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Transcript of Intermountain Health - Pres
Medline Healthcare Executive MeetingJanuary 21, 2009
A Review of
Supply Chain Best Practices
in HealthcareBrent 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
• 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 yearsـ 30,000 employees – 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
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
Geographic Focus
• Strategic decision to limit expansion
• Focus on markets that “funnel” to Salt Lake City
• Clinical Integration in a defined area
More Intermountain Healthcare Facts
GE / Intermountain joint venture
for clinical information systems
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
YearOperating
(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 CostlyThis drives the SCO Vision
National
GPO
Contracting
Manufacturer Distributor Provider
Tracing Fees
(3-4%)
Payment Term
Discount (2%)
Channel Fees
(4-6%)
Distribution
(4-12%)
Additional
Markup
(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?
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
The Greeks gave up frontal assaults on the Trojans and built the wooden
horse by being smarter, not working harder, and got better results
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
2. Align the supply chain organization
3. Recruit supply chain professionals
4. Be dedicated to performance
management
5. Establish strategic sourcing
strategy
6. Manage total cost of ownership
(TCO)
7. Establish key supplier alliances
8. Develop supplier management
processes
9. Streamline the order-to-
payment process
10. Manage inventory
11. Manage distribution & logistics
12. Establish & monitor controls
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
Processes
Management
Processes
Direction
Setting
Strategic
Sourcing
Logistics
Management
Supplier
Development
Transactional
Procurement
Performance Management
Strategy Organization Culture
Significant Opportunities Exist in “Outside Services”
Throughout Most Industries – We Are No Exception
Procurement Involvement and Level of Challenge
82% 78% 78% 76%71%
53%
42%35%
14%
37%
24%
15%
26%
17%
25%
40%40%
28%
MRO Travel IT/Telecom Direct Spend Outsourced
Services
Consulting Marketing &
Advertising
HR Benefits Legal
Actively Supported
Significant Difficulty
Cost Savings Potential
12%11%
13%
11%12%
16%
14%
12%13%
10% 10%9%
8%9%
11%
9% 9%
11%
MRO Travel IT/Telecom Direct Spend Outsourced
Services
Consulting Marketing &
Advertising
HR Benefits Legal
Absolute Opportunity
Realistic Goal
Percent of Respondents
Estimated Savings as a % of Spend
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
COMMUNICATE
& CELEBRATE
SOURCING
STRATEGY
SELECTION
SOURCING
OPTION
DEVELOPMENT
AS-IS
ASSESSMENT
SAVINGS
OPPORTUNITY
IDENTIFICATION
I II III IV V
IMPLEMENTATION
VI
PERFORMANCE
MANAGEMENT
VII
A. Manage &
Monitor
Performance to
Predefined
Strategy
B. Incorporate New
Continuous
Improvement
Opportunities
C. Track & Report
Performance
D. Manage
Deviations
E. Sourcing Strategy
Review
A. Reassess Team
Composition
B. Conduct Kickoff
C. Manage
Stakeholder
Communication
D. Initiate
Implementation
A. Data Collection
B. Stakeholder Buy-in
C. Champion
Identification
D. Team Formation
E. Team Training
F. Stakeholder
Communication
Plan
A. Total Cost of
Ownership
B. Supplier
Identification
C. External
Assessment
D. SCE Internal
Assessment
A. Vision &
Assumptions
B. Sourcing Savings
Options
C. Executive Approval
• Vision
• Assumptions
• Options
D. First Supplier
Screening
E. Request For
Information (second
supplier screening)
A. Sourcing Strategy
Verification
B. Third Supplier
Screening
C. Develop
Implementation &
Performance Plans
D. Management
Participation &
Approval
E. Negotiation &
Supplier(s) Selection
F. Commitment to Long
Term Total Cost
Savings
A. Executive
Communication
B. Internal &
External
Communication
C. Celebration
The 7 Phase Strategic Sourcing Process
Examples of Non-Standard Products
that Needed Strategic Sourcing
Consolidated to 16 products, 1 supplier:
$53,000 savings
Consolidated:
$120,000 savings
Consolidated:
$670,000 savings
Coflex – wrap bandaging
37 products5 suppliers$316,000 spent
Plastic containers
157 products40 suppliers$613,000 spent
Orthopedic soft goods
5,500 products197 suppliers
$3,400,000 spent
And there are a thousand more just like these!
Our Roadmap to Success
As the SCO Matures, “World-Class” Will Require Progression to
Category Management
Procurement Competence Over Time
Va
lue-A
dd
Price Focus TCO Focus Value Chain Focus
2008/2009 20122005
Contracting Strategic Sourcing Category Management
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
Defineneeds &opportunities
Select supplier and
contract
Requisitionand buy
Create goodsor services
(supplier)
Freight,receive, store,and distribute
goods
Pay
Useandmaintain
Dispose(goods)
• It’s more than just good purchasing practices
• It’s all of the non-labor spend in a company
• It’s also the processes to get it into the company
The Supply ChainSCM Benefits
• Reduce supply base
• Develop alliances
• Total cost reductions
• Team purchasing
• Integrated support
with logistics
• Strategic vs. tactical
• Increased skills
• Reduced inventory
• Improved customer
service
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
Commodities
Clinical
Commodities
High-preference
Items
High-cost
preference items
Clinical Categories Non-Clinical Categories
Administration
Construction
HR
Nutrition
IT & Telecom
Marketing
12 Healthcare Supply Chain Executives
Offer Best Practice Ideas
• Use of EDI• Monitor profitability of each
department/program • Optimize procure-to-pay
processes• Contract compliance• Link materials (item master) to
revenue cycle (charge master)• Self contracting • Value analysis• Supplier credentialing • Real-time pricing and charging
• Auto receipt & matching with real time credits, returns and rebills
• Standardize products working with clinical committees
• Efficient recall systems• Master data management –
standards• Internalizing equipment
maintenance • Self distribution• Nightly electronic reordering based
upon replenishment needs• 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
Analyze
Spend
Analyze
Category
Analyze
Market
Implement
Strategy
Manage
Negotiations
Award &
Contract
Develop
Strategy
Traditional Contracting
Strategic Sourcing
Here’s a Problem…GPOs do
Contracting…Not Strategic Sourcing
Without doing true strategic sourcing it’s mostly about
price with “their” suppliers
GPOs should be used as a
TOOLnot a
STRATEGY
Solution
Unfortunately, many use it as a strategy!
How Much Self-Contracting?
…Should Require Some Evaluation
of Costs vs. Benefits
Self
ContractUse
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
Med/Surg
Clinical Products
IT, nutrition, CE
Benefits, advertising, other
non-traditional categories
Not just sourcing
but also distribution
System Approach to Purchasing
Supply Chain Organization Created
to Standardize Purchasing Practices
StandardizeSupplies
Potential Savings of $12M through Clinical
Commodity Standardization and Utilization Initiatives
Appropriate Product
Utilization
Typical Supply Savings %
A Three Tiered
Approach to
Supply
Savings
From Purchase Cost to Standardized Supplies to
Managing Product Utilization
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
suppliers
7. Simplify your processes
8. Look at your warehouse and distribution
costs
Practice
Supply Chain
Management
This Can’t Be Our Supply Chain Forever
National
GPO
Contracting
Manufacturer Distributor Provider
Tracing Fees
(3-4%)
Payment Term
Discount (2%)
Channel Fees
(4-6%)
Distribution
(4-12%)
Additional
Markup
(4-8%)
Volume Rebates (1-2%)
Transactions
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
We cannot wait for the storm to blow over.
We have to learn to work in the rain.
Speed, Agility and Value are More Important
Than Ever Before
“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.
Competition
Thank You