Forecasting Product Needs

Steve Pitzer believes healthcare is predictable, and he’s building a supply chain to support that view.

Steve Pitzer was no stranger to razor-thin margins when he worked for an institutional food wholesaler in Odessa, Texas, in the early 1980s. He learned quickly that in order to survive, a wholesaler needed to turn inventory rapidly, employ sophisticated forecasting tools, and plan exactly what commodities its trucks would deliver to a given customer three to four weeks in advance. When he switched careers and entered healthcare materials management in 1986, he recognized the thin margins. However, he found that the other components – e.g., sophisticated forecasting tools – were missing. He was surprised at just how different healthcare and private industry were.

He was convinced it didn’t have to be that way.

“People believe that we can’t do forecasting in healthcare,” says Pitzer, who is system director of supply chain management for CHRISTUS Health, Houston, Texas. “But in reality, the 80/20 rule applies in healthcare, as in industry. Many of the procedures going on in surgical units are very predictable.” In fact, there’s no reason healthcare materials managers can’t forecast product needs just as accurately as food wholesalers. With better forecasting comes better processes, better economies and, most important, better outcomes.

It is that belief – shared by Pitzer and the entire executive team at CHRISTUS Health – that is driving the IDN to take some bold supply chain initiatives.

Two historic systems
CHRISTUS was created in 1999 with the combination of two historic systems in Texas: Sisters of Charity of the Incarnate Word in Houston and Sisters of Charity of the Incarnate Word in San Antonio. The IDN includes more than 40 hospitals and other facilities in six states as well as Mexico, organized into four regions: Louisiana, Texas, Utah and Mexico. (Pitzer’s department does not get directly involved with the Mexican supply-chain operations.)

The merger came just one year after Pitzer joined the Sisters of Charity in Houston after spending 10 years in the for-profit hospital sector, first with AMI (now Tenet), later HCA. As a veteran of for-profit hospital companies, he had been exposed to a lot of forward-planning, bottom-line-oriented thinking. For example, he worked in a group that developed AMI’s system-wide materials management information system, which is still in use today. He saw firsthand the power of collaboration – AMI’s Change Center, which brought together clinicians and materials professionals to retool supply chain processes. Perhaps his most important lesson, however, was the inevitability of change. During his career in the for-profit sector, Pitzer worked for five companies, simply due to acquisitions in that sector of the market. In 1997, he received an HCA Materials Recognition Award for an OR inventory management program he put together with U.S. Surgical (now Tyco Healthcare).

Pitzer’s experiences in wholesale distribution and for-profit healthcare prepared him well for the task at CHRISTUS – that is, to bring together two systems, each with a distinct and definite approach to healthcare and the supply chain. He was named regional director of materials management for the new IDN’s Gulf Coast/Southeast Texas region, as well as leader of its materials management resource group. He became system director for supply chain management in 2003.

Soon after the merger, a multidisciplinary committee of clinical and financial professionals set about the task of selecting a common GPO for what was soon to be called CHRISTUS Health. They selected Premier. But before long, it became apparent that the IDN needed a non-traditional relationship with its GPO. “We had a very small corporate materials management department, and we were trying to do all the required activities of working with a standard GPO – taking contracts, doing analytics, creating teams to review contracts,” says Pitzer.

Outsourcing option
Hence, the IDN began another review of GPOs, and in 2003 entered into an agreement with Dallas-based Broadlane. The selection gave CHRISTUS not only a portfolio of contracts, but manpower as well. Broadlane brought in dedicated clinicians to act as facilitators with the IDN’s resource teams to implement contracts and other supply chain initiatives. “By selecting Broadlane instead of building an infrastructure, we outsourced it,” says Pitzer.

“We felt we lacked the contracting discipline, and even if we had developed our own internal support staff, we couldn’t have brought about [necessary] rapid change,” he says. Outside consultants and implementation specialists can sometimes get things done more efficiently than internal people, he says. “That’s what Broadlane did.”

In 2006, CHRISTUS deepened its relationship with Broadlane by signing a five-year renewal agreement. The agreement includes resources to help CHRISTUS significantly increase the volume of business it conducts with suppliers via electronic data interchange (EDI). That’s important to Pitzer, because electronic transmissions are quicker for the IDN’s buyers, and they enhance overall efficiency in the buying process. With EDI, CHRISTUS gets confirmation of its orders, and electronic verification that the price it is paying matches the contract price. “Through this process, when we have an issue, it gets fixed, and that creates fewer downstream errors for accounts payable, receiving and other departments.”

Logistics redesign
The five-year renewal also called for Broadlane to provide dedicated resources to help with the IDN’s plans for logistics redesign. “This is very much a part of our strategy,” says Pitzer. “Not only are we working on continued system governance of procurement services, but one of our large regions is working on logistics redesign, so we can do centralized distribution from one of its centers vs. each center receiving bulk inventory. We need to put logistics into our plan, along with management of information and procurement, in order to have a world-class supply chain.

“I see us as being no different than manufacturing,” he continues. “Look at Toyota. Its supply chain is based on forecasting. It is very ‘just-in-time’ in terms of its demand models. They [have implemented] material requirements planning that goes beyond what we think of today …. These are the fun things to work on.”

But logistics involves far more than product movement, says Pitzer. “That’s just one component,” he says. “The other pieces … are building customer relationships, working on utilization, and ultimately, working on eliminating waste.”

Utilization itself represents a huge opportunity for CHRISTUS. “We know the real cost-savings in healthcare is not in the price, but in the consumption and the way we use our products,” says Pitzer. In fact, CHRISTUS has identified around $30 million of potential savings through better utilization of products. Some of those are traditional disposable-vs.-reusables decisions. Others are decisions about how care should be delivered. For example, how should anti-embolism stockings be used in conjunction with sequential compression devices?

Of the FTEs Broadlane has dedicated to helping CHRISTUS, five have been directed to identify product utilization opportunities, says Pitzer. Of those five, one is a pharmacist, three are registered nurses, and one is a supply chain professional. “They go out in the field, observe operations, and draw intelligence from [Broadlane’s] client base,” he says. “They know the activities going on that they can focus on and find utilization opportunities.”

The focus is collaboration, he says. “I feel that [the outsourcing agreement with Broadlane] has brought intelligence to the table that would be hard to reproduce in an internal environment. We are not only tapping into dedicated internal resources, but [Broadlane’s onsite people are] tapping into the national folks, and all that flows back into the system. If you were to draw it out, it’s arrows of communication going back and forth. Certainly we bring real-life operational experience that [Broadlane] might not be getting by contracting at the national level. And the national-level contracting can lead to intelligence about where the market is heading.”

Pitzer himself is situated at the point where CHRISTUS and Broadlane meet. “These dedicated resources from Broadlane are my team. I don’t see them any other way. I access any of them as if they worked and wore a CHRISTUS hat. And I think they see themselves as CHRISTUS too.

“At first, I wondered how this would work,” he says. “But this is where my strengths come into play. I call myself the ‘Teflon’ between the two organizations. And there’s a person like me on the Broadlane side – Roger Nolan, who is the internal manager of Broadlane’s resources. He and I are partners.”

Asset management
CHRISTUS recently created an accounting resource group, comprised of controllers from CHRISTUS facilities, who will gather to work on such issues as electronic funds transfer, payment procurement cards and asset life cycle. “Asset life cycle is huge,” says Pitzer. “We’ll have one platform to manage assets from the point they are requisitioned to the point we retire them, and all the management activities in between.” The group will look at environmentally friendly ways of disposing of the IDN’s capital assets. “I think it’s pretty unique to have accounting consider the supply chain so important that they would take the time to come together,” says Pitzer.

Another group – the supply chain standards team – meets regularly to tackle system-wide processes for materials management, including vendor visitation issues and product recalls and alerts.

“We have a lot of variability in our processes,” says Pitzer. “But as we identify them, we can work through them and create a systems standard. We have ways to monitor whether we are adhering to these standards, and we’re continually seeing if they need to be modified. It’s the CQI model,” he says, referring to continuous quality improvement. “You never stop.”