By Robert Handfield, Ph.D.
Vendor scorecard broadens the conversation beyond price at UC Medicine
As the general director of supply chain for automotive component maker Delphi, and in his previous role as director of sourcing at Honda, Jon Stegner recognized how important it was to establish a system for measuring supplier performance. Stegner is vice president of supply chain management at the University of Chicago Medicine.
“Supplier performance measurement is the basis for supplier improvement, and also is critical for getting on the same page with the internal customer, so that we are measuring the things that are important to their business,” he says.
So it was without hesitation that Stegner set out to build a strategic sourcing program at the UC Medicine. He figured that if it worked for automotive, it could work in healthcare. Little did he realize how this simple concept could be so challenging in a hospital environment, where standard methods for supply management are not well recognized, and the environment for change can be complex.
Selling the vision to leadership
Before stepping into his role at UC Medicine in May 2011, Stegner had been director, supply chain at Loyola University Medical Center in suburban Chicago. It was at Loyola that he learned how critical it was to have aligned leadership before attempting any type of supply chain transformation effort. So upon arriving at UC Medicine, he approached his new boss, Sharon O’Keefe, about implementing new models of lean thinking in the supply chain process.
He emphasized the key concepts of supply chain transformation, particularly the importance of building a team that had the capacity to listen to and influence stakeholders in the organization, apply well-known and documented strategic sourcing principles, create an electronic procurement transaction capability to allow the department to move away from just being a “buyer” function, and create an analytical capability that made decisions based on data, not opinions.
The last element was fundamental in improving supplier quality and communicating expectations on performance that translated into stakeholder value. This is not uncommon in just about every healthcare institution in the country, as strategic sourcing and category management are new concepts in the field, especially in the minds of hospital leaders.
After listening to Stegner, O’Keefe gave her approval, trusting him to move forward in creating a world-class supply chain organization. This meant first building a capability and bringing in people who had the skills and knowledge in sourcing and logistics – a challenging hurdle, as the pay grades for many sourcing and logistics positions are often new to the human resource department in hospitals. Sourcing has often been considered a low-skill buying activity.
After creating new job specifications, Stegner brought on Gary Lennon, a veteran sourcing executive with whom he had worked at Delphi in Detroit. This was followed by additional hires of people who could drive the tools and processes needed to build strategic sourcing capabilities.
A key challenge facing team members was the fact that they would be leading change and seeking to influence individuals who were unfamiliar with the performance expectations and their use in the UC Medicine sourcing process.
“We began by explaining to people that it is no different from the ratings you use for employee evaluation once or twice a year,” says Stegner. “You have no problem doing these ratings. You also have no problem with the other types of ratings and evaluations we use, including patient satisfaction surveys, employee surveys, and so on. So why shouldn’t we also rate our suppliers, who are effectively an extension of our organization?”
In building a foundation for supplier performance improvement, Stegner borrowed a concept he had used at Honda, which involved focusing supplier metrics around five key measures. Using this framework – called QCDTS – from the automotive industry, he developed a scorecard that also applied these five major building blocks for supplier performance.
Quality (zero defects). Measures any elements of supplier performance that impact the ability of users to use the product in a healthcare environment, assessing fit for purpose. Some of the key questions include:
- FDA or voluntary product recalls?
- ECRI warnings?
- Internal defects discovered by clinical staff or supplier quality engineering or other non-recall quality events?
- Any other quality complaints related to level of corporate customer service or other factors?
Cost (best-in-market cost). Measures the capability of the supplier to continually improve lowest total cost by addressing cost drivers, waste reduction, adopting lean practices or other approaches that do not reduce value from the customer’s perspective.
Delivery (100 percent on-time). Measures all incidents related to getting the right item at the right place to the right person at the right time, as promised. Factors include:
- Incidents of under filled/over filled shipments.
- Feedback from primary wholesaler (in UC Medicine’s case, Cardinal Health) on delivery record.
- Incorrect /missing shipping documentation.
- Damaged shipments.
- MBOs (manufacturer back orders).
Technology (at the forefront of technology). Measures contributions to new technology applications, innovative technologies, products with new features (safety, adaptability, flexibility, etc.) that are not currently available elsewhere. Questions include:
- Is the supplier a market leader?
- Are there competitors to their products/devices?
- Does the product provide cost- or time-savings?
- Does it provide substantial clinical benefit that cannot yet be measured?
Service (best-in-class customer service). Measures all dimensions of customer service that are critical to internal customers. Uses data that include both external third party data (from vendor credentialing firm Vendormate) as well as internal stakeholder perceptions of service. Measures include vendor representative sign-in/sign-out compliance, sanction lists (pass/fail), and documentation alerts (pass/fail). Questions include:
- Are all onsite representatives responsive, knowledgeable, available to in-service?
- Do they sell in an appropriate manner?
- Is the level of product support acceptable?
Each measure uses a combination of data, and when assessed overall, results in a three-tier structure:
- Green: Performance meets expectations.
- Yellow: Performance is meeting expectations, but there is room for improvement.
- Red: Performance is below expectations, and action to meet performance expectations is expected immediately.
Preparing suppliers, clinicians
Stegner’s team began talking about quality, cost, service, delivery, and technology with suppliers for almost a year before the scorecard was implemented. The message was clear, and the team began to get suppliers ready for the change that was ahead.
Their initial focus was on strategic suppliers who directly supported clinicians and administrative stakeholders, who were responsible for budgets for the funds that paid suppliers. The message to suppliers was, in effect, “Get ready. You will be measured on QCDTS, because these are the elements of performance that matter to these clinical end users.”
For a year prior to rollout, Stegner and his team also prepared clinicians and administrative stakeholders for the program. The message again was clear. “You are familiar with employee surveys; measuring supplier performance is no different. This is how we are going to roll this out, and we are counting on your engagement.”
The elements for each scorecard were similar, but the measures that were used in each element may be different for a category of product or service.
“We examined suppliers that as part of our regulatory compliance were required to have monitoring of supplier performance,” says Stegner. He and his team reviewed the contracts and current methods being used, and determined that application of the scorecard process would need to be more rigorous, exceed the intent of the regulatory bodies, and become the standard work for the entire hospital.
Rolling out the first scorecard
The team decided to begin the program with a few key suppliers – two healthcare products suppliers, and one medical equipment supplier. These were “suppliers we needed to engage formally to send a consistent, clear message on our expectations and need for improvement if the relationship was going to grow…and even continue, in one case,” explains Eric Tritch, director of strategic sourcing.
At the meeting with the first supplier, the UC Medicine team “brought data to the problem in the form of a scorecard that documented exactly what was happening in our facility,” says Gary Lennon, director of business processes. “The supplier had never seen anything like it before, and they told us as much.”
In this case, the supplier had a red “X” for quality, due to multiple recalls for its pharmaceutical and med/surg products, as well as late delivery issues. When the supplier pushed back on delivery, the team brought up the scorecard and mentioned an incident in which the pharmacy could not administer medicine to patients because the product was not in stock. That ended the conversation.
Where does scorecard data come from?
In building a scorecard, the key is to identify critical stakeholder issues before worrying about where the data will come from. Once the issue is identified, then the sources of data that can either directly or indirectly measure the issue can be developed. Note that the measures do not all have to be objective data pulled from a system. Some are related to customer service, and require reaching out to measure customer perceptions based on recent experiences with that supplier.
For delivery data, the team often reaches out to Cardinal Health, because the company sees the performance first hand and can provide delivery data that is already being tracked. Novation’s input was sought for service contracts, in cases where the contract was held there or where Novation could provide broader feedback.
More than price
“The supplier scorecard is a process that helps us build our internal relationship with our stakeholders and have a conversation around multiple suppliers,” says Stegner. “This is a very different approach for hospital supply chain departments. Purchasing is renowned for just talking about price and talking to everyone else about everything else.”
With the scorecard in place, Stegner and his team conduct business reviews with suppliers that are focused on the right issues. “We are much better prepared, because we bring actual performance data from our stakeholders to the meeting. The suppliers are more engaged, once they understand what we are doing. Many of them are telling us that they have never experienced this type of feedback before, and frankly, they are delighted to be getting it. Now they know what they need to do to make the customer happy and keep or grow the account, and it is clearly spelled out in this document.”
No longer is the discussion solely about better prices, he says. “Instead, we are telling them ‘Here is how we view you, and this is what our stakeholders are telling us.’ It isn’t our opinion; it is the direct voice of the customer, the person who is using their product. The scorecard then becomes the basis upon which to facilitate communication and identify problem-solving approaches.”
UC Medicine President Sharon O’Keefe set the target for the supply chain when she said, “Our goal is to be the benchmark for healthcare supply chain management in two years.” Says Stegner, “Our leadership has been very supportive in allowing us to do the right things, and we continue to get support from all of the people we meet with on a day to day basis, including employees, physicians, and leaders. And we also support one another.
“Being an academic medical center helps, because people here value the research component clinically, and can appreciate that we are seeking to explore new ways of doing things here that are more effective than old ways of doing things in procurement.”
Robert Handfield, Ph.D., is Bank of America University Distinguished Professor of Supply Chain Management, and director, Supply Chain Resource Cooperative, College of Management, North Carolina State University, Raleigh, N.C.
University of Chicago Medicine is an academic teaching and research hospital, with approximately 560 beds, and an annual spend of approximately $500 million, including supplies ($120 million), services ($100 million), drugs ($70 million), and capital equipment ($70 million), with the remainder a combination of transfer payments and other services. The organization recently moved into a new hospital with state of the art technology, 30 percent more supply rooms and 21 new operating rooms. This move came after Jon Stegner joined the hospital, creating an even more complex environment as he came into the new role preparing for an entirely new supply chain system in a new facility.