IV'2 Supply Chain Metrics and Benchmarking: The Foundation for Performance Improvement

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IV.2 Supply Chain Metrics and Benchmarking The
Foundation for Performance Improvement
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Supply Chain Metrics and Benchmarking

• Eugene Schneller
• Professor
• Vicki Smith-Daniels
• Professor
• Arizona State University
• Tempe, Arizona

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Agenda

• Personal Introductions
• Complexities of the Health Sector Supply Chain
• Benchmarking Opportunity
• Initial Findings on HS Metrics
• Health Sector Supply Chain Benchmarking Framework
• Next Steps

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Health Sector Supply Chain
Products
Services

• Contracting
• Distribution
• E-Business
• Customer Service
• Field Support Sales
• Info/Data Mgmt.
• Maintenance Repair
• Consulting

• Medical Devices
• Supplies
• Pharmacy
• Equipment
• Information Technology
• Food
• Laundry

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Industry Challenges Responses
Strategy

• Leveraging volume
• Local SC capabilities
• Process improvement
• New entrants

• E-commerce solutions
• Distribution services
• Other new services

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Benchmarking Success

• Health Care Industry
• Tends to drive change through looking outside
  their organizations
• Benchmarks tend to be outcome measures provide
  gap analysis
• Cross-Industry Supply Chain Approaches
• Focus on process improvement and best practice
  identification
• Supply Chain Council SCOR Models
• CSCMP APQC Open Benchmarking Consortium

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Project Opportunity
Prospects for continued improvement likely to be
found by measuring firm-level and inter-firm
processes and determining those collaborative
practices that are antecedents to improved
performance.
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Health Sector Supply Chain Processes
Procure
Deliver
Return
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Integrating Processes

• Need to define, measure, and evaluate
• Internal-facing
• Customer-facing
• Supplier-facing
• processes and outcomes

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Supply Chain Performance Outcomes
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Research Questions

• What metrics are collected about an
  organizations supply chain operations (internal
  metrics)?
• What metrics are collected by an organization
  about their trading partners relationships
  (external metrics)?
• What metrics are collected for trading partners
  about their customers supply chain performance
  (external metrics)?

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Sample Internal Metrics Acute Care Providers

• Cost
• Spend Metrics
• P.O. Efficiency Metrics
• Freight Charge Metrics
• Warehouse Costs
• Number of Purchasing FTEs
• Assets
• Inventory Turns, DOS and Dollar Amount
• Value of Consignment Inventory
• Reliability
• of invoice item price errors to lines ordered
• Accounts payable per hold pending invoice
  discrepancies

• Source
• GPO Contracts to Total Spend
• No. of Non-GPO Contracts
• EDI, Fax, Manual Spend
• Contracts
• s lost due to not meeting rebate thresholds
• Cost savings through self-managed contracts

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Sample Internal Metrics Acute Care Providers -
Continued

• Deliver to System/Facility
• Lines distributed per warehouse labor hour
• Lines per FTE
• Stock lines distributed for the month
• Crossdock lines per month
• Inventory turns and dollars
• Percent of nonmoving SKUs
• Order fulfillment time
• Fill Rates per SKU
• Picking accuracy

• Deliver to Clinicians
• Clinician satisfaction
• Product availability at care location
• of rush orders delivered on time

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Sample External Metrics GPO Provider Link

• Cost
• Savings through GPO contracts
• Order processing cost reduction
• Reliability
• No. of purchase price discrepancies
• Data integrity errors
• Connectivity uptime
• Responsiveness
• Order fulfillment time

• Contract
• Off-tier losses
• Available rebates not collected
• Assist
• No. of customer support calls to correct error
• Turnaround time to correct error

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Sample External Metrics Supplier Exchange
Link

• Reliability
• Consistency of data on Purchase Order Status,
  such as
• Estimated delivery date
• Status codes
• Invoice/contract unit price
• Consistency of data on Advanced Ship Notice, such
  as
• Shipping carrier
• Tracking number
• Shipped date
• Ship-From Location

• Responsiveness
• 90 minute PO status response time

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Sample External Metrics Distributor Provider
Link

• Responsiveness
• Order fulfillment cycle time
• Number of delivery days per week
• of rush orders delivered on time
• Reliability
• Fill Rate by line item
• Fill Rate per requisition
• of emergency orders to distributor/number of
  orders to distributor

• Assets
• Inventory Turns
• Days of Supply
• Value of Consignment
• Distributor capital assets at Provider location

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Practices and Capabilities Metrics

• Measured by
• Yes/No implementation
• Number of XYZ
• Percentage of XYZ compared to total
  transactions
• Examples
• No. of vendors total and by service line
• No. of value analysis teams
• Integration of charge master with SCM data
• Clinician preference items on consignment
• Dashboard/scorecard implementation
• Information sharing with suppliers and customers
• Tracking performance with suppliers and customers
• Collaborating on solutions with suppliers and
  customers
• IT initiatives

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Metrics Intensity Outcomes
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Metrics Intensity Processes and Practices
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Initial Findings Health Sector Metrics
Capability

• Metric-benchmarking used to target cost
  reductions or negotiate lower prices
• Little emphasis placed on agility,
  sustainability, and safety
• Very few organizations measure supplier
  performance and customer satisfaction
• Limited measures of internal-facing supply chain
  capabilities
• Emerging process measurement through technology
  implementations and six sigma projects
• Measures of customer service and relationship
  management need to be developed
• Substantial amount of effort on compliance and
  accuracy measures.

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Next Steps

• Expert panel studies to identify current and
  future practices and capabilities
• Large-scale national metrics survey to
  investigate
• Frequency of Use of Metrics
• Frequency of Measurement
• Decision Making Use

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Benchmarking Approach
Outcomes
Non-Financial
Financial
Capabilities
Hierarchical
Scope
Adapted from SCOR Model
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Benchmarking Design

• Promotes industry-wide perspective
• Allows for gap analysis and identification of
  competitive practices
• Measures performance, processes, and indicators
  of capabilities
• Recognizes the importance of comparative
  benchmarking groups
• Incorporates methodologies for integrative
  benchmarking
• Integrates strategic decisions into the analysis

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Benchmarking Framework
Process Elements Capabilities Metrics
Adapted from Supply Chain Councils SCOR model
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Process Elements Metrics
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IT Value
A savings of more than 845,000 net of
SupplyScan's cost, is expected to be realized
over five years from a reduction of eight
full-time employees in materials management,
accounts payable and purchasing. Intangible
benefits include improved clinician satisfaction
and product availability.
Harder to quantify than the hard-dollar savings
from a product such as SupplyScan, Horizon
Business Insight has nonetheless delivered a
significant ROI to Scottsdale Healthcare an
estimated savings of more than 500,000 a year as
a result of a decrease in time spent on data
collection and the budget process. The tool also
makes critical information available to
management, including CMS and JCAHO compliance
data, patient satisfaction survey data and
quality improvement data.
Source http//www.mckesson.com/chairmans_award_2
k5.html
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Example RFID
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Benchmarking Comparative Groups Proof of Concept

• Develop valid measures of acute care provider SCM
  practices capabilities using a survey
  methodology.
• Determine comparative benchmarking groups for
  acute-care providers based on existing practices
  and capabilities.
• Investigate whether benchmarking groups differ in
  their current supply chain performance, and if
  so, what practices and capabilities result in
  performance differences.

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Conclusions

• Complexity of the health sector supply chain is
  not likely to be reduced.
• Unique health sector service processes need to be
  considered.
• Not all best practices from the manufacturing
  industries will, or should be, transferred to the
  health sector industry.
• Benchmarking methodology needs to be grounded in
  state-of-the-art research methods.
• Big Win improvement opportunities exist at the
  inter-firm process level.
• Industry-wide benchmarking should lead to
  sustained improvement without comprising a
  critical link in the chain.

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Concluding Thoughts

• Rising costs, shrinking budgets and declining
  reimbursements are compressing thin operating
  margins. The price-focused model of squeezing
  concessions from suppliers has largely run its
  course. Patient demand shows no sign of abating
  either in frequency or complexity. All of this
  places unrelenting pressure on hospital materials
  managers to preserve and maximize their working
  capital Widely used best practices supported by
  user-friendly technology and capable, experienced
  partners can help hospitals construct effective
  supply chain solutions that drive quality of care
  while ensuring financial resources are available
  to deliver services a community expects.
• Kurt Kuehn, 2005.

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Questions?

• For More Information
• vicki.smith-daniels_at_asu.edu

wpcarey.asu.edu/shmp/consortium/projects.cfm