• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Seeing the Future: Innovative Supply Chain Management Strategies

Posted on: Tuesday, 3 January 2006, 03:03 CST

By Burt, Tequia

There is no greater illustration of the importance of efficient supply chain management in the healthcare industry than the 2004- 2005 flu vaccine shortage. While hospitals around the country struggled to provide the vaccine to their local populations, shopping malls, drugstores and grocers managed to deliver flu shots to customers when doctors could not.

The shortfall was the result of the contamination of the vaccine provided by a major supplier. Because so many hospitals relied on so few vaccine suppliers, the United States lost nearly 50 million doses. In response, the Centers for Disease Control and Prevention (CDC) took a cue from the supply chain management strategies of other industries and developed an automated system that locates both surpluses and shortages of flu vaccines. This will give the CDC the information it needs to redistribute the vaccine to areas that need it most.

Though the shortage exemplifies problems with supply chain management in the healthcare field on a large scale, examining the reasons behind and the response to the problem can help hospital executives understand why having an efficient supply chain is paramount-not only because of possible savings but also because of the potential for improved patient care.

Look to Other Industries

Supply chain management in other industries, like those of grocers or retailers, is much more successful than in hospitals. Experts say this is because there is a broader acceptance of the need for supply chain excellence. Corporations like WalMart are more organized and more willing to accept and adopt new technological innovations quickly. But this is changing, according to Tom Slagle, group president of Supply Chain Services/Medical for Ohio-based Cardinal Health. "Leaders in the healthcare field are starting to realize the advantages of having a world-class supply chain system," he says.

When executives at Trinity Health, one of the country's largest health systems, initiated their new supply chain management program five years ago, they hired industry outsider Lou Fierens from General Motors to come to Novi, Michigan, to head their efforts. "I would say that, conservatively, we are still in an industry that is 10 years behind," says Michael A. Slubowski, FACHE, president of Hospital and Health Networks and ACHE Regent. "Lou came to us from GM because we wanted to bring the thinking of other industries to our industry. When he says we're ten years behind, it means that with him here at Trinity, we're seeing the future."

Trinity's supply chain management program has been so successful that it has exceeded their five-year goal. Originally, Trinity expected to save $120 million over five years; in just four years, they saved $125 million. These savings benefit Trinity's entire business, says Fierens, senior vice president of Supply Chain and Capital Project Management, and has meant improved delivery of care and expansion of Trinity's mission to assist underserved communities.

Best practices in supply chain management align an organization's internal and external systems with those of its suppliers and customers to improve the flow of products, services, information and monies across the supply chain. Typically, hospitals' issues stem from a lack of standardization, slowness in implementing automation technology and a lack of high-quality data on which to base important strategic decisions. Improvement in these areas can lead to excellent operating room and pharmaceutical management, better inventory management, enhanced vendor relationships, more satisfied patients and more effective work flow for hospital employees.

According to David M. Zimba, CHE, vice president of Corporate Contracting at West Penn Allegheny Health System (WPAHS) in Pittsburgh, healthcare organizations should adapt strategies from other industries. He believes healthcare organizations can control ballooning costs by modeling their supply chain management strategies after those of grocery stores. "To improve supply chain outcomes we must challenge ourselves to change and create a new expectation," he says. "To produce this change, the healthcare industry should begin to look beyond to other industries. It can start with our own personal experiences at the grocery store or the mall when we ask ourselves why we don't have the same level of performance. It can start with a review of our suppliers and asking why we don't have the same kind of performance as their internal supply chains."

Zimba says embracing these supply chain management strategies could save the industry at least a billion dollars. "Hospitals would see savings in the 10 percent to 20 percent range," Zimba says. "If we saved that much money, we would improve patient care and enhance productivity for positions with market shortages, like nurses, pharmacists and others. We also would have more resources to improve patient experiences and address issues of medical errors and adverse reactions. Hospitals would ultimately run more smoothly."

Zimba's savings estimate is conservative when compared to estimates made by VHA, a healthcare provider alliance based in Irving, Texas, in a November 2004 study. "Taking Control of Your Supply Chain: The Buck Starts Here" found that by implementing best supply chain practices, healthcare organizations could save between 15 percent and 30 percent, which could be $ 11 billion industry- wide.

Since implementing its strategic sourcing and grocery-style supply chain management strategy in 2000, WPAHS achieved in excess of $78 million in annual run-rate savings, which is more than $227 million in total savings since its inception. It makes sense for hospitals to explore new approaches in supply chain management because hospital supply costs have risen at a greater rate than labor or employee benefit costs over the last two years and is the second largest expense behind labor.

Institute Change

Zimba realized that one of the first things WPAHS needed to do was strengthen vendor relations. "Imagine you are a car manufacturer that needs multiple parts to construct vehicles. You are not going to rely on a vendor that doesn't get you the supplies you need when you need them." In hospitals, departments have their own methods of ordering supplies. When this happens, different departments often order the same product from different vendors at different prices. This potentially drains thousand of dollars because of overstock and inflated prices and also translates into long waiting-room times, increased medical errors and overall confusion.

Grocery stores, on the other hand, know exactly what products they have, how many units of each product they have and how many they need to reorder. They also get the best price. This is because grocers have all the information they need at their fingertips. Grocers have more effective supply chains where participants and technology play key roles: The distributor restocks the shelves; customers are responsible for choosing products from the shelves and using them (eliminating everything in between); and the scanner at the cash register handles payments, and receipts, keeps track of inventory and reorders supplies.

Before implementing the grocery store model, WPAHS employed a complicated distribution system involving 20 steps. Now, using the lean supply management strategy of grocery stores, WPAHS uses at most a six-step process (see sidebar, pg. 16-17). Zimba says the new strategy has transformed the organization. "We've automated our supply chain," he says. "We have much higher reliability rates and customer confidence. End users now have product in the quantity they need it, when they need it and where they need it."

Not only will increasing efficiency in the supply chain save money, Zimba says it will improve customer satisfaction and employee effectiveness. For example, after partnering with its vendor, WPAHS integrated low unit of measure distribution (ValueLink and CardinalASSIST) and Pyxis automation in its hospitals and has seen a dramatic improvement in the medical/surgical and pharmacy distribution process. The integrated approach replenishes supplies and drugs in efficient units of measure directly to point-of- service dispensing devices. Decentralizing distribution streamlined product handling and movement while eliminating redundant steps in the logistical process and achieving 99 percent fill rates. Customer satisfaction now exceeds 90 percent.

Think in the Long-Term

One of the first steps in implementing a successful supply chain management strategy is to make it an organizational strategic initiative, according to David M. Markoski, senior vice president for VHA. Many executives realize the savings associated with a more efficient supply chain management plan, but do not fully understand the benefits on a larger scale. The consequence is that plans may be thought of in the short term rather than as a long-term strategic imperative that affects the hospital on many levels.

One reason this happens is because many hospitals do not have integrated information systems. Ironically, having a superior supply chain management system can help to integrate this information. VHA helps hospitals make important tactical decisions on a\n ongoing basis. "In hospitals, there is an enormous amount of information and data kept in separate information systems and very few are integrated," Markoski says. "So the question is, how will that information be used to make strategic and actionable decisions? It can't. It's at a point where hospitals don't know how much a procedure costs because the information is spread out."

Donald Walker, senior vice president of Distribution Operations at McKesson Corporation, agrees. "When hospitals start to understand and fully document existing processes, they see a lot of benefits," he says. "Taking a strong process improvement approach allows them to see how technology can enable them to mistake proof their processes."

This was a problem for Trinity Health before changing its supply chain management. "We wanted to understand what we were buying, when we bought it and how much we paid for it," Slubowski says. "Before starting this process we could not easily answer all of these questions."

Making an effort to get good information based on high-quality yield data has made it easier to get physicians on board with supply chain changes. And this is no easy feat as physicians are one of the groups most resistant to changes in hospital supply chain management. This is because physicians often have preferences for certain products and vendors, which negates a hospital's ability to negotiate with manufacturers for the best prices.

But when hospitals have information proving to physicians that having a leaner supply chain management strategy can actually improve patient care, reluctant doctors will support these initiatives. This has been key at Trinity, Fierens says. "If you don't have good data, nor understand it, you are lost. We provide the data and benchmark pricing information across the system to make the case to physicians," he says. "A physician's main job and mission is to deliver excellent patient care. We can show ways in which operations can be improved to benefit the care delivery process and patient care through the cost savings associated with the sourcing initiative. This is a very delicate and sophisticated process, which takes great effort, but given the amount of influence manufacturers have built with physicians there are no shortcuts."

Rethinking supply chain management in healthcare can improve bottom lines and ultimately make hospitals run much more smoothly. At Trinity, it is acknowledged that being an innovative leader in this area takes a lot of work, but it is worth it.

"It's an important journey. It's not a quick fix and not only includes a huge amount of process change but a huge amount of cultural change," Slubowski says. "We've seen a more efficient work flow process for associates. We have a better ability to network within organizations. We are more efficient in our use of hours in terms of inventory because restocking is done in a timely manner. All of these things translate directly into delivering better care. The more minutes a nurse can spend with a patient, rather than going to a different floor or leaving the operating room to get supplies, the better. Improving supply chain management benefits patients and improves outcomes. This comes down to more than just economic benefits."

What will automating your supply chain look like?

This graphic represents improvements in the WPAHS distribution process. Before automation, the WPAHS supply chain was confusing, cost the hospital more money than it should have and involved 20 steps.The current WPAHS distribution process only requires six steps:

1) A product is ordered by the automated system.

2) After a product arrives at the hospital, it is directly delivered to a specific department.

3) It is then stored in supply cabinet.

4) A nurse removes the supply and

5) provides patient care.

6) Finally, the cost of the supply is automatically charged to the patient.

The blue boxes represent the steps eliminated through ValueLink and the green boxes represent steps eliminated through Pyxis. The orange boxes represent the remaining steps in the WPAHS distribution process

Source: David Zimba, WPAHS

Supply chain experts in the healthcare field recommend heahhcare executives adopt management strategies such as:

* Conducting a spend analysis. Where am I today? Where are my dollars going? How do we compare to national standards? How do I prioritize goals?

* Making sure you have a value analysis team in place. Do I have proper structure and resources in place to go after these initiatives? How strong are our physician relationships? What does a value analysis process entail?

* Taking a look at your information systems. Are cost, utilizations and revenue aligned? Are information systems tied together so that you can take a look at costs?

* Developing strong partnerships. Where are you going to get information you need? How strong is your relationship with your group purchasing organization (GPO)? Are you fully utilizing your relationship with the GPO to assist with national benchmarks? How do I stand up to my GPO? Am I getting the best price?

Tequia Burt is associate editor for Healthcare Executive.

Copyright Health Administration Press Jan/Feb 2006

Source: Healthcare Executive

More News in this Category