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Supply Chain Cost Savings Strategies

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Achieving minimum total expense for specialty/physician preference supplies (e.g., stents) ... Review of the physician preferences vs. currently in use ... – PowerPoint PPT presentation

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Title: Supply Chain Cost Savings Strategies


1
Supply Chain Cost Savings Strategies
  • Jean Sargent, CMRP, FAHRMM
  • Director, Supply Chain
  • University Kentucky Healthcare
  • Vicki Smith-Daniels, Ph.D.
  • Professor of Supply Chain Management
  • Arizona State University

2
Agenda
  • Perspectives on Supply Chain Challenges
  • The UK Healthcare Story
  • Next Generating Benchmarking and Performance
    Improvement
  • Engaging Stakeholders in Supply Chain
    Improvements
  • Closing Comments

3
Perspectives on Supply Chain Challenges
  • Industry Viewpoint

4
Supply Chain Perspectives
  • Revenue and Expense vs. Utilization
  • Charge capture linking supply chain to revenue
  • Physician Preference Items most costly
  • Processes to track new spend
  • Value Analysis/new technology processes
  • Capital expenses
  • Aligning with vendors for long term relationships
  • Inventory turns, carrying costs, consignment,
    discounts, freight
  • E commerce
  • Benchmarking

5
Consumables Trend Spending
  • Consumable Products Expense
  • Increasing 64 faster
  • than
  • Salary Expense
  • Benefits Expense
  • Total Operating Costs

Source The Advisory Board Company, 2005
Expense Growth Rates 2002-04
6
From A large Slice of the Pie
Total Supply Chain Expense as a Percentage of
Total Hospital Expense
Supply Chain Management Expense 35 to 45
Other Hospital Operating Expense 55 to 70
7
To a tipping point size slice gt50 of the budget
Total Cost Incurred by Hospitals
Figures based on HFMA estimates. Labor cost
includes salaries, wages and benefits based on
average of leading hospitals in the U.S. and
Others is inclusive of profits to the hospitals.
Source SP Industry Surveys Healthcare
Facilities HFMA industry reporting Pipal
Research analysis.
8
Supply Chain Improves Bottom Line
  • Example Average, private sector, not-for-profit
    hospital with margins lt1
  • Objective Improve bottom line by 500K
  • Options
  • Reduce supply chain expense by 500K
  • Increase revenue by 50 million

Source HFM Magazine, 2008
9
08 Improving Profitability By Supply Chain
C-Suite
SC Execs
  • APPROACHES CONSIDERED or TAKEN
  • to IMPROVE PROFITABILITY
  • Enhancing collaboration with physicians in supply
    standardization and expense reduction
  • Identifying appropriate metrics to benchmark
    the organizations supply chain performance
  • Decreasing direct/off-contract ordering
  • Initiating a value analysis process
  • Achieving minimum total expense for
    specialty/physician preference supplies (e.g.,
    stents)
  • AHRMM Survey 2008

1 1 2 5 3 6 7
2 6 3
10
Perspectives on Supply Chain Challenges
  • Academic Perspectives

11
The Conditions are Right for a Perfect Storm
Limited Cash Credit
Rising Oil Prices
Changing Trade Policies
Decreasing Product Integrity
Weak Dollar
12
Forces and Supply Chain Complexity
  • Complexity
  • Loss of control
  • Little visibility
  • Reduced time to market
  • Quality risks
  • IP risks
  • Shortened product life cycles
  • SKU proliferation
  • System integration

Relentless Pressure to Reduce Cost
Product Innovation to Drive Revenue Growth
Pursuit of New Markets
Issues on the Minds of Manufacturing Supply
Chain Executives
13
Risks and Pains
Pain Points
High
  • Supply Risks
  • Technology Risks
  • Demand Risks
  • Market Risks
  • Disruption Risks

Severity
Low
Frequency of Occurrence
Low
High
14
Responses to Pain and Complexity
Responses
15
Integrated Supply Chain
Plan
Deliver
Make
Deliver
Make
Source
Source
Make
Deliver
Source
CustomersCustomer
Your Company
Supplier
Customer
SuppliersSupplier
Internal or External
Internal or External
Synchronizing material, information and financial
flows both within and across organizational
boundaries
16
Enterprise-Wide Supply Chain Management
Planning Evaluating Selecting
Purchasing/ Contracting
Revenue Management
Receiving/Accounts Payable
Using Disposing
SUPPLY CHAIN MANAGEMENT
Managing Inventory
Distributing
Storing Warehousing
Processing
17
The UK Healthcare Story
18
Physician leaders are deeply embedded in every
aspect of UK Healthcare Operations
  • Engaged at all levels (Inpatient outpatient
    settings)
  • CMO Associate CMOs (5)
  • Specialized areas quality, medical informatics,
    inpatient services, throughput, peri-op services,
    medical affairs and ambulatory services
  • Scope includes significant operational
    responsibilities
  • Medical Directors (63)
  • Job description clear expectations
  • Linked with administrator, outcomes and/or nurse
    manager (i.e. dyad/triad)
  • Creating management triad is an area of active
    development

19
Fundamental TenetImproving Our Quality, Safety
EfficiencyIt is all about the System
  • Efficient systems produce better outcomes at
    lower costs
  • Highest quality of care (best practices) is also
    the most cost effective do it right the first
    time
  • Eliminate unnecessary variation and waste (read
    supply chain)
  • Standardize the processes Implement best
    practices
  • Wide adoption of the Lean philosophy and tools
  • a system in the relentless pursuit to eliminate
    waste and non value added activities.

20
Lean Manufacturing
  • Philosophy focusing on reduction of the 7 wastes
    (all highly related to the supply chain)
  • Over-production
  • Waiting time
  • Transportation
  • Processing
  • Inventory
  • Motion
  • Scrap
  • By eliminating waste (muda), quality is improved,
    production time is reduced and cost is reduced
  • If you adopt the Lean approach to improve quality
    then you very much care about the supply chain

21
Reduce waste and reduce the burden on people and
machines!
22
(No Transcript)
23
VAT Capital ProcessesPhysician Perspective
  • Structured
  • Use of evidence reviewed by peers
  • Permits trials that requires an evaluation
  • Transparent
  • Open processes
  • Formula driven model to determine capital budgets
  • Processes are consistent with
  • New physician responsibilities for operations
  • Lean/process improvement thinking
  • Long term strategy for UK Healthcare
  • Less discontent
  • A work in progress (not every one has bought on)

24
Chief Medical Officer Summary Reactions about
our VAT Process
  • What works?
  • Forces more thought about the impact of new
    supplies (inventory, higher cost, increased
    practice variation).
  • Builds financial discipline into the purchasing
    process. 
  • Requires multi-disciplinary interchange.
  • Makes purchasing decisions more transparent (less
    backroom dealing).
  • What opportunities?
  • Get the small dollar low impact items out of VAT.
  • Get clinical leaders even more engaged in making
    it work.
  • Link more closely the capital equipment process
    when new equipment requires supplies.

25
UK Healthcare Supply Chain ProcessesInvolvement
of All Stakeholders
  • VAT process
  • Members include physicians, clinical staff,
    supply chain, finance
  • Submit electronic REW which contains current
    item, new item information, CPT codes, usage,
    requestor
  • Capital process
  • Submit electronic request
  • Quarterly review by dollar amount up to 200,000
    and over 200,000
  • Decisions are based on analysis to include
  • Contracted item
  • Reimbursement
  • FDA approved
  • Agreement by all physicians/users to standardize
    to new product

26
New Physicians Needs Process
  • Review of the physician preferences vs. currently
    in use
  • What manufacturer specific products are being
    requested
  • Are these on the formulary/on contract
  • Is this a new process that is part of the
    strategic plan
  • Is there capital being requested with new
    disposables?
  • Are the costs calculated against the VAT
    allowances

27
Standardization/Quality/Efficiency
  • Better care
  • Less costly
  • Team driven
  • Less variability in care

28
UK Healthcare Supply Chain
  • UK Healthcare recognized as a Top Performer by
    UHC (2008)
  • Managing the process
  • Department Chairs are involved
  • Limited limited choices
  • Physician involvement
  • Better understanding
  • Less antagonism
  • Use of Benchmarking/Analytical Tools
  • SC Metrix

29
Benchmarking at UK Healthcare
  • Utilization of 3 different programs
  • Comparing other data to SCMetrix
  • Need for Industry standards and definitions
  • Comparing data to other facilities in the area
  • Filling the gaps

30
Next Generation Benchmarking
31
Driving Performance Improvement
Operational
Organizational
SC Structure
Supply Expense
Practices Capabilities
32
Adoption of the Industry Standard
Standard Supply Expense Definition The net cost
of all tangible items that are expensed including
freight, standard distribution cost, and sales
and use tax minus rebates. This would exclude
labor, labor related expenses, and services as
well as some tangible items that are frequently
provided as part of service costs.
33
Practices and Capabilities Assessments
Perceptual Assessments
  • Supply Chain Informants
  • Clinical Informants
  • Supply Chain Integration
  • Supply Chain Capabilities
  • Product/Supply Governance
  • Physician Supply Incentives
  • Process Improvement
  • Performance Measurement
  • Contract Management
  • Supply/Supplier Management
  • SCM Information Quality
  • SCM IS Integration
  • Process Automation
  • Electronic Ordering
  • Trading Partner Relationship

34
Case Study
  • Pursuit of the Single Best Metric

35
Sun Devil Hospital
  • 175 Bed Hospital in Southwest U.S.
  • Facilities are 20 Years Old
  • 40 Revenue from Outpatient Services and Surgery
  • CMI
  • Other Top Revenue-Generating Service Lines
  • Cardiovascular
  • General Medicine
  • Orthopedics
  • Respiratory

36
Frequently Used Metric Supply OE
  • Assessment
  • Often Used for Budgeting
  • Can Be Used to Detect Changes
  • Need Detailed Information on Peers
  • Common Reasons for Poor Performance
  • Higher Physician Preference Items
  • Higher Patient Acuity
  • Lower Labor Costs
  • Supply Chain Needs Improvement

37
Sometimes Used Metric Supply Rev
  • Assessment
  • Often Used for Budgeting
  • Can Be Used to Detect Changes
  • Need Detailed Information on Peers
  • Talks the C-Suites Language
  • Common Reasons for Poor Performance
  • Poor Reimbursement Levels
  • Higher Inpatient Services than Outpatient
    Services
  • Higher Physician Preference Items
  • Supply Chain Needs Improvement

38
Frequently Used Metric Supply per Adjusted
Patient Day
CAUTION Reasonably good benchmark when peer
group has a. similar bed size b. similar
outpatient to inpatient revenue ratio c. similar
output of high supply intensity services
  • Common Reasons for Poor Performance
  • Higher Physician Preference Items
  • Higher Patient Acuity
  • Wrong Benchmarking Peer Group
  • Supply Chain Needs Improvement

39
Sun Devils Issues
  • How to explain wide discrepancy in performance to
    c-suite?
  • Select a single metric?
  • Hold on. what about looking at dept/service line
    metrics?

40
Low Labor Costs Impacting Performance
Recall.
41
And,
Very likely Sun Devil has lower labor costs than
the other hospitals in the peer benchmarking
group
42
Supply in Line with Revenue
Recall.
43
Impact of Physician Preferences?
Need to investigate Pharma utilization reports!!!
44
Impact of Patient Acuity
Consider another benchmarking peer group with
higher CMI??
45
Best Metric ?
46
Recommendations
  • Top Picks
  • Supply Expense per CMI Adjusted Patient Day
  • Supply Expense per CMI Adjusted Discharge
  • Serious Consideration
  • Pharma Supply Total Supply Expense
  • Surgical Supply Total Supply Expense
  • Supply Expense as a of Revenue

47
Case Study
  • Rightsizing Your Supply Chain Organization

48
Supply Chain FTEs
Need more SC FTEs!! What type of FTEs? Where
should they focus their attention?
49
Product Delivery FTEs
Consider More Product Delivery FTEs! What about
other areas?
50
Contract Opportunities
Hire Additional Contract Personnel to Focus on
Self-Managed Contracts?
51
Building SC Capabilities
Hire FTEs to formalize and centralize SC policies
52
Recommendations
  • Hire additional FTEs
  • Self-Managed Contracts
  • Working with physicians
  • Formalize SC policies
  • Additional Product Delivery (consider options
    from distributor first)

53
Engaging Stakeholders in Supply Chain Improvements
  • Supply chain is strategic aspect of providers
    business, success
  • Supply chain optimization imperative
  • SC Leader must facilitate future vision,
    strategic plan, education, communication, metrics
  • SC Leader must ensure it is achieved
  • Executives recognize, understand, promote supply
    chain opportunity, impact, role
  • Use of standards
  • Use of benchmarking tools

54
Practices and Capabilities Assessments
Perceptual Assessments
  • Supply Chain Informants
  • Clinical Informants
  • Supply Chain Integration
  • Supply Chain Capabilities
  • Product/Supply Governance
  • Physician Supply Incentives
  • Process Improvement
  • Performance Measurement
  • Contract Management
  • Supply/Supplier Management
  • SCM Information Quality
  • SCM IS Integration
  • Process Automation
  • Electronic Ordering
  • Trading Partner Relationship

55
Move to Action
Strategic Integration
Change Masters
The New Measurement Paradigm
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