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Intermountain Health - Pres

Brent Johnson, VP of Supply Chain at Intermountain Healthcare, gave a presentation on supply chain best practices in healthcare. He discussed Intermountain's supply chain transformation efforts that have saved over $130 million through strategic sourcing, centralization, and performance management. He outlined 12 fundamental best practices of supply chain management, including developing a strategy, strategic sourcing, managing total cost of ownership, and establishing key supplier alliances. The presentation provided examples of how these practices have been applied within Intermountain to improve outcomes and lower costs.

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Medline Healthcare Executive Meeting January 21, 2009 A Review of Supply Chain Best Practices in Healthcare Brent Johnson VP Supply Chain Intermountain Healthcare
Topic Overview 1. About Intermountain Healthcare 2. Intermountain’s Supply Chain Story 3. What is a Best Practice? 4. Supply Chain Best Practices 5. Best Practices application Health Care 6. Summary – Next steps
About Intermountain Healthcare
Intermountain Healthcare Facts • Headquarters: Salt Lake City, Utah • Created in 1975 as LDS Church gifts its hospitals to the community Nation’s top integrated system • Modern Healthcare #1 or #2 for the last seven years ‫ 000,03 ـ‬employees – largest company in Utah • Hospital network – 23 Hospitals – 2,500 Licensed Beds • Clinic Group – 800 Employed Physicians – 120 Clinic Sites – InstaCares – ExpressCare • SelectHealth – health plans – Direct Enrollees – 520,000
More Intermountain Healthcare Facts • $3.4 billion in Net Patient Services Revenue $5.0 billion in Assets • AA+ Standard & Poor’s Aa1 Moody’s Only System to receive highest ratings from both S&P and Moody’s GE / Intermountain joint venture for clinical information systems Geographic Focus • Strategic decision to limit expansion • Focus on markets that “funnel” to Salt Lake City • Clinical Integration in a defined area
Intermountain Healthcare Continues to Receive National Recognition
Being Nationally Recognized Really Matters When Life and Health are on the Line – EXAMPLES of Using Evidence Based Medicine • Better managing glucose levels during heart surgery, we’ve decreased morality rates eight fold for patients with levels over 300mg/dl • We’ve pioneered a heart medication discharge process, reducing readmission rates • We’ve reduced the average heart attack treatment time to 67 minutes beating the national goal by 23 minutes • We’re working on hundreds of clinical processes in the areas of cancer, intensive medicine, women and newborns, pediatrics and other specialties
Intermountain’s Supply Chain Story
Intermountain Supply Chain Organization Developments – Last 4 Years • Hired supply chain leader from outside of healthcare • Created a new SCO organization • Hired 25 new people • Developed rigorous but open sourcing strategies • Centralized the buyers • Centralized the reporting relationships of the warehouses • Added Couriers, Travel Services and Central Laundry – we are now over 600 employees • Developed relationships with key stakeholders…clinical programs, regions, physicians, hospital administrators, etc. • Delivered on savings - $130 Million
System Non-Labor Savings is Over $130 M Since SCO Was Organized SCO Validated Savings Operating Year (incld. avoidance) Capital Total 2005 7.1 2.0 9.1 2006 15.8 7.9 23.7 2007 26.5 13.7 40.2 2008 17.2 8.1 25.3 2009 20.7 10.8 31.5 Total 87.3 42.5 129.8
On-Going SCO Initiatives Drive Value Beyond Just Sourcing Savings 1. Purchasing Policy – A corporate-wide purchasing policy 2. P-card program – 2,500 cards, 15,000 transactions/month, $3 M/mo 3. Vendor access – Utilizing 3rd party to do vendor credentialing 4. Intermountain Green Team – Leading Green Team 5. Energy strategy team – Lowering long-term facility ownership costs 6. Central Laundry improvements – Utilization & costs are down 7. Couriers – 10,000 miles, 1,200 stops every day with few problems 8. Small Facilities Warehouse – On Vine Street to support MG Clinics 9. Contract Management System – (Ideal) Must know & manage contracts 10. Lean/Change Management – Developed training for all SCO managers 11. Community friendly purchasing – Women, minority & small businesses
SCO in Three Years - Vision • Continue to build a world class Supply Chain Organization – focused on (1) reducing costs, (2) enabling increased care & charity, (3) improving patient care and (4) having a passion to find best practices • Simplify the Supply Chain by  Taking out the complexity and cost  Leveraging technology  Eliminating variation from products and processes  Heavy use of self-contracting and self-distribution • Embrace and adopt industry data synchronization • Increase influence on “total” non-labor spend • Have more control over more supply chains than med-surg - IT, clinical, nutrition, etc. • Assist Intermountain in consolidating, standardizing and centralizing redundant ancillary services • Increased skills and results in linking high quality patient care to supply chain activities • Do “joint contracting” with other hospital organizations • Dedicate continuous emphasis applying TCO (Total Cost of Ownership) to long-term decisions • Develop highly engaged employees with the right skill set, drive and known career paths • Become a better community citizen
Current Healthcare Supply Chain is Inherently Complex and Costly This drives the SCO Vision National GPO Contracting Tracing Fees Distribution (3-4%) (4-12%) Channel Fees (4-6%) Manufacturer Distributor Additional Provider Payment Term Markup Discount (2%) (4-8%) Volume Rebates (1-2%)
We Set Out To Save $100 Million! Along The Way, We Changed A Culture.
What is a Best Practice?
What’s a Best Practice? The Greeks gave up frontal assaults on the Trojans and built the wooden horse by being smarter, not working harder, and got better results Possible definitions: • A technique, method, process, activity, incentive or reward that is more effective than any other • Best method of operating a common process • A process that produces the best benchmark • Something to get the best ROI
Best Practice Ideas • Best practices need to demonstrate being fast, adaptable and integrated • Every practice tends to be situation, industry and customer specific • Don’t reinvent - go study everyone else and steal the best and apply it to your company • Envision the best case scenario and start down that path • Use benchmarking & gap analysis to identify best practice companies
What Is This Man Famous For??? Theory of Relativity E=mc2
But His Best Work May Be His Definition of Insanity: “DOING THE SAME TASKS OVER AND OVER AGAIN AND EXPECTING DIFFERENT RESULTS.” ALBERT EINSTEIN
Supply Chain Best Practices
Supply Chain Management is Practiced by Most Large Companies with Significant Financial Benefit It is 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 we buy • Who we buy from • How we buy • What we inventory • How we use the products and services we buy • How we can make those products and services better
Supply Chain Management Yields Many Benefits • Reduced number of suppliers • And maybe some new ones • Lower prices • Consolidated buying • Rigorous negotiation • Standardized product specifications • Stronger relationships with suppliers • Better service levels • Longer term contracts • Elimination of redundancies • Elimination of business processes • Ideas for continuous improvement • Formalized savings tracking system …lower costs, higher quality and greater customer service
12 Fundamental Best Practices of Supply Chain Management 1. Develop the strategy 7. Establish key supplier alliances 2. Align the supply chain organization 8. Develop supplier management 3. Recruit supply chain professionals processes 4. Be dedicated to performance 9. Streamline the order-to- management payment process 5. Establish strategic sourcing 10. Manage inventory strategy 11. Manage distribution & logistics 6. Manage total cost of ownership 12. Establish & monitor controls (TCO)
1. Develop the Strategy  How to develop a strategy without a “burning platform”  Senior management support is first and most critical  Scope – Total non-labor spend (at least 70-80%)  Total process, organization, strategy and culture evaluation is needed  This is about culture change - Change management principles will be required to succeed  Communication and branding is critical
Eight Dimensions of Supply Chain Effectiveness Work Strategic Logistics Supplier Transactional Processes Sourcing Management Development Procurement Management Performance Management Processes Direction Strategy Organization Culture Setting
Significant Opportunities Exist in “Outside Services” Throughout Most Industries – We Are No Exception Procurement Involvement and Level of Challenge Percent of Respondents 82% 78% 78% 76% 71% 53% 42% Actively Supported 40% 40% 37% 35% 28% Significant Difficulty 25% 26% 24% 17% 15% 14% MRO Travel IT/Telecom Direct Spend Outsourced Consulting Marketing & HR Benefits Legal Services Advertising Cost Savings Potential Estimated Savings as a % of Spend 16% 14% 13% 13% 12% 12% 12% 11% 11% 11% 11% 10% 10% 9% 9% 9% 9% Absolute Opportunity 8% Realistic Goal MRO Travel IT/Telecom Direct Spend Outsourced Consulting Marketing & HR Benefits Legal Services Advertising Procurement Strategy Council – Survey Findings
2. Align the Supply Chain Organization  SCM must be properly organized in order to execute the plan  In a perfect world, the supply chain organization will have the functions of:  Purchasing  Sourcing  Contract Management  Materials Management  Logistics  Centralized or de-centralized? Answer depends and varies by company  Common Theme: Centralized with some decentralized execution
3. Recruit Supply Chain Professionals  Keep and develop the best of the existing employees  Keep A’s and potential B’s. Redirect C’s.  Recruit SCM professionals with the right mentality  More focus on strategic thinking  Less focus on measuring transactional activity  Different skill sets needed today vs. historically  Interpersonal communication  Strategic thinking  Technical Skills (analytical, subject matter expertise)  Project Management Skills  Relationship management skills
4. Be Dedicated to Performance Management  Spend analysis is the foundation  You must know what you are buying – corporate wide  Must be able to validate outcomes  Open, transparent validation of savings process  Savings reports – validated vs. realized savings  Utilization information is critical  Big barrier is inability to retrieve precise spend data  Clean item master data info  Best of class companies navigate the challenges of getting data from multiple systems to retrieve meaningful data
5. Establish Strategic Sourcing Strategy  What is Strategic Sourcing?  It is a disciplined, systematic process of analyzing corporate expenditures and developing strategies to reduce the total costs of externally purchased materials and services  Strategic Sourcing is the Cornerstone of Supply Chain Management  Use the Sourcing Square – should a purchased solutions be a strategic alliance, long-term non-strategic partner, high transactional non-strategic supplier, or purchase order  And after Strategic Sourcing comes complete Category Management as an even more rigorous best practice  Strategic Sourcing is not a one time event, it is an on-going way of business  Post sourcing is a conscious effort  Price continues but not as strategic  Supplier’s accept shared responsibility for outcomes  Cost creep happens when interest and attention wane
The 7 Phase Strategic Sourcing Process I II III IV V VI VII SAVINGS SOURCING AS-IS SOURCING OPPORTUNITY OPTION COMMUNICATE PERFORMANCE ASSESSMENT STRATEGY IMPLEMENTATION IDENTIFICATION DEVELOPMENT & CELEBRATE MANAGEMENT SELECTION A. Data Collection A. Vision & A. Executive A. Manage & B. Stakeholder Buy-in Assumptions Communication Monitor C. Champion B. Sourcing Savings B. Internal & Performance to Identification Options External Predefined D. Team Formation C. Executive Approval Communication Strategy E. Team Training • Vision C. Celebration B. Incorporate New F. Stakeholder A. Total Cost of • Assumptions A. Sourcing Strategy A. Reassess Team Continuous Communication Ownership • Options Verification Composition Improvement Plan B. Supplier D. First Supplier B. Third Supplier B. Conduct Kickoff Opportunities Identification Screening Screening C. Manage C. Track & Report C. External E. Request For C. Develop Stakeholder Performance Assessment Information (second Implementation & Communication D. Manage D. SCE Internal supplier screening) Performance Plans D. Initiate Deviations Assessment D. Management Implementation E. Sourcing Strategy Participation & Review Approval E. Negotiation & Supplier(s) Selection F. Commitment to Long Term Total Cost Savings
Examples of Non-Standard Products that Needed Strategic Sourcing Coflex – wrap Plastic Orthopedic soft bandaging containers goods 37 products 157 products 5,500 products 5 suppliers 40 suppliers 197 suppliers $316,000 spent $613,000 spent $3,400,000 spent Consolidated to 16 Consolidated: Consolidated: products, 1 supplier: $670,000 savings $120,000 savings $53,000 savings And there are a thousand more just like these!
Our Roadmap to Success As the SCO Matures, “World-Class” Will Require Progression to Value-Add Category Management Price Focus TCO Focus Value Chain Focus Contracting Strategic Sourcing Category Management Procurement Competence Over Time 2005 2008/2009 2012
6. Manage Total Cost of Ownership THIS IS ABOUT: Instill Total Cost of Ownership / Total System Cost Mindset  Your suppliers costs end up being your costs  Move away from looking at just lowest price  More focus on best value  Evaluation of all factors that make up the cost of goods and services
It’s Important to Remember the Scope of Supply Chain Management Dispose (goods) SCM Benefits The Supply Chain Use • Reduce supply base and • Develop alliances maintain • Total cost reductions • Team purchasing Pay • Integrated support with logistics Freight, • Strategic vs. tactical receive, store, • Increased skills and distribute • Reduced inventory goods • Improved customer Create goods service or services (supplier) Requisition and buy Select supplier and • It’s more than just good purchasing practices contract Define • It’s all of the non-labor spend in a company needs & opportunities • It’s also the processes to get it into the company
7. Establish Key Supplier Alliances  Long-term relationships based upon trust, cooperation, commitment and open communication  Objective is to work together to reduce costs and share in the benefits  Reduction of suppliers is a natural outcome of supply chain management  Leverage your buying power by consolidating purchases with fewer suppliers  Cut administrative costs by managing fewer suppliers  Find your best suppliers and grow them
8. Develop Supplier Management Processes  Supplier Management: the forgotten or ignored step in Strategic Sourcing Process  Outstanding suppliers are rarely discovered ready to be good partners, but rather are developed by their customers into what they need to be  We must view and manage our suppliers as extensions of our own business  If you don’t manage our suppliers, they will manage us!  Establish supplier teams that actively manage the largest suppliers Joint goals  Quarterly business reviews  Joint goals  Establish & monitor key supplier metrics and measurements  Make sure you manage the supplier according to the evaluation criteria that you chose them  Why was the supplier chosen in the first place…price, quality, service, other?  How will we know when the supplier is failing to perform?
9. Streamline Order-to-Payment Processes  Transaction efficiency should be a passion  All order-to-payment processes are added costs to the system  Streamline and simplify everywhere possible  Paperless, low-cost, user friendly  Maximize use of technology
10. Manage Inventory  Inventory is money. Ask any CFO!!  Utilize proactive strategies to minimize inventory maintained  JIT  VMI  Reducing lead times  Taking more risk  Leverage tools and technology  Effective demand and forecasting methodology  Intrinsic forecasting techniques  Supplier integration
11. Manage Distribution & Logistics The best companies make the following a high priority:  Facility layout & design – flexible, cross-docking  Use of equipment & technology – automated, integrated  Warehouse procedures – documented, integrated  Material transportation & routing  Material handling & flow  Use of 3rd party providers  Supplier integration & value added services
12. Establish & Monitor Controls  Make policies and procedures simple and easy to understand  Controls should be adequate to deter fraud or ensure that improper decisions are not being made and doing so without adding unnecessary process steps  Simplify process and controls – then select correct technologies to complement  Contract Management is a focal point for best of class companies  How can you mange your company’s contracts if you can’t even find them?  Contract compliance for compliance monitoring – maverick spend  Standardizing terms & conditions mitigates risk  Automate – due dates, expiration dates, etc.  Analyze contract performance
Health Care Supply Chain Best Practices
In Healthcare We Have Clinical & Non-Clinical Products & Services Clinical Categories Non-Clinical Categories Administration Commodities Construction Clinical Commodities HR High-preference Items Nutrition IT & Telecom High-cost preference items Marketing
12 Healthcare Supply Chain Executives Offer Best Practice Ideas • Use of EDI • Auto receipt & matching with real time credits, returns and rebills • Monitor profitability of each department/program • Standardize products working with clinical committees • Optimize procure-to-pay processes • Efficient recall systems • Contract compliance • Master data management – standards • Link materials (item master) to revenue cycle (charge master) • Internalizing equipment maintenance • Self contracting • Self distribution • Value analysis • Nightly electronic reordering based • Supplier credentialing upon replenishment needs • Real-time pricing and charging • Auto replenishment of inventory How aggressive are these?
Brent’s Additions to Best Practices in Healthcare • Implement pcard • PPI strategies • Value analysis – Clinical TCO application of strategic sourcing • 80% of all non-labor spend controlled by suply chain • High % of item master under contract • Touch-less purchasing • Reverse auction – eProcurement • Clinical products (OR & Cathlab) controlled by supply chain • Performance measurement • Sourcing strategies unique to healthcare such as PPI (endo, spinal, CV, ortho) and reprocessing
Rigorous Supply Chain Practices are not as Common in Healthcare • Supply chain sophistication is lacking – healthcare is behind in rigorous best practice development • Bidding is primary activity • Price is primary focus • Not-for-profit presence reduces business focus • Clinical excellence is primary focus • Personal preference (especially with physicians) prevent Purchasing influence and ability to develop business with large partners where appropriate • Suppliers have never been rewarded for alliance behavior, hence have not developed or justified this activity within their organizations • Openness, transparency and trust generally are not common characteristics of healthcare suppliers and providers • Industry dependence upon GPOs & distributors makes the supply chain more complex and difficult to develop one-on-one relationships DRAFT - For SMI Team discussion only
Here’s a Problem…GPOs do Contracting…Not Strategic Sourcing Traditional Contracting Analyze Analyze Analyze Develop Manage Award & Implement Spend Category Market Strategy Negotiations Contract Strategy Strategic Sourcing Without doing true strategic sourcing it’s mostly about price with “their” suppliers
Solution GPOs should be used as a TOOL not a STRATEGY Unfortunately, many use it as a strategy!
How Much Self-Contracting? …Should Require Some Evaluation of Costs vs. Benefits Self Use Contract GPO Another approach introduced by Stratcenter is “Optimal Contracting Balance” (OCB) between GPO and IDN agreements*
How Much Self-Contracting Can Your Organization Afford? • Intermountain Healthcare’s experience: • Invested $2.5 million/year into a new supply chain organization • Obtained $20 million additional savings/year • 8 to 1 payback • Is this why 78.3% of IDNs expect to increase the dollar amount they contract for locally vs. relying on it’s GPO (StratCenter info)
There is Power and Huge Benefit in Supply Chain Management in Healthcare • A penny saved is a penny invested somewhere else in healthcare • When we allow personal preference guide decisions we pay more • When we don’t have standards we pay more • When we don’t leverage our company we pay more • Personal preference shouldn’t be confused with clinical excellence • Product variation does not make clinical excellence “uncontrolled variation is the enemy of quality” (Deming)
Other Comments about Supply Chain Management – Healthcare Industry • One man’s waste is another man’s income • Non-profit should not mean not-as-efficient • We pay for every salesperson and every delivery truck • We pay for the cost of a backorder, late delivery, invoice problem, over-shipment, damaged product and a recall • Quality does not mean “spare no expense”
Span of Influence by Supply Chain Organizations is a Best Practice Not just sourcing but also distribution Med/Surg Clinical Products IT, nutrition, CE Benefits, advertising, other non-traditional categories
From Purchase Cost to Standardized Supplies to Managing Product Utilization A Three Tiered Approach to Standardize System Approach Appropriate Supply to Purchasing Supplies Product Utilization Savings Potential Savings of Supply Chain $12M through Clinical Organization Created Commodity to Standardize Standardization and Purchasing Practices Utilization Initiatives Typical Supply Savings %
Summary – What Can We Learn & Apply?
Why We Must do Something Beyond “Insanity” – Doing the Same Things • Largest industry in world - will double in next 10 years • Big financial pressures are coming  Changing reimbursement  Patient choice – new behavior  New entrants – suppliers & providers • Senior Leadership is recognizing the contributions of supply chain strategies • Must look outside healthcare to understand best practice potential • Skills required – either develop them or hire them
How to Pick and Apply Best Practices  Some people can’t even define a best practice, much less adopt one  The trick might be to “when you find a best practice, adopt and adapt”  Moving quickly on what you have learned is a “best practice”  Maybe we should be more focused on not “best practices” but eliminating “bad practices”
If Building a BIG Strategy is Too Much… Start With Baby Steps 1. Know where you spend money 2. Understand total cost 3. Organize yourselves – act as one 4. Know who makes supplier decisions 5. Do a better job of negotiations 6. Take time to manage the biggest Practice suppliers Supply Chain 7. Simplify your processes Management 8. Look at your warehouse and distribution costs
This Can’t Be Our Supply Chain Forever Transactions National GPO Contracting Tracing Fees Distribution (3-4%) (4-12%) Channel Fees (4-6%) Manufacturer Distributor Additional Provider Payment Term Markup Discount (2%) (4-8%) Volume Rebates (1-2%)
Summary  To expect different results, you may need updated roadmap  No Two Companies operate the same way – but all have guiding principles for success  Best Practices are a benchmark and guide for effectiveness and improvement  You must be the change you wish to see in the world
The Economy Should Provide OPPORTUNITY Not Challenges for a GPO • Burning platforms are appearing • You never want a serious crisis to go to waste
Speed, Agility and Value are More Important Than Ever Before We cannot wait for the storm to blow over. We have to learn to work in the rain.
Competition “Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion, or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It does not matter if you are a lion or a gazelle. When the sun comes up, you’d better be running.” Juergen Bartels, President & CEO Carlson Hospitality Group, Inc.
Thank You

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Intermountain Health - Pres

  • 1.
    Medline Healthcare ExecutiveMeeting January 21, 2009 A Review of Supply Chain Best Practices in Healthcare Brent Johnson VP Supply Chain Intermountain Healthcare
  • 2.
    Topic Overview 1. AboutIntermountain Healthcare 2. Intermountain’s Supply Chain Story 3. What is a Best Practice? 4. Supply Chain Best Practices 5. Best Practices application Health Care 6. Summary – Next steps
  • 3.
  • 4.
    Intermountain Healthcare Facts •Headquarters: Salt Lake City, Utah • Created in 1975 as LDS Church gifts its hospitals to the community Nation’s top integrated system • Modern Healthcare #1 or #2 for the last seven years ‫ 000,03 ـ‬employees – largest company in Utah • Hospital network – 23 Hospitals – 2,500 Licensed Beds • Clinic Group – 800 Employed Physicians – 120 Clinic Sites – InstaCares – ExpressCare • SelectHealth – health plans – Direct Enrollees – 520,000
  • 5.
    More Intermountain HealthcareFacts • $3.4 billion in Net Patient Services Revenue $5.0 billion in Assets • AA+ Standard & Poor’s Aa1 Moody’s Only System to receive highest ratings from both S&P and Moody’s GE / Intermountain joint venture for clinical information systems Geographic Focus • Strategic decision to limit expansion • Focus on markets that “funnel” to Salt Lake City • Clinical Integration in a defined area
  • 7.
    Intermountain Healthcare Continuesto Receive National Recognition
  • 8.
    Being Nationally RecognizedReally Matters When Life and Health are on the Line – EXAMPLES of Using Evidence Based Medicine • Better managing glucose levels during heart surgery, we’ve decreased morality rates eight fold for patients with levels over 300mg/dl • We’ve pioneered a heart medication discharge process, reducing readmission rates • We’ve reduced the average heart attack treatment time to 67 minutes beating the national goal by 23 minutes • We’re working on hundreds of clinical processes in the areas of cancer, intensive medicine, women and newborns, pediatrics and other specialties
  • 9.
  • 10.
    Intermountain Supply ChainOrganization Developments – Last 4 Years • Hired supply chain leader from outside of healthcare • Created a new SCO organization • Hired 25 new people • Developed rigorous but open sourcing strategies • Centralized the buyers • Centralized the reporting relationships of the warehouses • Added Couriers, Travel Services and Central Laundry – we are now over 600 employees • Developed relationships with key stakeholders…clinical programs, regions, physicians, hospital administrators, etc. • Delivered on savings - $130 Million
  • 11.
    System Non-Labor Savingsis Over $130 M Since SCO Was Organized SCO Validated Savings Operating Year (incld. avoidance) Capital Total 2005 7.1 2.0 9.1 2006 15.8 7.9 23.7 2007 26.5 13.7 40.2 2008 17.2 8.1 25.3 2009 20.7 10.8 31.5 Total 87.3 42.5 129.8
  • 12.
    On-Going SCO InitiativesDrive Value Beyond Just Sourcing Savings 1. Purchasing Policy – A corporate-wide purchasing policy 2. P-card program – 2,500 cards, 15,000 transactions/month, $3 M/mo 3. Vendor access – Utilizing 3rd party to do vendor credentialing 4. Intermountain Green Team – Leading Green Team 5. Energy strategy team – Lowering long-term facility ownership costs 6. Central Laundry improvements – Utilization & costs are down 7. Couriers – 10,000 miles, 1,200 stops every day with few problems 8. Small Facilities Warehouse – On Vine Street to support MG Clinics 9. Contract Management System – (Ideal) Must know & manage contracts 10. Lean/Change Management – Developed training for all SCO managers 11. Community friendly purchasing – Women, minority & small businesses
  • 13.
    SCO in ThreeYears - Vision • Continue to build a world class Supply Chain Organization – focused on (1) reducing costs, (2) enabling increased care & charity, (3) improving patient care and (4) having a passion to find best practices • Simplify the Supply Chain by  Taking out the complexity and cost  Leveraging technology  Eliminating variation from products and processes  Heavy use of self-contracting and self-distribution • Embrace and adopt industry data synchronization • Increase influence on “total” non-labor spend • Have more control over more supply chains than med-surg - IT, clinical, nutrition, etc. • Assist Intermountain in consolidating, standardizing and centralizing redundant ancillary services • Increased skills and results in linking high quality patient care to supply chain activities • Do “joint contracting” with other hospital organizations • Dedicate continuous emphasis applying TCO (Total Cost of Ownership) to long-term decisions • Develop highly engaged employees with the right skill set, drive and known career paths • Become a better community citizen
  • 14.
    Current Healthcare SupplyChain is Inherently Complex and Costly This drives the SCO Vision National GPO Contracting Tracing Fees Distribution (3-4%) (4-12%) Channel Fees (4-6%) Manufacturer Distributor Additional Provider Payment Term Markup Discount (2%) (4-8%) Volume Rebates (1-2%)
  • 15.
    We Set OutTo Save $100 Million! Along The Way, We Changed A Culture.
  • 16.
    What is aBest Practice?
  • 17.
    What’s a BestPractice? The Greeks gave up frontal assaults on the Trojans and built the wooden horse by being smarter, not working harder, and got better results Possible definitions: • A technique, method, process, activity, incentive or reward that is more effective than any other • Best method of operating a common process • A process that produces the best benchmark • Something to get the best ROI
  • 18.
    Best Practice Ideas •Best practices need to demonstrate being fast, adaptable and integrated • Every practice tends to be situation, industry and customer specific • Don’t reinvent - go study everyone else and steal the best and apply it to your company • Envision the best case scenario and start down that path • Use benchmarking & gap analysis to identify best practice companies
  • 19.
    What Is ThisMan Famous For??? Theory of Relativity E=mc2
  • 20.
    But His BestWork May Be His Definition of Insanity: “DOING THE SAME TASKS OVER AND OVER AGAIN AND EXPECTING DIFFERENT RESULTS.” ALBERT EINSTEIN
  • 21.
  • 22.
    Supply Chain Managementis Practiced by Most Large Companies with Significant Financial Benefit It is 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 we buy • Who we buy from • How we buy • What we inventory • How we use the products and services we buy • How we can make those products and services better
  • 23.
    Supply Chain Management Yields Many Benefits • Reduced number of suppliers • And maybe some new ones • Lower prices • Consolidated buying • Rigorous negotiation • Standardized product specifications • Stronger relationships with suppliers • Better service levels • Longer term contracts • Elimination of redundancies • Elimination of business processes • Ideas for continuous improvement • Formalized savings tracking system …lower costs, higher quality and greater customer service
  • 24.
    12 Fundamental BestPractices of Supply Chain Management 1. Develop the strategy 7. Establish key supplier alliances 2. Align the supply chain organization 8. Develop supplier management 3. Recruit supply chain professionals processes 4. Be dedicated to performance 9. Streamline the order-to- management payment process 5. Establish strategic sourcing 10. Manage inventory strategy 11. Manage distribution & logistics 6. Manage total cost of ownership 12. Establish & monitor controls (TCO)
  • 25.
    1. Develop theStrategy  How to develop a strategy without a “burning platform”  Senior management support is first and most critical  Scope – Total non-labor spend (at least 70-80%)  Total process, organization, strategy and culture evaluation is needed  This is about culture change - Change management principles will be required to succeed  Communication and branding is critical
  • 26.
    Eight Dimensions of Supply Chain Effectiveness Work Strategic Logistics Supplier Transactional Processes Sourcing Management Development Procurement Management Performance Management Processes Direction Strategy Organization Culture Setting
  • 27.
    Significant Opportunities Existin “Outside Services” Throughout Most Industries – We Are No Exception Procurement Involvement and Level of Challenge Percent of Respondents 82% 78% 78% 76% 71% 53% 42% Actively Supported 40% 40% 37% 35% 28% Significant Difficulty 25% 26% 24% 17% 15% 14% MRO Travel IT/Telecom Direct Spend Outsourced Consulting Marketing & HR Benefits Legal Services Advertising Cost Savings Potential Estimated Savings as a % of Spend 16% 14% 13% 13% 12% 12% 12% 11% 11% 11% 11% 10% 10% 9% 9% 9% 9% Absolute Opportunity 8% Realistic Goal MRO Travel IT/Telecom Direct Spend Outsourced Consulting Marketing & HR Benefits Legal Services Advertising Procurement Strategy Council – Survey Findings
  • 28.
    2. Align theSupply Chain Organization  SCM must be properly organized in order to execute the plan  In a perfect world, the supply chain organization will have the functions of:  Purchasing  Sourcing  Contract Management  Materials Management  Logistics  Centralized or de-centralized? Answer depends and varies by company  Common Theme: Centralized with some decentralized execution
  • 29.
    3. Recruit SupplyChain Professionals  Keep and develop the best of the existing employees  Keep A’s and potential B’s. Redirect C’s.  Recruit SCM professionals with the right mentality  More focus on strategic thinking  Less focus on measuring transactional activity  Different skill sets needed today vs. historically  Interpersonal communication  Strategic thinking  Technical Skills (analytical, subject matter expertise)  Project Management Skills  Relationship management skills
  • 30.
    4. Be Dedicatedto Performance Management  Spend analysis is the foundation  You must know what you are buying – corporate wide  Must be able to validate outcomes  Open, transparent validation of savings process  Savings reports – validated vs. realized savings  Utilization information is critical  Big barrier is inability to retrieve precise spend data  Clean item master data info  Best of class companies navigate the challenges of getting data from multiple systems to retrieve meaningful data
  • 31.
    5. Establish StrategicSourcing Strategy  What is Strategic Sourcing?  It is a disciplined, systematic process of analyzing corporate expenditures and developing strategies to reduce the total costs of externally purchased materials and services  Strategic Sourcing is the Cornerstone of Supply Chain Management  Use the Sourcing Square – should a purchased solutions be a strategic alliance, long-term non-strategic partner, high transactional non-strategic supplier, or purchase order  And after Strategic Sourcing comes complete Category Management as an even more rigorous best practice  Strategic Sourcing is not a one time event, it is an on-going way of business  Post sourcing is a conscious effort  Price continues but not as strategic  Supplier’s accept shared responsibility for outcomes  Cost creep happens when interest and attention wane
  • 32.
    The 7 PhaseStrategic Sourcing Process I II III IV V VI VII SAVINGS SOURCING AS-IS SOURCING OPPORTUNITY OPTION COMMUNICATE PERFORMANCE ASSESSMENT STRATEGY IMPLEMENTATION IDENTIFICATION DEVELOPMENT & CELEBRATE MANAGEMENT SELECTION A. Data Collection A. Vision & A. Executive A. Manage & B. Stakeholder Buy-in Assumptions Communication Monitor C. Champion B. Sourcing Savings B. Internal & Performance to Identification Options External Predefined D. Team Formation C. Executive Approval Communication Strategy E. Team Training • Vision C. Celebration B. Incorporate New F. Stakeholder A. Total Cost of • Assumptions A. Sourcing Strategy A. Reassess Team Continuous Communication Ownership • Options Verification Composition Improvement Plan B. Supplier D. First Supplier B. Third Supplier B. Conduct Kickoff Opportunities Identification Screening Screening C. Manage C. Track & Report C. External E. Request For C. Develop Stakeholder Performance Assessment Information (second Implementation & Communication D. Manage D. SCE Internal supplier screening) Performance Plans D. Initiate Deviations Assessment D. Management Implementation E. Sourcing Strategy Participation & Review Approval E. Negotiation & Supplier(s) Selection F. Commitment to Long Term Total Cost Savings
  • 33.
    Examples of Non-StandardProducts that Needed Strategic Sourcing Coflex – wrap Plastic Orthopedic soft bandaging containers goods 37 products 157 products 5,500 products 5 suppliers 40 suppliers 197 suppliers $316,000 spent $613,000 spent $3,400,000 spent Consolidated to 16 Consolidated: Consolidated: products, 1 supplier: $670,000 savings $120,000 savings $53,000 savings And there are a thousand more just like these!
  • 34.
    Our Roadmap toSuccess As the SCO Matures, “World-Class” Will Require Progression to Value-Add Category Management Price Focus TCO Focus Value Chain Focus Contracting Strategic Sourcing Category Management Procurement Competence Over Time 2005 2008/2009 2012
  • 35.
    6. Manage TotalCost of Ownership THIS IS ABOUT: Instill Total Cost of Ownership / Total System Cost Mindset  Your suppliers costs end up being your costs  Move away from looking at just lowest price  More focus on best value  Evaluation of all factors that make up the cost of goods and services
  • 36.
    It’s Important toRemember the Scope of Supply Chain Management Dispose (goods) SCM Benefits The Supply Chain Use • Reduce supply base and • Develop alliances maintain • Total cost reductions • Team purchasing Pay • Integrated support with logistics Freight, • Strategic vs. tactical receive, store, • Increased skills and distribute • Reduced inventory goods • Improved customer Create goods service or services (supplier) Requisition and buy Select supplier and • It’s more than just good purchasing practices contract Define • It’s all of the non-labor spend in a company needs & opportunities • It’s also the processes to get it into the company
  • 37.
    7. Establish KeySupplier Alliances  Long-term relationships based upon trust, cooperation, commitment and open communication  Objective is to work together to reduce costs and share in the benefits  Reduction of suppliers is a natural outcome of supply chain management  Leverage your buying power by consolidating purchases with fewer suppliers  Cut administrative costs by managing fewer suppliers  Find your best suppliers and grow them
  • 38.
    8. Develop SupplierManagement Processes  Supplier Management: the forgotten or ignored step in Strategic Sourcing Process  Outstanding suppliers are rarely discovered ready to be good partners, but rather are developed by their customers into what they need to be  We must view and manage our suppliers as extensions of our own business  If you don’t manage our suppliers, they will manage us!  Establish supplier teams that actively manage the largest suppliers Joint goals  Quarterly business reviews  Joint goals  Establish & monitor key supplier metrics and measurements  Make sure you manage the supplier according to the evaluation criteria that you chose them  Why was the supplier chosen in the first place…price, quality, service, other?  How will we know when the supplier is failing to perform?
  • 39.
    9. Streamline Order-to-PaymentProcesses  Transaction efficiency should be a passion  All order-to-payment processes are added costs to the system  Streamline and simplify everywhere possible  Paperless, low-cost, user friendly  Maximize use of technology
  • 40.
    10. Manage Inventory Inventory is money. Ask any CFO!!  Utilize proactive strategies to minimize inventory maintained  JIT  VMI  Reducing lead times  Taking more risk  Leverage tools and technology  Effective demand and forecasting methodology  Intrinsic forecasting techniques  Supplier integration
  • 41.
    11. Manage Distribution& Logistics The best companies make the following a high priority:  Facility layout & design – flexible, cross-docking  Use of equipment & technology – automated, integrated  Warehouse procedures – documented, integrated  Material transportation & routing  Material handling & flow  Use of 3rd party providers  Supplier integration & value added services
  • 42.
    12. Establish &Monitor Controls  Make policies and procedures simple and easy to understand  Controls should be adequate to deter fraud or ensure that improper decisions are not being made and doing so without adding unnecessary process steps  Simplify process and controls – then select correct technologies to complement  Contract Management is a focal point for best of class companies  How can you mange your company’s contracts if you can’t even find them?  Contract compliance for compliance monitoring – maverick spend  Standardizing terms & conditions mitigates risk  Automate – due dates, expiration dates, etc.  Analyze contract performance
  • 43.
    Health Care SupplyChain Best Practices
  • 44.
    In Healthcare WeHave Clinical & Non-Clinical Products & Services Clinical Categories Non-Clinical Categories Administration Commodities Construction Clinical Commodities HR High-preference Items Nutrition IT & Telecom High-cost preference items Marketing
  • 45.
    12 Healthcare SupplyChain Executives Offer Best Practice Ideas • Use of EDI • Auto receipt & matching with real time credits, returns and rebills • Monitor profitability of each department/program • Standardize products working with clinical committees • Optimize procure-to-pay processes • Efficient recall systems • Contract compliance • Master data management – standards • Link materials (item master) to revenue cycle (charge master) • Internalizing equipment maintenance • Self contracting • Self distribution • Value analysis • Nightly electronic reordering based • Supplier credentialing upon replenishment needs • Real-time pricing and charging • Auto replenishment of inventory How aggressive are these?
  • 46.
    Brent’s Additions toBest Practices in Healthcare • Implement pcard • PPI strategies • Value analysis – Clinical TCO application of strategic sourcing • 80% of all non-labor spend controlled by suply chain • High % of item master under contract • Touch-less purchasing • Reverse auction – eProcurement • Clinical products (OR & Cathlab) controlled by supply chain • Performance measurement • Sourcing strategies unique to healthcare such as PPI (endo, spinal, CV, ortho) and reprocessing
  • 47.
    Rigorous Supply ChainPractices are not as Common in Healthcare • Supply chain sophistication is lacking – healthcare is behind in rigorous best practice development • Bidding is primary activity • Price is primary focus • Not-for-profit presence reduces business focus • Clinical excellence is primary focus • Personal preference (especially with physicians) prevent Purchasing influence and ability to develop business with large partners where appropriate • Suppliers have never been rewarded for alliance behavior, hence have not developed or justified this activity within their organizations • Openness, transparency and trust generally are not common characteristics of healthcare suppliers and providers • Industry dependence upon GPOs & distributors makes the supply chain more complex and difficult to develop one-on-one relationships DRAFT - For SMI Team discussion only
  • 48.
    Here’s a Problem…GPOsdo Contracting…Not Strategic Sourcing Traditional Contracting Analyze Analyze Analyze Develop Manage Award & Implement Spend Category Market Strategy Negotiations Contract Strategy Strategic Sourcing Without doing true strategic sourcing it’s mostly about price with “their” suppliers
  • 49.
    Solution GPOs should be used as a TOOL not a STRATEGY Unfortunately, many use it as a strategy!
  • 50.
    How Much Self-Contracting? …ShouldRequire Some Evaluation of Costs vs. Benefits Self Use Contract GPO Another approach introduced by Stratcenter is “Optimal Contracting Balance” (OCB) between GPO and IDN agreements*
  • 51.
    How Much Self-Contracting Can Your Organization Afford? • Intermountain Healthcare’s experience: • Invested $2.5 million/year into a new supply chain organization • Obtained $20 million additional savings/year • 8 to 1 payback • Is this why 78.3% of IDNs expect to increase the dollar amount they contract for locally vs. relying on it’s GPO (StratCenter info)
  • 52.
    There is Powerand Huge Benefit in Supply Chain Management in Healthcare • A penny saved is a penny invested somewhere else in healthcare • When we allow personal preference guide decisions we pay more • When we don’t have standards we pay more • When we don’t leverage our company we pay more • Personal preference shouldn’t be confused with clinical excellence • Product variation does not make clinical excellence “uncontrolled variation is the enemy of quality” (Deming)
  • 53.
    Other Comments about SupplyChain Management – Healthcare Industry • One man’s waste is another man’s income • Non-profit should not mean not-as-efficient • We pay for every salesperson and every delivery truck • We pay for the cost of a backorder, late delivery, invoice problem, over-shipment, damaged product and a recall • Quality does not mean “spare no expense”
  • 54.
    Span of Influenceby Supply Chain Organizations is a Best Practice Not just sourcing but also distribution Med/Surg Clinical Products IT, nutrition, CE Benefits, advertising, other non-traditional categories
  • 55.
    From Purchase Costto Standardized Supplies to Managing Product Utilization A Three Tiered Approach to Standardize System Approach Appropriate Supply to Purchasing Supplies Product Utilization Savings Potential Savings of Supply Chain $12M through Clinical Organization Created Commodity to Standardize Standardization and Purchasing Practices Utilization Initiatives Typical Supply Savings %
  • 56.
    Summary – WhatCan We Learn & Apply?
  • 57.
    Why We Mustdo Something Beyond “Insanity” – Doing the Same Things • Largest industry in world - will double in next 10 years • Big financial pressures are coming  Changing reimbursement  Patient choice – new behavior  New entrants – suppliers & providers • Senior Leadership is recognizing the contributions of supply chain strategies • Must look outside healthcare to understand best practice potential • Skills required – either develop them or hire them
  • 58.
    How to Pickand Apply Best Practices  Some people can’t even define a best practice, much less adopt one  The trick might be to “when you find a best practice, adopt and adapt”  Moving quickly on what you have learned is a “best practice”  Maybe we should be more focused on not “best practices” but eliminating “bad practices”
  • 59.
    If Building aBIG Strategy is Too Much… Start With Baby Steps 1. Know where you spend money 2. Understand total cost 3. Organize yourselves – act as one 4. Know who makes supplier decisions 5. Do a better job of negotiations 6. Take time to manage the biggest Practice suppliers Supply Chain 7. Simplify your processes Management 8. Look at your warehouse and distribution costs
  • 60.
    This Can’t BeOur Supply Chain Forever Transactions National GPO Contracting Tracing Fees Distribution (3-4%) (4-12%) Channel Fees (4-6%) Manufacturer Distributor Additional Provider Payment Term Markup Discount (2%) (4-8%) Volume Rebates (1-2%)
  • 61.
    Summary  To expectdifferent results, you may need updated roadmap  No Two Companies operate the same way – but all have guiding principles for success  Best Practices are a benchmark and guide for effectiveness and improvement  You must be the change you wish to see in the world
  • 62.
    The Economy ShouldProvide OPPORTUNITY Not Challenges for a GPO • Burning platforms are appearing • You never want a serious crisis to go to waste
  • 63.
    Speed, Agility andValue are More Important Than Ever Before We cannot wait for the storm to blow over. We have to learn to work in the rain.
  • 64.
    Competition “Every morning inAfrica, a gazelle wakes up. It knows it must run faster than the fastest lion, or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It does not matter if you are a lion or a gazelle. When the sun comes up, you’d better be running.” Juergen Bartels, President & CEO Carlson Hospitality Group, Inc.
  • 65.