I’ve noticed a fundamental change over the past few years in the conversation between providers and suppliers, one that is focused less on where they disagree and more on how to navigate an uncertain, but certainly challenging, future course together. Rather than just lamenting about how we need more trust and collaboration in the healthcare supply chain, people are talking about what they can actually do…and in some cases already are….to make a measureable difference in performance and quality.
Case in point: the executive roundtable discussion held at the 2011 GHX Healthcare Supply Chain. A group of about 30 representatives of manufacturers and healthcare systems, from North America and Europe, participated in a 3-hour conversation on just this topic. Early on, I knew the tenor of the dialogue had changed, when Alan Edwards, vice president of supply chain for Mary Washington Healthcare in North Carolina, said, “The days of beating the supplier up on pricing are gone.” Edwards was not alone, as several other providers added that they were focusing their attention on becoming better customers, by helping their vendors lower SG&A (selling, general and administrative) costs, which include both the direct and indirect costs of sales. Gartner Research has noted that SG&A costs for healthcare suppliers are nearly twice those of companies in other industries recognized as having highly efficient supply chains.
This is a favorite topic for Vance Moore, who recently assumed a new role as senior vice president of operations for Sisters of Mercy Health System, after a successful stint as president of the system’s supply chain operation, Resource Innovation and Optimization (ROi). Vance has worked on the manufacturing side of the business, in and out of healthcare, and as he put it, “My assumption is no company that has stockholders would choose to put dollars into SG&A; we’ve got to find a way to make it easier to do business with us.” One way Mercy is tackling the issue is by helping suppliers fill in gaps in production. Based on his experience, Moore says manufacturers have to maintain a certain capacity at their facilities to cover fixed costs and avoid the pitfalls of erratic demand. “We can help them fill in production gaps in exchange for better pricing. They won’t get rich working with us in this way, but it is a much more balanced, productive, and integrated way of conducting business,” explained Moore.
It’s this deeper understanding of the fundamentals of supply chain that I believe will be required if we really are going to turn talk into traction and begin seeing measureable benefits from increased supplier-provider alignment. Without quantifiable results, it will be difficult for even the most progressive organizations to devote the kinds of resources necessary to fundamentally change how providers and suppliers do business.
Nancy LeMaster, vice president of supply chain for BJC HealthCare , has called on her vendors to share their supply chain expertise. As Nancy put it, “To become a lower cost customer to serve, we need to understand what drives our costs, and some of us don’t.” An increasing number of providers are asking vendors to bring their supply chain operations folks into the conversation, essentially reshaping the sales model from one focused primarily on product, price and quantity, to one that allows trading partners to learn more about each other’s businesses and redesign the supply chain together.
In my opinion, this is a trend we need to support, starting with building the supply chain acumen of those employed in what has typically been classified as hospital materials management. I would argue that the name itself needs to be changed, to reflect the increased responsibility and role these individuals play in ensuring a sustainable and quality healthcare system. It’s not hospital materials management, but healthcare supply chain; it’s a critical business process, not a department. The increasing influx of supply chain professionals from outside of healthcare can help, but we also need to develop the skills and knowledge base of those individuals already at work in the field. Certainly, a more aligned supplier community can help, and I applaud those organizations that are actively encouraging their supply chain operations folks to engage with customers. But I also call on healthcare system leaders to consider how much you are investing in your supply chain. If it is truly 30, 40, and in some cases 50 percent of your operating costs, are you investing a commensurate proportion of your staff development and education dollars into supply chain?