Getting Supply Chain Right

Roxanna Guilford-Blake for HealthLeaders Media , October 13, 2010
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Denver Health also experienced contracting improvement. Automation led to standardization with the vendor community. "Companies know if they work with us, rather than going to the end-user department, it will produce a win-win situation for both parties," says Pettigrew. "It minimizes the number of surprises ? appearing on shelf."

Tobin Porterfield, PhD, assistant professor of e-business and technology management at Towson (MD) University, endorses this approach. Far more long-term savings can be achieved through supply-chain relationships with the right suppliers. Not every supplier can readily align goals and work toward real savings. "My experience is to always keep one hand on my wallet until I am confident that we are on the same team," he says.

Beyond clinical

Automating the supply chain affects the entire institution, allowing the system—and the staff—to work more effectively and efficiently, Pettigrew explains. Denver Health went one step further: The materials management department handles the entire supply chain for clinical and some non-clinical departments. The goal: Get the right product to the right person at the right time, for the right price.

By year end, Pettigrew says, 95% of all inventory, excluding pharmacy, will be handled through materials management.

Automation gives Pettigrew the ability to collect and crunch utilization data to order and stock the correct amounts. It's a retail approach not yet embraced by many hospitals, he says. Problems that arise from poor inventory planning and management were all but eliminated. And so were about $600,000 in inventory and $380,000 in operating costs.

The result: an 86% decrease in stockouts on nursing units, an overall decrease in inventory, and, he says, an increase in service. 

Identifying benchmarks

Performance metrics measure effectiveness and drive improvement. "We benchmark against others we consider are doing things right," says Szilagy. "Right" means looking at industries that are excelling at supply-chain automation and management.

Specific businesses offer lessons for each part of the process. For distribution, Szilagy turns to companies such as Wal-Mart or Dell. For strategic sourcing, he looks to companies where the material cost is significant relative to overall product cost, and therefore it's critical to have a robust sourcing process and a talented team to drive material costs down, he explains.

Benchmark with other industries and within healthcare, he says. Using the best-in-class benchmarks across all industries sets a high bar, but "that's the only way we are going to drive healthcare supply-chain management to that level."

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