Supply Chain Hall of Fame 2009 Recipients
The Bellwether League has just announced 13 supply chain pioneers that have entered their “Hall of Fame” this month. You might not know all of these honorees whom I have listed below who are the recipients of Bellwether’s 2009 awards but I thought I would talk about one recipient who has impacted my career forever… Gordon A. Frieson.
The Honoree Class of 2009 includes George Ainsworth, Charles Auslander, Guy J. Clark, Gordon A. Friesen, Lillian R. Matiska, Brien Laing, William M. McKnight Jr., Sara I. Mobley, Paul B. Powell, Samuel G. Raudenbush, Warren Rhodes and James E. Stover. These 12 were chosen for their intellectual and operational contributions to healthcare through their achievements in hospitals, group purchasing organizations (GPOs), manufacturers and distributors, consulting firms, educational institutions and media properties
When I was a young MM I was hired as Director of Materials Management for a community hospital that was building a new hospital based on the design concepts of Gordon A. Frieson. It was my job to operationalize the Frieson supply chain concepts (nurse servers, exchange carts, supply technicians on nursing floors, SPD, case carts, etc.) into our new building program. The only problem was I had never heard of Gordon Frieson and was only tangentially familiar with his supply chain concepts.
Fast forward one year! After a year of researching “The Frieson Way” of doing things (reading articles, visiting other Frieson hospitals and good old trial and error), my staff and I put in place all of Frieson concepts into a integral supply chain operational plan, which we then implemented over a six-month period. The lesson I learned from this exercise was that if you systematic plan for any project you can be successful even if at the starting point you know little or nothing about the subject matter at hand.
The second thing that I learned from this experience was that if you borrow the best ideas, as Frieson did, from other industries such as airlines, hotels and manufacturing, you can greatly improve your efficiency and effectiveness by “stealing from the best with pride” as Tom Peters used to say.
Lastly, I learned that by adopting the best practices from the disciplines of management engineering, space planning and logistics into my new Frieson supply chain model, that I could dramatically reduce my hospital’s nursing cost by transferring all non-nursing duties to supply chain management.
And that’s not all! This big and challenging learning experience set me on a career path to incorporate “The Frieson Way” of doing things at every hospital, system and IDN where I was employed going forward with great success.
So as you can see, this pioneer in supply chain logistics rightly deserves to be in the Bellwether League’s Hall of Fame because in my opinion he changed the face of supply chain management for all that followed him into this important and rewarding work.
Leading Through a Recession
With few exceptions, healthcare organizations have seen a downturn, due to the recession, in their inpatient census, outpatient visits and corresponding revenues. This has led to even more staff layoffs and ratcheting down of ALL expenses. This recession is a true test in leadership to keep your hospital, system or IDN viable during these perilous times.
As a supply chain leader it’s your job to have a clear vision, credibility and confidence throughout this downturn and to continue to achieve double-digit savings to help fill your organization’s revenue gaps.
Leading through a recession starts with having a plan to cope with the downturn, even with a slashed supply chain budget. I hear some hospitals’ CEOs are asking their MMs to summarily hack off 10% of their supply budget, but that’s not a plan. That’s an act of desperation and extreme anxiety that will too often backfire when the dust settles and everyone has time to take a deep breath!
That’s why a PLAN by definition is a carefully and thoughtfully conceived process of setting goals, developing strategies and outlining tasks and then setting schedules to meet those stated goals to avoid any and all pitfalls. I would recommend that your recession plan should have these three critical elements:
- Benchmarking of all areas of your supply chain operations to determine how much money is still available to be saved at your healthcare organization. The results of this exercise will then become your actual, realistic and obtainable savings goal for your plan, not some arbitrary number picked out of the air by others.
- Develop strategies and tactics to attack each of the areas where you have identified savings opportunities. For example, if your GPO compliance is only 82% and your benchmark indicates you should be at 93% compliance, then develop a tactic to greatly improve this metric.
- Establish a list of tasks, timelines and a person who is responsible for making the identified savings you have uncovered a reality. We like to use a 90-day timeline for all of our projects, unless there is an extraordinary circumstance that prohibits a task from being achieved in this timeframe. In this case, we give an extension on the project for 30, 60 or 90 days.
As consultants, we do this planning exercise that I have just outlined for you, dozens of times a year for our clients, just the way I explained it to you. There is no magic in finding savings, except hard work that ultimately leads to big implemented savings for you.
In this time of stress, anxiety and upheaval don’t take any short cuts in your leadership. This might create even more problems for you down the road or worsen your situation through poor or non-existent planning. Keep on course, on budget and on time with all of your planning to ease your way out of this recession and ultimate recovery!
Moving From Fuzzy Supply Chain Benchmarks to Actionable Results
There is a level of uncertainty in the healthcare supply chain circles regarding what benchmarks are the best for measuring your supply chain effectiveness and efficiency, now that you need to live by and be judged by those numbers. What’s the correct answer to this challenge?
Let’s first start by looking at the history of supply chain benchmarking systems. Predominantly, these are global supply chain benchmarking systems that have been utilized by supply chain professionals for 10 to 12 years. These systems focus on the overall global performance of supply chain organizations, such as, supply expense as a percent of net operating revenue or supply cost per procedure/test for respective hospital departments.
These are the preponderance of benchmarking systems that are in the marketplace today. I’m not saying that these are not somewhat effective but from the prospective of the supply chain manager are they good enough to obtain actionable results?
With this said, I think the word that best describes these systems’ metrics would be “ambiguous” at best. Yes, I’m saying they are uncertain, hazy, unclear, and vague. For example, if your surgical service cost per procedure is $122 over your peer hospital’s benchmarks and you are running 4,233 procedures per year your opportunities in surgery supply savings will be calculated at $516,426 per year. But this result still leaves any supply chain manager asking these big questions:
- Where’s the surgery services actual savings hidden?
- Is it Physician Preference? Clinical Preference? Waste? Misuse?
- What specific products are causing this variance?
- Where do I get started attacking these identified savings?
The answers to these questions are just the beginning of what I call the “time trap” that could take months, maybe even years to actually uncover these globally identified savings opportunities.
Yes, your intuition could point you to the “usual suspects”, such as, implants, sutures, custom packs, endomechanicals, etc. However, we have found that the surgery suite is much more complicated, difficult and denser in supplies than you might think. Accordingly, you may expend ALL of your time and resources in this area of your supply chain operations and then not yield the maximum return-on-investment you are looking for.
The most certain way I know to uncover where your supply savings actually reside in any category of purchase, and to avoid the ‘time trap” I just talked about, is to develop deeper and broader supply expense metrics at the SKU (stockkeeping unit) to lead the way to your savings. For instance, a good metric that we have been employing for some years to determine the reasonableness of the cost of custom packs is: Total Custom Pack Cost/ Procedures CMI Adjusted. This metric has been a reliable benchmark for us when compared to a client’s peer group to determine if their custom pack cost is out of line. This is much better than guessing if this is the reason why our client’s total surgical services expenses have been “red flagged” as being extremely high.
In the final analysis, supply chain benchmarks can be useful, constructive and very definitive in your search for supply savings, but only if they give you the answers to just about all of the questions that you might think of in your benchmarking exercise. This can’t be done at the 30,000 feet level. This information only can be deciphered at the ground level which will require you to greatly ENLARGE your benchmarking range, choice and depth. That’s the only correct answer to this challenge!
Vacillation isn’t an Option
If you have been reading any newspaper, magazine or have been watching the TV news over the last few weeks you can’t miss the headline, “Healthcare Reform on the Way”. However, what the media doesn’t tell you is that no matter what form healthcare reform takes each proposal now before Congress “will require providers to radically restructure the way they interact with other providers and control cost. Facilities will be best served by preparing now. Those that wait risk their facility’s financial health through reduced payments and lower volumes.” is the prediction of Hospital Financial Management Magazine.
The best case scenario for healthcare reform is that the Feds will attack the cost of readmissions within 30 days of discharge by disallowing reimbursement, bundle inpatient and outpatient charges at a lower rate, and expand their pilot gain sharing program to all qualified providers who can meet seven stringent participation criteria. The worse case scenario is that the Feds will dramatically reduce your hospital’s already meager Medicare payments, which has been already proposed.
With this said, I don’t think this is a time when you should take a “wait and see attitude” since vacillation isn’t an option. It’s safe to say that some form of healthcare reform is on the way and to pay for it the Feds will need to take more dollars from your healthcare organization’s budget to make it work. That’s why even more rigorous cost management should be the order of the day for all healthcare organizations. To do less is to risk getting caught asleep at the wheel while your competitors sail through this impending historic financial disruption without missing a beat.
