Is the Customer Always Right?

By David Chaudier

You’ll never know unless you listen to them

David Chaudier

David Chaudier

Given rising costs, lower reimbursements and in many areas, a shortage of qualified healthcare professionals, the focus of cost-saving efforts has shifted from labor to supply chain. That’s because supply chain is typically the second largest expense in any healthcare organization. For approximately every $80,000 a year saved in supplies, one healthcare worker will not be displaced.

As a result, many organizations and supply chain leaders have taken a proactive and direct method of reducing costs. Unfortunately, this strategy has forgotten the very basic rules of business, product, competition and customer service used within manufacturing and retail. Supply chain has moved from a “Negotiate a reduced invoice price” to “Use what we have negotiated the lowest price for.” The approach contradicts the very mission and values that healthcare organizations claim to follow.

Successful supply chain departments realize that no longer can they try to force transactional decisions onto the rest of the organization. Although forcing decisions may create savings, it is not sustainable nor is it built for the long term and the patient in mind. Less successful departments attempt to force compliance because “We are the supply chain experts,” rather than demonstrating that there is a better way, and that everyone has a stake and accountability within supply chain.

The goal of successful supply chain departments is to realize savings while providing the highest quality and best value of supply and services, as directed by those who use these supplies to care for patients. These supply chain leaders assign importance to the relationships and partnerships created with care providers, and in doing so, maximize the effect on the operating margin.

To make this transition, supply chain leaders must change the way we listen, and resist the urge to force others to listen to us. We must change the way we source and negotiate, not force others to use what we have sourced and negotiated. We must look beyond invoice pricing and bring clinical and quality data to our decisions. We must incorporate reimbursement and the effect of the savings within operations and labor, not add additional burden on staff and operations.

If we want to be heard, we must listen more. Not yell louder.

Listen to your customer
We can follow the lead of both manufacturing and retail, in which there is a huge emphasis on products and the customer. Each has a supply chain division that focuses on negotiating the best price for the products needed to sell directly to the customer or to build the products that the consumer wants. In neither case does supply chain dictate to the customer what they should purchase or use.

Could it be that healthcare supply chain has forgotten who their customers are – the physicians and clinicians who have been trained and educated on the products they use, and the patients who benefit clinically from those products?

If so, that may be due to a lack of confidence, trust and communication between physicians and clinicians and the supply chain department. Supply chain leaders may feel that physicians and vendors have teamed up against supply chain and for various reasons – legal or not – want to use items for reasons other than for their intended quality benefits. They may believe that physicians want their “toys” and the “latest and greatest” without considering the financial implications of their decisions.

How can supply chain make rational decisions without understanding the reasoning behind the physicians’ and clinicians’ needs or wants, while also considering quality and the full financial implications (not just invoice price) of medical devices?

Just as in other industries, there are different levels of product types, based upon quality and cost. Not everyone can afford – nor do they always need – the highest-quality or most expensive products. The dilemma for those of us in healthcare is this: Providing healthcare cannot be based upon the ability to pay.

Consumers in most industries select products based upon quality and cost. But in healthcare, the patient does not have that same ability. It is up to the physician to select many of these items – some of which may be life-saving – on behalf of the patient.

Supply chain should take an active role in product selection, but one in which they lead the conversation and support the decisions of others, not make the decisions for others, particularly for clinical items and physician preference items. They should open contract negotiations to all vendors (or at least those to which the physician or clinician group are amenable). This creates competition and reduces the high, artificial pricing that many organizations have been paying for years. Combining ceiling prices with market data, benchmark data, usage data, and clinical data will force vendors to choose whether they want to be a selected provider of products or not.

Most important, this approach will align physicians with supply chain, building trust and creating a partnership, and eliminating the perceived partnership of physician and vendors working against supply chain.


David Chaudier has extensive experience and leadership in hospital finance, operations, administration and supply chain. He has provided executive consulting and supply chain assessments for health care systems and GPOs and is currently the chief executive officer and hospital administrator for LifeCare Hospitals of Wisconsin.