supply chain cost savings strategies l.
Download
Skip this Video
Download Presentation
Supply Chain Cost Savings Strategies

Loading in 2 Seconds...

play fullscreen
1 / 55

Supply Chain Cost Savings Strategies - PowerPoint PPT Presentation


  • 329 Views
  • Uploaded on

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. Agenda. Perspectives on Supply Chain Challenges The UK Healthcare Story

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Supply Chain Cost Savings Strategies' - devon


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
supply chain cost savings strategies

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

agenda
Agenda
  • Perspectives on Supply Chain Challenges
  • The UK Healthcare Story
  • Next Generating Benchmarking and Performance Improvement
  • Engaging Stakeholders in Supply Chain Improvements
  • Closing Comments
supply chain perspectives
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
consumables trend spending
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

from a large slice of the pie
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%

slide7

15%

Others

15%

Logistics & Distribution

100%

25%

Total

Supplies

45%

Supply Chain Management

Clinical &

General

Labor, Other

To a tipping point size slice: >50% 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: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis.

supply chain improves bottom line
Supply Chain Improves Bottom Line
  • Example: Average, private sector, not-for-profit hospital with margins <1%
  • Objective: Improve bottom line by $500K
  • Options:
    • Reduce supply chain expense by $500K
    • Increase revenue by $50 million

Source: HFM Magazine, 2008

slide9

’08: Improving Profitability By Supply Chain

C-Suite

SC Execs

  • APPROACHES CONSIDERED or TAKEN
  • to IMPROVE PROFITABILITY
  • Enhancing collaboration with physiciansin supply standardization and expense reduction
  • • Identifying appropriate metrics to benchmark the organization’s 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

the conditions are right for a perfect storm
The Conditions are Right for a Perfect Storm

Limited Cash

& Credit

Rising Oil Prices

Changing Trade

Policies

Decreasing

Product Integrity

Weak Dollar

forces and supply chain complexity
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

risks and pains
Risks and Pains

Pain Points

High

  • Supply Risks
  • Technology Risks
  • Demand Risks
  • Market Risks
  • Disruption Risks

Severity

Low

Frequency of Occurrence

Low

High

responses to pain and complexity

Supply Chain

Strategy Integration

Supply Chain

Redesign

Performance

Metric

Alignment

Responses to Pain and Complexity

Responses

integrated supply chain

Return

Return

Source

Deliver

Return

Return

Return

Return

Return

Return

Integrated Supply Chain

Plan

Make

Deliver

Source

Make

Deliver

Source

Deliver

Make

Source

Customer’sCustomer

Your Company

Supplier

Customer

Suppliers’Supplier

Internal or External

Internal or External

Synchronizing material, information and financial flows both within and across organizational boundaries

enterprise wide supply chain management
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

physician leaders are deeply embedded in every aspect of uk healthcare operations
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
fundamental tenet improving our quality safety efficiency it is all about the system
Fundamental TenetImproving Our Quality, Safety & Efficiency“It 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.

lean manufacturing
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
vat capital processes physician perspective
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)
chief medical officer summary reactions about our vat process
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.
uk healthcare supply chain processes involvement of all stakeholders
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
new physicians needs process
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
standardization quality efficiency
Standardization/Quality/Efficiency
  • Better care
  • Less costly
  • Team driven
  • Less variability in care
uk healthcare supply chain
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
benchmarking at uk healthcare
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
driving performance improvement
Driving Performance Improvement

Operational

Organizational

SC Structure

Supply Expense

Practices &

Capabilities

adoption of the industry standard
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.

practices and capabilities assessments
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
case study

Case Study

Pursuit of the Single Best Metric

sun devil hospital
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
frequently used metric supply oe
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
sometimes used metric supply rev
Sometimes Used Metric: Supply % Rev
  • Assessment
  • Often Used for Budgeting
  • Can Be Used to Detect Changes
  • Need Detailed Information on Peers
  • Talks the C-Suite’s Language
  • Common Reasons for Poor Performance
  • Poor Reimbursement Levels
  • Higher Inpatient Services than Outpatient Services
  • Higher Physician Preference Items
  • Supply Chain Needs Improvement
frequently used metric supply per adjusted patient day
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
sun devil s issues
Sun Devil’s 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?
slide41
And,……

Very likely

Sun Devil has lower

labor costs than

the other

hospitals in the

peer benchmarking group

impact of physician preferences
Impact of Physician Preferences?

Need to investigate Pharma utilization reports!!!

impact of patient acuity
Impact of Patient Acuity

Consider another benchmarking peer group with

higher CMI??

recommendations
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
case study47

Case Study

Rightsizing Your Supply Chain Organization

supply chain ftes
Supply Chain FTEs

Need more SC FTEs!! What type of FTEs?

Where should they focus their attention?

product delivery ftes
Product Delivery FTEs

Consider More Product Delivery FTEs!

What about other areas?

contract opportunities
Contract Opportunities

Hire Additional Contract Personnel to Focus

on Self-Managed Contracts?

building sc capabilities
Building SC Capabilities

Hire FTEs to formalize and centralize SC policies

recommendations52
Recommendations
  • Hire additional FTEs
    • Self-Managed Contracts
    • Working with physicians
    • Formalize SC policies
    • Additional Product Delivery (consider options from distributor first)
engaging stakeholders in supply chain improvements
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

practices and capabilities assessments54
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
move to action
Move to Action

Strategic

Integration

Change

Masters

The New Measurement Paradigm

ad