change that notes Kowalski. On paper, the supply chaintypically accounts for 30-40 percent of a hospital's expenses but "you can't just look at thecost of goods. If you factor in the actual cost of procurement, storage and all ofthe otherfactors assodated with supplies, induding engineering, pharmacy, food service and nurs-es' time spent on supply chain activities, the supply chain accounts for 50 percent of anorganization's budget"

And Sprindzunas points out that around 2020, medical supplies wül surpass laboras the biggest expense for hospitals and health systems.

The best place to start is with the low-hanging fhiit Standardizingcommodities, maximizing use of contracts with group purchasing

organizations and inventory management can tum up significantsavings. In many cases, organizations wiU find they are not

using the relationships with their vendors to the fullest extent.However, the biggest opportunity lies in resource uti-

lization and reducing variation in care. "You cannot sacri-fice quality for cost," says Ed Smith, executive director of

supply chain management. University of MississippiMedical Genter, Jackson. "For that reason, we don'tbase our dedsions solely on cost In some cases, the

higher<ost item is assodated with better outcomes. If wecan reduce length of stay, eliminate infections and speed recovery

time, we are impacting the bottom une in a big way."Making the connection is not easy. "I don't think supply chain execu-

tives have the data at their fingertips to really look at utilization pattems," saysMike AEdre, chief operating officer at Premier Inc. health care alliance. "Whenyou have that data, you can begin to talk to physidans to say, 'Let's look outcomes.'If we're not seeing any clinical delineation, let's figure out ways we can share bestpractices by driving costs down."

Gamering physician support is key. It's critical to involve them throughout thevetting process both to enhance their understanding and to receive valuable input on the

care delivery process. "The big challenge is preserving choice for physidans," says WiEHamStitt, vice president, materials management Robert Wood Johnson University Hospital, New

Brunswick, N.J., and president of AHRMM.Physidans are welcoming the opportunity to become more involved in the product selection

process. "In my time in health care, I've never seen physidans so interested in finding ways to standardize tiiespecifications for products," AUdre says. •

con

Key Supply ChainChallenges

The underutilization of supply chain data standardsresults in significant inefficiencies across the entire

supply chain continuum.

The supply chain needs to be elevated to theC-suite level to recognize its strategic innportance

within the organization.

'I

Many organizations still operate disparate supplychains serving individual departments and service

lines, inhibiting an organization's ability to coordinatepurchases and limiting its ability to understand

total supply chain costs.

Physicians and other clinicians like choices andautonomy and are often loyal to particular products

and brands.

H,5H« research, 2011

Senior SupplyChain Leaderon ExecutiveTeamslightly more than half of senior supplychain leaders in hospitals today aremembers ofthe executive team.

Source AHRMM 2011 National Executive Survey onSupply Chain Management

Key Supply ChainFinancial MetricsBelow are key financial metrics to measure supply chain performance.

• Supply expense as percentage of net revenue

• Supply expense/supply intensity score per adjusted discharge

• Supply expense as percentage of gross revenue

• Supply expense as percentage of net revenue

• Supply expense as percentage of operating expense

• Supply expense, excluding drugs, per case mix index adjusted discharge

• Inpatient drug expense/prescription intensity-weighted discharge

• Supply expense per CMI-adjusted patient day

• Supply expense per adjusted patient day

• ROI (total cost savings facilitated by supply chain as seen in profit and

loss divided by total cost to run supply chain)

• Operating margin impact (percentage of operating margin that is

attributed to supply chain cost savings)

Sources: Repositioning Supply Chain in Health Care Svslenij, Health Sector Supply Chain Research Consortium,Arizona State University. 2010, and University HealthSystem Consortium. 2011.

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ABOUTTHiS SERIES:This article is part of our yearlong Fiscal Fitness series focusing on proven strategies hospitals and health networks have under-taken to contain expenses in the face of an increasingly constrained financial environment. The series will look at cost-cuttingefforts across the entire organization or in specific areas, such as the supply chain or energy use. It will look at how hospitals useLean, Six Sigma or their awn homegrown inethodalogies to create efficiencies and control spendingThe series includes articles in Hospitals & Health Networks and multimedia contant in our onlinenewsletter, H&HN Daily. The January issue of the magazine will feature a foldout section focusing

V Ttifi series is sponsored by VHA.

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I University of Iowa Hospitals and Clinics, Iowa CityRelationship building. That's a key stirategy of the University of Iowa Hospitals and Clinics' supplychain team. "We have to be service-oriented and make sure we are good supply chain stewards,"says Frank Eisdiens, R.N., director of procurement and value implementation services. Theseefforts build trust among dinidans and physidans and help gamer support for supply chain initia-tives. "We need to provide great products, great prices and great services," Eisdiens says. "That's crit-ical." Through partiiership with its GPO and a focus on price negotiations and product standardi-zation, among other things, the organi2ation achieved $14 million in savings over an 18-month peri-od. "The two main costs in health care are supplies and people," Eisdiens notes. "If we can't cutsupply cost, we have to reduce [the number of] people. That's a driving factor for all of us."

I University of Mississippi Medical Center, JacksonIlie University of Mississippi Medical Center began formalizing its supply chain about four yearsago. Before that time, materials management was a Monday-to-Friday operation and ptirchasingwas siloed within departments and service lines. The organization had low compliance with itsGPO contiract and no primary distributor. Inventory was held off campus on the upper floors of aconverted retail mall and difficult to access. The supply chain has undergone a complete overhaul,starting with consolidating to a single purchasing department, establishing a new GPO contractand using a single distributor. The warehouse was dosed and the organization maintains betweenfour and five days' worth of inventory on-site. And the organization has installed a new materialsmanagement information system. Combined with efforts of a value analysis team, the medicalcenter has realized more than $10 miffion in savings as a result of these efforts. "We've built thesupply chain, but those savings can quickly erode," says Ed Smith, chief supply chain managementofiScer. "We have to stick with our poHdes and procedures so new products don't aeep in." Theorganization now is focusing on utilization. "That's the next big frontier," Smith says.

I Scottsdale (Ariz.) HealthcareThree years ago right in the midst of the economic downturn, Scottsdale Healthcare opened a newfacility. "We had a rough fiscal year three years ago and we actiially lost a little bit of money," notesMike Hildebrandt, associate vice president of supply chain. The hospital joined a new GPO andbegan looking for ways to achieve savings without sacrificing cost and quality. Scottsdale assembledseven value analysis teams to focus on standardization. To date, the organization has achievedmore than $13 million in savings. The multiple teams have allowed Scottsdale to work simultane-ously on multiple projects within various service areas. "In order to hit those savings targets qxiick-ly, we needed to move quicMy," Hildebrandt says. The CMO has championed the organization'sefforts. "We've promised our physidans we wül not make changes without consulting them,"Hildebrandt says.

Supply chainprofessionalsworking as

C-suiteexecutives areable to apply

their skills andexpertise in

contractnegotiation,

projectmanagement,utilization andmore to areas

beyond generalsupply chainmanagemeîit,

includingclinical

products, IT,^nutritionalsupply and

licalgineeriñ^.

Resource S MntnrManageme.':

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