Getting Supply Chain Right

Roxanna Guilford-Blake for HealthLeaders Media , October 13, 2010
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Hospitals continue to look for ways to decrease their supply-chain costs as well as ways to improve the use of labor. Supply-chain automation, properly deployed, tackles both; it can transform your entire hospital and save money across the enterprise.

Supply-chain automation has enabled Denver Health to improve the accuracy of its purchasing, inventory management, and accounts payable processes while reducing FTEs, says Philip Pettigrew, director of materials management for Denver Health, which operates a 477-licensed-bed medical center in downtown Denver, as well as a variety of programs and clinics.

UPMC, an $8 billion, 20-hospital, Pittsburgh-based organization, has significantly reduced costs, improved contract compliance, and slashed ordering times through its automation efforts, reports Jim Szilagy, chief supply-chain officer.

Rapid ROI

The time, cost, and savings involved in supply-chain automation can vary depending upon the approach, the size of the hospital, and, of course, how automated the supply chain already is. Expect the whole process to take nine to 12 months, from selecting a computer system to implementation, says Pettigrew.
The returns are almost immediate. If you are not seeing results within six months, you probably are not being aggressive enough, Szilagy says. Those savings can be tremendous. Estimate the time nursing staff is involved in the ordering and billing process, he says: Even a modest 3% to 5% savings there is significant.

Getting Lean

While each supply-chain system is unique, the best share certain qualities. Among them, says Szilagy: a strong leader with a passion for continuous improvement and the energy to drive transformation. That quest often dovetails with a more formal, systemwide approach, such as Lean or Six Sigma, which helps eliminate waste in the system.

At Denver Health, supply-chain efforts are part of the system's larger Lean program, Pettigrew says. With it, the facility has increased revenue or reduced costs systemwide by nearly $54 million over four-plus years. The 2010 goal is $30 million—one it's "well on the way to meeting." Automation-driven supply-chain efficiencies will account for $4 million of that, he estimates. (Denver Health's annual budget is approximately $700 million.)

Ultimately, Szilagy says, lower supply costs mean dollars to invest across clinical areas that support patient care. 

Contracting compliance

Additionally, driving compliance through automation ensures contractor compliance on the front end, Szilagy says. UPMC implemented an electronic marketplace from Prodigo Solutions, a Pittsburgh-based healthcare supply chain company and a subsidiary of UPMC. The system provides a simple way for users to find what they need, and the supply chain, with an automated method, ensures 100% contract compliance at the point of purchase.

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