by Carl Gustafson
AVP, Supply Chain Operations

With the great resignation and COVID-19 continuing to wreak debilitating effects on healthcare, the overall effectiveness of supply chain departments is a significant concern for the C-suite. One strategy to ensure business continuity and improve contract management practices lies in the recent trend of outsourcing the contract management function. Optimizing contracts means healthcare systems are receiving accurate, up-to-date pricing with prompt execution of letters of participation and commitment. This not only creates significant cost savings but also boosts an organization’s ability to perform at higher levels in other functional areas of supply chain.  

Historically, health systems have struggled to find the required resources to drive exceptional contract management practices due to a lack of educational programs to teach supply chain associates how to manage the complex product categories. Contract management knowledge is typically learned over the course of time through knowledge share, supply chain associations, and basic trial and error.  

That’s where the benefits of outsourcing — the act of shifting internal activities and decision-making to a third-party partner via multi-year contracts or agreements — come in. Here, I’ll evaluate two methodologies of outsourcing: episodic and fully managed. Both methodologies offer operational supply chain management support from strategy development to tactically implementing leading practice around contract management. 

First things first: Considerations in developing a strategic plan 

The structure of episodic and fully managed outsourced relationships can vary depending on the needs of the healthcare organization. Either method can be a source of savings for healthcare systems providing speed to value, simplifying the bid process, implementing solid procedures, enhancing physician relationships and finalizing contracts. Elevating operational improvement is a matter of methodology and implementation. Some important considerations we always discuss with organizations when working to develop their strategic plan for the supply chain function include: 

  • What are the functional roles and responsibilities within the organization’s supply chain? This is important from a span of influence perspective, as supply chain must support the contracting process for all direct and indirect spend. Understanding the needs and responsibilities for any supply chain-related activities in other departments is critical for a leading practice supply chain. 

  • What does the resource plan and high-level schedule look like? Without a rolling contract expiration report and a resource plan for who is working contracts and when they must be fully executed, organizations will be challenged with contract expirations and potentially going to list price. This exacerbates the peer-to-peer process in terms of pricing issues and can have a major impact to the cost of goods. 

  • How can gaps and needs be addressed? By identifying gaps and needs, the supply chain team can build its case to senior leadership for approval of additional resources. The team’s case must be clear as to how the additional resource will provide a return on investment. 

  • How can KPIs be incorporated to monitor performance? Key performance indicators are critical to measuring the success of your contracting efforts, and there are numerous KPIs that can potentially be incorporated into a dashboard. Understanding what is important to the C-suite and physicians will help decide which KPIs to start tracking. 

  • How can you overlay the voice of your customer into the strategic plan? It is highly recommended for leadership to meet with the departments supply chain supports, see the actual process, understand the work, ask questions and learn from those who do the work. Taking the “Gemba” walk allows for interactive conversation and an understanding of how supply chain can improve the support they provide to the end user, with that feedback ultimately incorporated into the strategic plan. 

  • Does the current supply chain strategic plan link to the organizational strategic plan? Vertical integration into the system strategic plan is important. When developing a supply chain strategic plan, rolling up initiatives to support the broader goals of the organization is critical.  

Benefits of the fully managed model 

The fully managed contract management model allows for the training, coaching, mentoring and advancement of the healthcare organization’s team that utilizes well-documented leading practice methodologies. Delivery of contractual savings to offset the overall expense of the engagement is an important consideration when determining what level of engagement will best fit the organization’s needs. Supply chain operational performance is quickly elevated when the collective experience, expertise and thought leadership of a supply chain subject matter expert, along with resources and technologies, is teamed with an eager health system partner. 

Take, for example, our fully managed partnership with UMass Memorial Health Care, in which its supply chain went from siloed and transactional to a clinically integrated, strategic value driver. The organization followed a roadmap that included evaluating all talent, capabilities and technological needs within supply chain operations; examining the current operational strategy to ensure it aligned with the health system’s overall strategy; focusing on data integrity; increasing transaction automation; and tracking improvements, among other tactics. That ultimately led to $23.7 million in savings in just the first three years. 

Benefits of the episodic model 

Organizations with strong contractual leadership and an experienced team that is driving excellent contract savings and outcomes might only need a temporary resource due to turnover or gaps in staffing levels. The episodic resource model places a well-versed contract resource to help propel the organization forward to assist with meeting its goals and deliverables. Additionally, the episodic model can help stabilize operations by comparing the organization’s current state to leading practices, as well as identifying gaps and making recommendations on how to build foundational skills for the organization’s supply chain. 

But no matter the model, the most important consideration is this: Does your health system have the strategic focus to implement an effective plan — and the determination to see these improvements through to completion?  

Learn more about Vizient’s supply chain solutions

About the author: In his role as AVP of supply chain operations at Vizient, Carl Gustafson uses his more than 20 years of healthcare industry experience to provide significant process improvement and expense reduction opportunities to Vizient member healthcare organizations. His focus on applying lean principles has assisted members in achieving?significant cost savings and measurable positive outcomes. His expertise in cost-savings initiatives, mentoring, contract management, logistics, inventory management, value analysis, and strategic sourcing helps guide organizations to reach their full cost containment potential. 

Published: June 8, 2022