Supply Chain Excellence: What are the Key Drivers?

Aligning leadership and culture to achieve new heights of performance excellence

• William Brewer• Senior Consultant• University HealthSystem Consortium• Oak Brook, IL

• Challenges lead to critical questions

• Collaborative approach

• Organizational performance score

• Key findings

• Checklist for excellence

Outline

University HealthSystem Consortium Overview

• Composed of 102 of the leading academic medical centers and 184 of their affiliated hospitals

• Represents 90% of the nation’s non-profit academic medical centers

• Provides differentiated services and products that help member AMCs improve supply chain, operational, and clinical performance

Environment Drives CEO Engagement in Supply Chain Management

Revenue pressures; need for GPO to reduce costs; commitment drives best price; UHC forms UHC Services Corp. GPO

Revenue pressures lessen; volume drives best price; UHC forms Novation to expand volume

Revenue pressures increase; effective supply chain management contributes to overall organizational performance

CEO Engagement

High

Low

1985 1991 1998 2004 2008

Common Challenges

• Narrow view of supply chain management and its importance to overall performance

• Lack of executive support for supply chain improvement initiatives

• Supply chain leaders unsure of how to engage leaders and demonstrate organizational impact

• Marketplace changes creating increased pressure on revenue

• New, better technology increase supply expense

• Physician preference driving up costs

• Vendor and physician relationships

• Lack of physician interest or engagement in managing supply cost with the hospital

• Rapid introduction of new technology requires organizational alignment for decision making

Critical Questions

• If supply chain management were a strategic organizational priority, would it address hospitals’ supply chain challenges?

• What are the proven strategies that can be employed to reduce supply costs and make and sustain a positive impact on key organizational performance metrics?

• What tactics achieve the greatest results?

• What are the defining supply chain management characteristics of a high performing organization?

Supply Expense (excl drugs)/CMI-Adjusted Discharge

Source: UHC Operational Data Base – Q3 2007

90th Percentile

10th Percentile

75th Percentile

25th Percentile

Median

Surgical Services Medical Supply Expense/Case

Source: UHC Operational Data Base – Q3 2007

90th Percentile

10th Percentile

75th Percentile

25th Percentile

Median

Collaborative Approach

• Uncover the characteristics that high-performing member organizations demonstrate in supply chain and overall

• Share the supply chain management strategies that drive supply chain excellence

• Assist members in implementing these proven strategies and tactics

• Track, demonstrate, and reward improvement

In September 2007, UHC launched the Supply Chain Performance Excellence Collaborative to:

Collaborative Overview

Determine measurement and ranking

methodology

Conduct blinded site visits and interviews

Compile and validate findings

Report findings and present awards at

annual forum

Implement findings, distribute

White Paper

Data request sent to

members

Gather data from UHC data

sources

Compute ranking scores

Select top and middle

performers

Sept 2007

Oct 2007 Oct 2007

Oct 2007

Oct 2007

Dec 07 – Jan 08

Jan 2008Feb 2008

Advisory Team Initial Meeting

Sept 2007

Ongoing

Data Collection

• Data collected from UHC’s Operational Data Base

• Data request sent to members that do not participate in UHC’s Operational Data Base – 10 respondents

• Required data fields• Total Supply Expense (Excl Drug) per CMI Weighted

Adjusted Dx• At least 2 departmental supply expenses measures

and/or operating margin %

Data Normalization

• Used variety of data transformation techniques to fit each measure to the normal distribution

• Extreme outliers assessed individually for data quality• When appropriate, extreme outliers excluded and

scored accordingly• Number of standard deviations from the mean used as

basis of scoring

Organizational Performance Score

Mortality

Safety

EffectivenessSupply Cost (excl Pharm)/ CMI Adjusted Discharge

Pharmacy ($/Pharm Intensity-Weighted Discharge)

Cardiology ($/RVU)

Overall Organizational Performance Score

Surgical Services ($/case)

Operating Margin

Equity

Quality and Safety Composite Score

from UHC’s Quality & Accountability Study

Site Visit Selection

• Scoring resulted in ranking of all UHC members included in study

• 3 members selected from top 10 percent and 3 selected from 50th percentile

• Blinded onsite interviews completed with organizations to understand the strategies and tactics each employed to manage their supply chain

• What did we learn?

• What can you do?

• Which AMCs were the better-performers?

Achieving Excellence

Key Findings

1.1. Engaged Leadership – Support is Driven from the Top Engaged Leadership – Support is Driven from the Top DownDown• Senior leaders see supply chain management as a vital

strategic component of their organization

2.2. Physician SupportPhysician Support• Physician leaders are active members in cost savings

initiatives and participate in Value Analysis or Product Review Teams

The organizations with high-performing supply chain management consistently demonstrated these key characteristics:

3.3. Culture of Shared Purpose and OwnershipCulture of Shared Purpose and Ownership• Supply chain goals are aligned with the organization's

goals and are shared throughout the organization. All staff exhibit a sense of ownership in managing supply chain

• Multidisciplinary teams are used throughout the organization to support process improvement initiatives and to manage new product evaluation. Lean principles are prevalent

• Structured educational programs are used to train all levels of employees and physicians on their role in supply chain management

• Leaders are never complacent and are always looking for ways to improve operational efficiency and to save money

Key Findingscontinued

4.4. Data-driven Decision MakingData-driven Decision Making• Supply chain and financial performance data are shared

across the organization and everyone understands their part in driving the numbers – transparency

• Dedicated analytical staff analyze data and share supply chain analysis throughout the organization to drive decision making

5.5. Vendor Management and Strategic RelationshipsVendor Management and Strategic Relationships• Rigorous vendor management policies are adopted and

practiced, which regulate vendor access and engagement• Promote strategic relationships with vendors and

integration of these external partners into supply chain management

Key Findingscontinued

Pitfalls to avoid

• Setting up a process (Value Analysis, Vendor Management) without the support of administration, department heads, physicians

• Assuming physicians do not care about costs and pose insurmountable barriers

• Being DRIP – Data Rich, Information Poor

• Developing budgets solely on prior year performance

• Assuming incentive plans and gain-sharing increase success

• Avoiding opportunities to establish collaborative relationships with vendors or assume they do not care about the financial health of your organization

Your Checklist for Supply Chain Excellence

Engage senior leaders - Make supply chain management a strategic priority for leadership

Create an environment of involvement and shared purpose• multidisciplinary teams• physician involvement• demonstrated value (quality, cost, and reimbursement) for

new products Use data for effective decision making

• Set cost reduction goals for department leaders and provide detailed supply chain data to managers to support effective supply chain management and drive good supply chain decisions

Establish effective communications and a structured educational program for staff and physicians at all levels to teach the value of effective supply chain management for overall organizational excellence

Continuing the journey…

• Publishing the study• HFMA – Healthcare Cost Containment

-Collaborative Overview, June 2008 Issue-Better Performer Case Studies (June, July, August 2008 Issues)

• UHC Supply Chain Performance Excellence Collaborative White Paper (May 2008)

• Assisting members interested in implementing findings

• Refining of supply chain data• Reporting• Metrics

• Continuing the study • Track performance• Rank AMCs• Reward improvement• Share new knowledge

Congratulations!

Congratulations to the recipients of the first Congratulations to the recipients of the first UHC Supply Chain Performance Excellence UHC Supply Chain Performance Excellence

Collaborative AwardCollaborative Award

• Questions?

Contact InformationWilliam BrewerSenior ConsultantUniversity HealthSystem ConsortiumOak Brook, ILbrewer@uhc.edu630-954-6670

Closing