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Is Your Supply Chain Living Up to Its Potential? 10 Questions to Help You Find Out

07/25/19

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Ryan Beaver, Consulting Director, Advisory Solutions – Supply Chain Operations

No matter how seasoned a supply chain professional you may be, it’s important to periodically evaluate your department and how it compares to others across the country. To avoid becoming stagnant, you should never stop testing, evaluating or working to improve. By testing the health of your supply chain, you get an understanding of where you need to focus your efforts and align your supply chain activities with leading industry practices.

Below are 10 questions that will help identify any issues in your supply chain and develop a prescriptive approach to remediation.

Question #1: Does your supply chain department have an annual savings goal that’s clearly stated and communicated to the entire supply chain operations team?

If you don’t know what you’re aiming for, how can you ever know if you’re successful? Savings goals help lead to greater alignment between supply chain and clinicians by providing a visible roadmap for cost containment initiatives. While these initiatives will be managed through strategic sourcing and contract negotiations, the savings goals will likely impact every department of an organization and sharing the roadmap will help gain the alignment necessary to achieve the cost savings goals.

Question #2: Do you have an operational dashboard that’s visible, with regular reporting meetings, to manage key supply chain performance metrics?

At the start of a new job at a hospital in Pittsburgh, I began by meeting with the team to introduce myself and get to know them a little better. I already knew the team was very transactional and didn’t measure a lot of what they were transacting. I kicked things off with the question, “Did you have a good week last week?” Everyone around the table started smiling and nodding their heads. I then asked, “That’s great to hear! How do you know that you had a good week?” Instantly, the mood of the room changed. How can you know the difference between a fair, good or great week if you don’t measure what’s happening? You can’t. And you also can’t efficiently manage a supply chain without clear performance measures that are regularly reviewed.

Question #3: Do you have a written, multiyear strategic plan that aligns to the strategic plan of your health system?

Different than an operational plan, a strategic plan is a clearly defined list of goals, along with the steps needed to reach those goals. A plan like this requires an understanding of how your organization functions and what part supply chain plays in its vision. Without a clearly articulated and collaborative strategic plan, different departments will be working toward different goals.

Question #4: Do you have a defined methodology for reviewing your off-contract spend that includes a plan to move that spend onto contract?

You’ve just written the greatest contract ever seen and everyone is celebrating your success. You can now input the pricing in the item master and move on to the next project. The minute you stop focusing on this contract, physicians throughout your organization go back to ordering the products they want rather than the ones that were agreed upon. Sound familiar?

If you don’t have a defined methodology for reviewing off-contract and rogue spend, all of that hard work will have been for nothing. This methodology needs to be part of the culture of your organization to aid in cost containment and standardization.

Question #5: Is more than 60% of your purchase volume automated through electronic data interchange?

Here’s a very simple question, is it easier to place a purchase order manually or via EDI transfer? Labor is typically the most expensive line item on a hospital’s balance sheet and the absence of labor constraints will cause that expense to lose its containment. It’s vital to the success of a supply chain operation to move as much of its purchase volume to EDI as possible. By engaging with suppliers on EDI and trusting the process, you’ll be able to automate a lot of the processes once done by personnel.

Question #6: Do you have a defined methodology to execute cycle counts, optimize inventory and conduct bi-annual PAR level reviews?

Inventory values and PAR levels are two of the most important metrics in supply chain operations. If inventory values are too low, you’ll continually “stock out” of product. If they’re too high, your inventory turns go down, cost goes up and there are product expiration issues. With PAR levels too low, you risk patient safety, too high and there’s a loss of cost containment. By designing the correct analytics and measurements, these controls can help lower supply costs and improve supply chain’s reputation for efficiency within the organization.

Question #7: Do you have a dedicated resource and established processes to manage your item master file?

Everyone talks about how supply chain needs to be the single source of truth for data in an organization. This quest starts with the management of the organizational item master. Without regular cleansing of the data contained in your item master it can become diluted, causing pricing errors, duplication and it will end up requiring a manual process to clean up errors caused by the incorrect data. Having a dedicated resource tasked with its maintenance enables supply chain to become the data masters of the organization.

Question #8: Is there a formal development plan that allows your staff to continually improve their supply chain-related knowledge?

Regardless of the size of your organization, you’ll have positions within supply chain that require filling from time to time. Knowing what your employees’ interests are, and helping them develop the knowledge and skills to fill openings when they occur, will help you be a better leader and keep you prepared to more quickly replace people when they move on. Employees will want to work in – and stay in – supply chain. It might be knowing that someone wants to move from purchasing agent to contract portfolio manager and working with them to fulfill their educational goals, helping them select coursework, and giving them additional projects to stretch their abilities ... or, it may be finding out the receiving clerk has ideas about process flow and helping them get their GED, building their confidence, then supporting them through a Lean certification so they can become the next inventory coordinator.

Not everyone wants your job, and not everyone wants to be developed. Find those who do, and do everything you can to help them in their career development.

Question #9: Are physicians regularly involved in the value analysis process?

Without clinical partners, no significant change will ever occur. Physicians are at the forefront of most of the supply usage and without their involvement in the value analysis process, opting into contracts that financially benefit the organization and satisfy clinicians will seldom take place. It’s vital to the success of the contracting process that unbiased clinical data is presented along with the financial data. Physicians are consistently criticized for not caring about the cost of a product, but many times, the right product is the more cost-effective product. It’s the job of these clinical partnerships to bring forth the data to support changes for the good of the patient and the organization’s bottom line.

Question #10: Do you have quarterly business reviews in place for your key stakeholders?

During a conversation with a supply chain leader at a hospital, I was told that they didn’t like the “voice of the customer” results. When I asked them why, they said they didn’t think it was fair that their customers didn’t know anything about supply chain. I asked them if they felt that they should be learning more about supply chain from their quarterly business reviews. They replied that they don’t actually hold reviews with their customers, they just feel they should know more about supply chain processes. Implementing quarterly business review with your customers is a great way to increase engagement, understanding and better reviews.

If you aren’t feeling well, you go to a doctor. If, when you go to that doctor and you aren’t honest about what’s ailing you, it’s impossible to diagnose the problem accurately or help make you well again. Similarly, if you ask yourself these questions and aren’t honest, it will be impossible to know what improvements need to be made. My advice is to be honest, understand what’s wrong and work toward improving and measuring that change.

Is your supply chain living up to its potential? Find out with our efficiency quiz. Get your score, learn what areas are key to efficiency and you’ll be entered for a chance to win a free assessment.

Be sure to stop by Booth #601 at AHRMM to learn more!

About the author. In his role as consulting director on the supply chain operations advisory team at Vizient, Ryan Beaver uses his more than 15 years of health care industry experience to provide process improvement and material expense reduction opportunities to Vizient member health care organizations. His areas of focus include project management, acquisition management and cost reduction in the supply chain arena. In addition to providing the tools, Beaver utilizes Lean and Six Sigma techniques to assist members in understanding the methods and processes required to achieve measurable results. His expertise in cost savings initiatives, contract management, inventory administration and labor allocation helps guide organizations to reach their full cost containment potential.

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