Healthcare Cost Solutions, LLC

Supply Chain Management - What's in a Name?

In healthcare, "Supply Chain Management" is the current term increasingly used as a name for the collection of functions previously categorized under a department name of 'Materials Management', a term that came into vogue in the mid 70's. Prior to "Materials Management," these functions were often part of a 'Purchasing' department.

So what all has changed? When the function name changed from Purchasing to Materials Management, there was usually an expansion of responsibilities. There was a concerted awakening to the potential for more rigorous contracting for supplies and equipment, as well as thinking more holistically about the interrelated functions that performed logistics within hospitals.  This was the era in which most GPOs were conceived and began operations. Inventory management became a significant area of focus. Materials management information systems evolved and began to be adopted more widely.  Often, Central Services department, or what is now frequently called SPD (for supply processing and distribution), was moved under the new Materials Management range of responsibilities. Of course, over the intervening years, many of these SPD functions have been moved away from Materials Management and now report to the Perioperative Services director.

Over the last five to ten years, the term "supply chain management" has become more frequently used for the functions related to directly to procurement, receiving, supply distribution, inventory management, and contracting.  Materials management information systems have in many cases been replaced by ERP, or enterprise resource planning systems, which are far more integrated with financial management and often human resources management, to view resources in a more holistic way. With improved data capture, spend management has become a common term used for the analytics related to reviewing historical expenditures to determine which items, categories, suppliers and other cuts comprise the greatest proportion of spend, followed by a rigorous review and actions to ensure that major expense items are covered under the best possible contracts. Considerable discussion and many successful examples have occurred in the realms of value analysis and the broader clinical resource management, though these efforts are in early evolution.  Group Purchasing Organizations (GPOs) have consolidated considerably, and have worked hard to expand their value to their clients, as well as differentiate themselves. There is increasing focus on benchmarking and metrics for comparing supply chain management results across healthcare facilities as well as a few efforts to compare healthcare supply chain processes and results with those in non-healthcare industries.  There has been considerable evolution in an increasing level skills, education, and experience that the typical leader of these functions has today, in contrast with the past.  There is considerably more professionalism as well as cross-pollenization from supply chain management professionals with deep experience from outside the heatlhcare industry.  This has all been good for the industry, good for the profession, and has, for the most part, brought about improvements in providing support for patient care and business operations as well as contributing to better analytics and decision-making in managing costs of supplies and equipment while balancing implications on overall patient outcomes and quality.

While "supply chain management" still means different things to different people, the profession continues to move forward. One key example is the significant industry effort under way today to implement the Global Locator Number (GLN) standard for identifying each discrete "ship-to" location within each healthcare entity in a standard manner for use by GPOs, distributors and manufacturers. Simultaneously, efforts are underway to implement the Global Trade Item Number (GTIN) standard for unique identification of each product in each available unit of packaging.  It has taken the industry nearly twenty years to get to this point, but it appears that we are very near critical mass, with a growing and broader conviction of that these standards have to happen as a critical foundation for progress to come.  Clearly, once these standards are more fully implemented in the next 18-24 months, we will beging to see the world of supply chain management in healthcare evolve in a significant new wave of evolution in how we contribute to the underlying mission of getting the right item to the right place at the right time for the right price.

Cost Reduction Ideas tend to fall into one or more of the following categories.  Examples are provided to stimulate yoru thinking.  Please feel free to add comments and additional ideas.

Use less of existing products

• Change from single-sided printing to double-sided printing reducing paper requirements by up to 50%

Use lower cost alternative products

• Change from a product that has extra desirable features to one that has essential features (e.g. Cadillac Escalade vs GM Yukon)

Insource / outsource (Make vs. Buy)

• Compare current inhouse variable costs of  a service to acquiring that same service from an outside vendor at a fixed cost, or vice versa

Reprocessing/Green Purchasing

• Reprocessing pulse oximetry sensors or SCD sleeves versus purchasing new for every use

 Reduce acquisition costs through aggregation or improved leverage

• Group purchasing often falls into this category

Medical supplies represent the second highest expense to your health care organization – typically between 20 to 25 percent of hospital operating expenses.

Clinically Driven Resource Planning:

• Delivers supplies, equipment and services delivered

  1. to the Right place
  2. at the Right time
  3. in the Right quantity
  4. at the Right cost (lowest available total cost to meet quality outcomes)
  5. in the Right quality
  6. producing the Right quality outcome

• Creates efficiencies
• Reduces total delivered costs
• Improves resource management

Ideally, the enterprise-wide supply chain would have all processes coordinated and supported by state of the art technology, driven by clinical outcomes and evidence based medicine.

A common perception is that physicians will oppose transforming the supply chain because they resist changing their practices and limiting their access to supplies. The fact is that a physician’s education is founded on science, and physicians therefore tend to respond favorably to a scientific, fact-based justification for proposed changes. Thus, if they can be shown empirical evidence that a supply chain redesign will produce streamlined processes, improve outcomes, and reduce expense, they will likely support the initiative.

To optimize supply chain performance, create a structure to address supply chain issues that is integrated into the organization’s overall agenda and has board-level sponsorship. Executive position that encompasses supply chain competencies, leadership skills, appropriate budgetary responsibilities, and accountability for supply chain performance. This executive should be charged with measuring and monitoring progress using quantitative performance metrics.

Supply chain integration should be driven:

• Strategically, based on organizational goals and market position
• Tactically by enabling technology and enforcement of common policies and procedures across the organization

The creation of intricate and innovative relationships among different stakeholders across the supply chain, including patients, providers, payers, and suppliers, is critical to the overall success of a clinically driven supply chain. Without collaboration with and clinical integration among major stakeholders, unecessary and avoidable product variability occur.

Product variability often results from too much differentiation among products, which tends to occur when decisions about which products to purchase are based solely on the recommendations of individuals who have significant technical knowledge of what the products are supposed to do. Although such knowledge is important, the unfortunate consequence may be an overemphasis on tiny distinctions among products. Systematic analysis of product options, in which product users play an important part assists in neutralizing this effect. The product assessment process becomes focused on narrowing the choice to those products that are the highest quality and that promote the best outcome. The object should not be to reduce choice, but to make the choice more rationale.

One of the logical outcomes of such a process may be the development of a supply formulary. To develop a supply formulary, all products and services need to be analyzed based on cost, utilization, and most importantly, the ability to support high quality patient care. The supply formulary must meet the needs of clinicians, patients, and other users. There has to be a strong commitment from physicians and others to succeed in establishment, maintenance and compliance with a supply formulary much like the pharmaceutical formulary used within the healthcare setting. The process of determining what goes on the supply formulary must be driven by end users and be based on functional and clinical preferences that are quantified and support evidence based medicine and care. A panel should be assembled with representation from these various end user groups to determine requirements, review product choices and finalize product preferences. The panel is often adapted from the value analysis team or product standardization committee membership to best suit a provider’s organizational size and structure. By creating an environment in which all stakeholders perspectives are considered, a hospital can ensure that products and services are clinically reviewed, build credibility within the system, encourage the sharing of information among caregivers, and secure full cooperation from clinical staff.

When addressing supply utilization, it is important to review data that can provide an understanding of the practice associated with each product. Implementing protocols and policies for the appropriate use of products will help to optimize utilization. When developing it is helpful to review regulatory agencies standards of care and the recommended best practices from professional organizations. When focusing on demand, the object is to identify the best product for accomplishing a given task or procedure again having clear guidelines in place for product selection will help steer the selection away from high cost products that do not ensure an outcome that is any better than could be achieved using a lower cost product.

Enhancing supply catalog maintenance and control

• Proper requisitioning and procurement
• Product management-formulary development and maintenance, compliance, clinical involvement, standardization, and demand-matching

Physician involvement is essential to transforming the supply chain – What’s the most benefit to me-- more capital or more nurses? You must demonstrate a willingness to establish the right product and contract, with their needs in mind and with consideration given to best outcome. You want to engage physicians early and throughout the process. Physicians and clinicians must be engaged in the intiative at the time product selections are being made not after the fact. Consider the variety of clinical specialists, including those likely to resist change. Remember to demonstrate good listening skills, as buried in the emotional component of many objections, is usually a fact based footnote from which to establish the first steps to researching and resolving the underlying issues which stand in the way. By providing physicians with accurate data and product and peer review information, you can break through barriers and establish an objective platform from which to work.

Obsolete Computers:

• The Department of Public Safety estimated in 2004 there were 315 million, obsolete computers in the U.S. With e-waste growing at 3-5% per year, that makes this old technology one of the fastest growing segments. Can it be recycled, redeployed or upgraded to reduce waste?

• Confirm that you supplier carriers recycled stock
• Stock is 30% or higher post-consumer recycled content and is “processing chlorine free”
• Each ton of recycled paper reduces wood consumption by 17 trees and energy use by 4000kWh (average annual usage of a single-family home), eliminates about 60 tons of air toxics, and prevents contamination of about 7,000 gallons of process water
• Recycled stock should not cost more than virgin paper so check multiple sources if necessary

• Promote copiers and printers with a standard duplex function
• Enable duplexing on existing models
• Request that your supplier enable duplexing upon delivery of any new copiers and printers so that the standard is duplex unless actively turned off
• Paper savings can be substantial

• Ask your distributor about recycled paper stock especially for items that are used momentarily and then discarded such as paper napkins and towels
• Most preferable are those with high levels of post-consumer content that are processed, chlorine-free, or unbleached
• Reusable mug programs are also easy to implement and popular
• Imprint mugs with your logo and environmental mission statement
• Discount beverages purchased in them
• Distribute to all employees

• See if you can replace glass and all-purpose cleaners, disposable cleaning cloths, or other items for occasional use by non-housekeeping staff with Green Seal-certified cleaning chemicals or reusable items such as micro-fiber dusting cloths. Other things that do not affect Infection Control.

The Healthcare Cost Solutions, LLC team has been involved in the evolution of Materials Management Information Systems from its’ origins over 30 years ago to current state-of-the-art ERP systems. We have actively participated and led all phases of requirements definition, system selection, design and configuration, implementation and optimization. We have worked with many different systems, with recent experience in optimizing the use of Lawson, McKesson Pathways Materials Management, and Meditech applications, as well as major point-of-use systems. We have focused extensively with the inter-relationships between supply chain and the operating room, including implementing perpetual inventory management in the Operating Room environment.

Given the highly intensive focus on successfully implementing these systems, underlying cause and effect relationships can get lost. An example is the disproportionately high level of effort invested to setup storeroom inventory supplies, even though these items usually account for only 10-15% of total supplies expense. Meanwhile, items comprising the other 85-90% of expense end up being no better managed than before the new ERP system. Our services help you avoid this pitfall by making sure you know the most impacting items, and focus your efforts on them.

Even the best information system, containing the highest quality data, will not bring about cost savings unless the data that it captures is routinely analyzed, determining true cost drivers, used for decision support and acted upon. It is all too common to see enormous effort expended on putting a new system in place, and once implemented, the staff reverts to operating just as they did before the new system. Achieving success requires a conscious focus, along with dedicated time and attention, on deriving value from the information the system is capturing. We can help you develop this focus, implement the right organization, tools and the leadership to make sure you get the value the original investment was based upon.

Defining the Business Case
We have performed many business case analyses, documenting business needs, strengths, weaknesses, and opportunities for system selection and/or replacement. These engagements have included ERP, MMIS, OR Information systems, and point-of-use technologies. We work with the executive sponsor, all key stakeholders, IT, and system vendors to make sure objectives and expected outcomes are clearly defined, quantified and validated for presentation and decision by an executive-level steering committee.

Implementation Planning and Execution
Based upon our business case development, we work with you and your staff to develop a roadmap for implementing the selected system(s), incorporating stakeholder and end-user collaboration, utilizing formal change management, along with our extensive experience. We can either lead the implementation effort, or we can serve as your agent working across the table from a larger implementation partner, making sure they deliver what they committed to on time and on budget.

Project Management
We utilize a formal project management model to ensure rigorous accountability in tracking of tasks, responsibilities, milestones, status reporting, issues management, as well as monitoring achievement of results. We establish a web-site for each project, to promote collaboration and communication across project team members, with transparency for stakeholder and executive sponsor review.

Maximizing Value
Any of these systems, can produce a positive ROI, and any of them can fall far short of realizing expected value – the difference is in how the implementation is managed, and the ongoing commitment to and accountability for extracting maximum value from the investment. Common failures include a lack of validation on the business case (accepting a vendor-provided ROI analysis without internal validation testing), lack of resources in the implementation and execution, not understanding and preparing for operational impacts, and/or a lack of proactive change management. Even when systems are implemented effectively on the front-end, there is a need to understand and commit to the “care and feeding” required to keep the content relevant and current, and to make sure it is used. We understand these issues and work with you and you staff to ensure that you achieve the benefits that you have validated and can reasonably expect.

Data Management and Quality
The common adage “garbage in, garbage out” has proven again and again in supply chain related systems. We have extensive experience in establishing and managing item files, vendor files, and inventory parameters. We can help you avoid the minefields inherent in the details of the master data.

e-Commerce
EDI and exchanges can help reduce staff time, and errors