Supply chain expertise enters the hospital C-suite

2015 is the year that supply chain will take its rightful place as a critical function in health systems because, in an era of declining reimbursements, CFOs and CEOs will be forced to attack the second largest cost area for their organizations: supplies and service expense.

True change is going to require strong partnership between the C-suite and sourcing. Here are four things to consider as your supply chain leadership takes a seat at the table in your boardroom:

• Commit resources

When elevating the role supply chain leadership can play in containing costs, make sure the resources follow. You need to invest in tools, technologies and processes that will help you ensure you’re buying the right products and services at the right time.

As one example of a priority investment, you need to increase your sourcing department’s visibility to what’s happening at the user level. In most health systems, there’s a lack of integration between the sourcing department and the departments requesting product, making it nearly impossible to detect what’s really happening and, thereby, unmanageable.

There are content management systems today that can provide real-time visibility to what you bought by category, by company, by item, against the contract terms, where it was relative to year-to-date, how much you saved, and who bought it. Be open to hiring a consultant to help assess your needs and develop a customized implementation plan.

If you can’t operationalize your contract, your contract simply becomes words and numbers on a piece of paper.  

• Ask the right questions

You now have access to a new perspective in the boardroom. To fully leverage his or her valuable expertise and in the spirit of challenging the supply chain status quo, raise questions that will help identify the gaps in your current practices.

Examine things like: What are our current contract compliance rates? What impact do PPIs have on our supply costs today? From a materials management perspective, how are we managing par stock and what are our central and/or localized distribution metrics? What are the limitations of our current supply chain management technologies? 

• Manage your data

One of the biggest factors in successfully cutting supply chain costs is having real-time, actionable data. It’s not enough to have data, you have to manage the data in a way that makes it useful to empower better decision-making. While this is easier said than done, the increased availability of data standards and new technologies to help you manage data will make it possible.

The important data points you need to extract from your ERP system and contract repository include: vendor master, contract master, purchase order headers, item master, invoice payment lines, spend classification, contract items, purchase order lines and invoice/payment header. Additionally, your purchase order spend must be identified and rationalized. 

• Focus on utilization

The health systems that will thrive over the next 2 years will look beyond negotiating discounted vendor contracts to focus on successfully operationalizing their contracts across the continuum of care. The opportunity to realize savings is huge. Today, as much as 70 to 80 percent of health system purchases are off-contract. As a result, millions of dollars are wasted in a health system’s supply chain every year.

To fix the problem and fully capitalize on contracted discounts and rebates, put a better system and process in place to drive users to the correct formularies. Every decision made by a requestor needs to be influenced at the point of requisition; and, then be validated at the transaction level to ensure the desired cost saving results are achieved.

Some health systems today are attempting to manage compliance with the help of the item master, which often doesn’t have enough information or there are price discrepancies leading to match exceptions. Health systems that have found the limitations of the item master to be too great are augmenting existing technology to enrich data and to improve search capabilities.

It’s clearly a challenging time for health system supply chain professionals, but it’s also an exciting time. Earning a seat at the table for decision-making will help set them up for success. Those who rise to the challenge of mitigating costs and doing more with less will continue to climb the ladder. Those who don’t will likely find a new profession.

Michael DeLuca is executive vice president of technology and client services for Prodigo Solutions, a healthcare supply chain solutions company.