The Journal of Healthcare Contracting

Hand in Hand
Using a collaborative model is key to developing a strategic plan for your supply chain.
By Nick Toscano, NCI board member

As discussed in the first article in this series, the cost of supply chain inefficiencies is staggering. According to accepted industry estimates, as much as 35 percent of total supply chain costs can be attributed to inefficiencies. Clearly, the "business as usual" approach is no longer an option.

The key to building higher performance into the supply chain begins with a collaborative model, which combines collaboration with well-developed assessment tools. While they have been used successfully in other industries, the healthcare supply chain is just beginning to embrace them.

There are a number of factors stakeholders must consider in framing the collaborative process, such as sharing a compelling vision and agreeing on a set of values that will drive the collaborative relationship.

Moving forward requires critical thinking about how to create a high performing supply chain. Educating each other is one requirement. The other is using assessment tools that enable stakeholders to evaluate their efforts, and identify required modifications to their current strategy. One example of this type of tool is the balanced scorecard, which establishes the metrics and measures of mission critical factors that drive a strategic plan. These include:

Quality/performance: Establishing objective clinical quality acceptance criterion, including service level/fill rates, and other measures within performance based criteria.
Employee satisfaction: Developing metrics that measure supply chain team effectiveness. Building a supply team that is highly sensitive to customers’ needs and delivers internal service excellence is essential.
Growth: Supply chain planning processes must be aligned with the overall strategic direction of the system. They also need to be scalable - in a way that minimizes incremental costs - to support the IDN’s improved market share and/or new or expanded service offerings.
Financial performance: Financial goal metrics must include overall cost reduction opportunities across the supply chain, as well as tangible budget reduction opportunities. They must also include recognition of the supply chain as a significant contributor to an IDN’s growth potential through revenue-enhancement opportunities.
Customer satisfaction: Include customer satisfaction metrics for a number of key constituents, including the patient, physicians, clinicians, and other key department editors.

Suppliers should view the collaborative process as a means of differentiating their products and services to their customers. From the provider perspective, achieving sustainable quality improvement and cost reductions is realized by focusing on key metrics that include patient-demand matching, best practice protocols, therapeutic substitutions, reductions in product waste, and fewer SKUs through product standardization. Research shows that utilizing strategic sourcing methodologies account for 65 percent of the total cost reduction opportunity in a given product category. The remaining 35 percent of cost reduction derive from better purchasing contracts that produce product unit price decreases.

Providers must position themselves to lead and facilitate the collaborative process. They have pressing needs requiring alternative, innovative ways to improve performance while reducing costs. Senior managers must take an active role in supporting these initiatives. They need to view their supply chain leaders as an integral part of their team and, in consideration of their overall status in the organization, place them closer to the boardroom than the basement. Supply chain innovation requires tremendous leadership skills and the courage to alter the status quo. To that end, CEOs must embrace supply chain "champions." Additionally, CEOs and other senior executives need to educate themselves about the opportunities that exist in developing higher performing supply chains. They should view supply chain partners as strategic enablers who support the overall strategy and direction of their organization.

Clearly, employing a collaborative model in the development of a strategic plan has significant benefits for all stakeholders. This approach has proven to be effective in building high performing supply chains.

Nick Toscano is AmerisourceBergen corporate vice president - business management.