Hierarchy of Healthcare Supply Chain Metrics - IDN Summit and Expo

Healthcare Value Chain Capabilities ModelPatientFocusOutcome FocusedComparativeEffectivenessValue Chain Goal:High Quality Patient Care at Optimal Economic CostCollaborationShared Vision andGoalsSustainableCollaborativeRelationshipsJoint Value CreationNetworkVisibilityDemandInventoryComplianceFoundational CapabilitiesOperations & Innovation ExcellenceBusiness Process OptimizationEnabling TechnologiesGovernanceDynamicSupplySegmented SupplyChainsValue AddedServicesChangeManagementVisionLeadershipGuiding MetricsInnovation Culture

Self Evaluation Demonstrates need for MetricsLeadershipLevel 4Level 1Organization viewed as strategicdifferentiatorBroad supply chain control acrossorganizationTightly integrated into technology andNPDI activitiesExpected to deliver “game changing”product and service offerings12%6%Standalone departmentsFunctional independenceSeparate metricsIn-fightingNarrow span of supply chaincontrolLevel 3Synchronized activitiesFocus on organization creatingcollaborative opportunities withcustomers and suppliersVisibility, collaboration andplanning tools brought into play33%49%Level 2Beginning connectionsbetween supply chain functionsLeadership establishedDevelopment of internalmetrics and systemSpan of supply chain control isexpanding58. Which of the following description best portrays your supply chain organization? Please select one.Base: Has a formal supply chain organization, n= 49

Metrics and Data Drive StrategicDecisions

Challenges of MetricsToo many metrics!Endless debate overdefinitionConstantly changingmetricsData too old by the timeit’s collectedGaming the systemSilo behaviorDefine a clear strategyInternal benchmarkingImplement measurementstrategy nowFix data issuesMotivate consistentlyCross-functional metrics

Hierarchy of Supply Chain MetricsA tiered system of metrics to improve supply chaineffectiveness – the top tier assesses acompany’s supply chain health, while the twosuccessive tiers diagnose the root cause ofperformance gaps and provide insight forcorrective action.

The Hierarchy of Supply Chain MetricsCostDetailAPSupplierQualityProductionScheduleVariancePerfectOrderSupplierOn-TimeDemandForecastRMInvPlantUtilizationSCMCostCash-to-CashInventoryTotalPurchaseCostsWIP + FGInventoryAssessAROrderCycleTimeDir MtlCostsDiagnosePerfectOrderDetailCorrect

“$500M Packaged Goods Manufacturer”(Strong)(Weak)CostDetailAPSupplierQualityProductionScheduleVarianceDemandForecastdForecasPerfe SCMtct CostSC MOrde Cash-to-CashCosrInventorytTotaly PerfectOrderSupplierOn-TimePlantUtilizationRM RMInv InvPurchaseCostsWIP + FGInventoryAssessAROrderCycleTimeDir MtlCostsDiagnosePerfectOrderDetailHighInaccurateShipmentsCorrect

Measurement Best Practices:Develop a Metrics StrategyMetric Definition• Goals: Different metrics portfolios for different goals• Balance: Keep the portfolio balanced, cross-functional,and practical• Alignment: Align to business and supply strategy• Right-sized: Keep it small: avoid the “mushroom effect”• Standards: Address standards vs. customization

Measurement Best Practices:Develop a Metrics StrategyMeasurement Program Implementation• Plan: Develop migration plan for the metrics with timeframes andmilestones• Scope: Define feasible and actionable scope, by supply chain, end-toend• Process: Pay attention to ownership, roles, responsibilities, and structure• Culture: Manage the culture and motivation• Tools: Invest in the tools that will enable repeatability• Pilot: Use pilots to test the approach• Tradeoffs: Beware of tunnel vision and understand theinterdependencies• Turning data into action: Identify conclusions using patterns and levers,prioritize results, and manage the communication• Power through Process: Institutionalize the measurement programthrough a business process to make it “sticky”

Making performance managementsustainable over timeWhat makes it “sticky”?MeasurementAptitudeLeadershipContinuousImprovementCulture“East-West”ProcessPerformance“North-South”GoalAlignmentPowerThroughProcess

The Hierarchy of HealthcareSupply Chain Metrics V 1.0DemandForecastSupplyAvailabilityComprehensiveSC CostAssessCash-to-CashAPInventory TotalARDiagnoseSupplierPerfectOrderSupplierConcentrationContractComplianceContractAdherenceCycle TimeSpendUnderContractCorrectPurchaseOrder CycleTimeChargeCaptureDocumentedCostSavingsSpan ofControlSC CostComponents

Healthcare Supply ChainMetrics V 1.0 -- AssessDemandForecastSupplyAvailabilityComprehensiveSC CostAssessCash-to-CashAPInventory TotalARDiagnoseSupplierPerfectOrderSupplierConcentrationContractComplianceContractAdherenceCycle TimeSpendUnderContractCorrectPurchaseOrder CycleTimeChargeCaptureDocumentedCostSavingsSpan ofControlSC CostComponents

Demand ForecastCalculated as Demand Forecast Accuracy:The inverse of the mean absolute percentage errorbetween forecasted and actual demand.** Designed to assess the ability of theorganization to capture and manage demandforecasting on product utilization.Dependencies: Supplier Perfect Order, StockAvailability, Comprehensive Supply Chain Cost,Inventory, SC Cost Components

Changes needed to build trust along the healthcare value chain55%52% 50%All changesPrimary change27%27%42% 40% 38%30%18%12%2%7% 7%Make demandsignals moretransparent acrossthe healthcarevalue chain(informationsharing for greatervisibility intotrading partneroperations)Existing regulatoryand legalrequirementsAlignment ofbusinessobjectives/goalsacross thehealthcare valuechain (joint valuecreation or win/winscenarios)Clear leadershipand vision withinyour companyIndustry standardsforinformation/dataexchange withtrading partnersIncreasedtransparency inpaymentchannelsConsolidation ofthe HealthcareProvider segmentin the healthcarevalue chain18. What should the necessary changes be that will allow you to continue to build trust and collaborate closely withyour healthcare value chain trading partners? Please select all that apply.19. What should the PRIMARY change be that will allow you to continue to build trust and collaborate closely withyour healthcare value chain trading partners? Please select one.Base: Healthcare Providers, n=60

Supply Availability% of purchase order lines delivered on time, in fullto the closest point of use to the patient.Some IDNs may be better able to captureunplanned specials. Damaged, backordered,late shipments could all be cause for failure here.Dependencies: Demand Forecast, Inventory,Supplier Perfect Order, Supplier Concentration,Purchase Order Cycle Time, SC CostComponents

Comprehensive Supply Chain CostSupply Chain Cost as a % of Operating ExpenseThis calculates all the costs of running supply chain including purchasedservices, medical surgical, medical device, pharmaceuticals andsupply chain expenses as a % of the total operating cost of the IDN.Includes:Direct Supply and Service Cost, Contracting Costs, Logistics,Warehouse/Storeroom costs, Supply Chain Personnel, InventoryHolding Costs, Customer Service CostsCapital Equipment is not included.Dependencies: Inventory, AP, AR, Supplier Perfect Order, SupplierConcentration, Documented Cost Savings, SC Cost Components,Span of Control, Contract Compliance, Purchase Order Cycle Time

Healthcare Supply ChainMetrics V 1.0 - DiagnoseDemandForecastSupplyAvailabilityComprehensiveSC CostAssessCash-to-CashAPInventory TotalARDiagnoseSupplierPerfectOrderSupplierConcentrationContractComplianceContractAdherenceCycle TimeSpendUnderContractCorrectPurchaseOrder CycleTimeChargeCaptureDocumentedCostSavingsSpan ofControlSC CostComponents

Cash to Cash Cycle TimeThe time it takes from procurement of product to the timecash flows back into the IDN from their customers.Includes:Days Payable Outstanding (DPO) - time from receipt ofgoods to payment.Inventory – days of inventory on handDays Receivables Outstanding –average collection timefrom invoicing to cash receiptDependencies:Comprehensive SC Cost, Supplier Concentration,Documented Cost Savings, Purchase Order Cycle Time

Healthcare Supply ChainMetrics V 1.0 – Correct ContractingDemandForecastSupplyAvailabilityComprehensiveSC CostAssessCash-to-CashAPInventory TotalARDiagnoseSupplierPerfectOrderSupplierConcentrationContractComplianceContractAdherenceCycle TimeSpendUnderContractCorrectPurchaseOrder CycleTimeChargeCaptureDocumentedCostSavingsSpan ofControlSC CostComponents

Span of Control$ of Supply Chain Products and Services under SC ManagementTotal $ Spend on Non-Labor Supplies and ServicesDependencies:Demand Forecast, Supply Availability,Comprehensive SC Cost, Inventory, CommonSupplier, SC Cost Components, DocumentedCost Savings

Spend Under Contract% of Supply Chain Spend that is covered by anegotiated contract.Total $ Spend Under Negotiated ContractTotal Supply Chain $ SpendDependencies:SC Cost Components, Comprehensive SC Cost,Supplier Concentration, Span of Control,Contract Adherence Cycle Time

Contract Compliance% of PO lines that can be associated with a specificcontractDependencies:Comprehensive Supply Chain Cost, PurchaseOrder Cycle time, Supplier Perfect Order,Contract Adherence Cycle time, SC CostComponents

Contract Adherence Cycle TimeAverage number of days from the effective date ofa contract to the date where more than 80% ofthe spend is under the current contract.Dependencies:Comprehensive SC Cost, Cost Detail,Documented Cost Savings

Documented Cost SavingsAnnualized value of negotiated new contracts.Equation is: $ Saved per unit X expected unitsTotal $ spendHard $ are reported but larger systems gain morefrom their volume than small systemsDependencies:Comprehensive SC Cost, SC Cost Components,Span of Control, Supplier Perfect Order,Inventory, Demand Forecast

Healthcare Supply ChainMetrics V 1.0 -- Correct for SupplierDemandForecastSupplyAvailabilityComprehensiveSC CostAssessCash-to-CashAPInventory TotalARDiagnoseSupplierPerfectOrderSupplierConcentrationContractComplianceContractAdherenceCycle TimeSpendUnderContractCorrectPurchaseOrder CycleTimeChargeCaptureDocumentedCostSavingsSpan ofControlSC CostComponents

Supplier Perfect Order% Orders from Suppliers shipped perfect to the point ofreceiving. Issues that cause orders to be imperfectinclude:-Backorders-Pricing Errors-Damaged/Defective product-Quantity errors-Late shipmentDependencies:Stock Availability, Demand Forecast, Inventory, SupplierConcentration, Purchase Order Cycle Time

Purchase Order Cycle TimeTime from issuing purchase order to closing thepurchase order inclusive of pricing, unit ofmeasure, process time, receipt of goods,defective product resolution, closure ofbackorders and payment.*Measured as average time to close in days.Dependencies:Inventory, AP, Supplier Perfect Order, StockAvailability, Contract Adherence Cycle time,Supplier Concentration

Supplier ConcentrationNumber of SKUs divided by the number ofsuppliers at each health system.Dependencies:Stock Availability, Demand Forecast, SupplierPerfect Order, SC Cost Components, Inventory,Documented Cost Savings

Healthcare Supply ChainMetrics V 1.0 – Correct Costs and ChargesDemandForecastSupplyAvailabilityComprehensiveSC CostAssessCash-to-CashAPInventory TotalARDiagnoseSupplierPerfectOrderSupplierConcentrationContractComplianceContractAdherenceCycle TimeSpendUnderContractCorrectPurchaseOrder CycleTimeChargeCaptureDocumentedCostSavingsSpan ofControlSC CostComponents

Supply Chain Cost ComponentsSupply Chain Operations Costs including all fixed and variable costs asa % of Total Spend.Includes:-Contracting-Transportation and Logistics-Warehouse/Storeroom-Inventory Holding costs-Customer Service costs-Cost of SuppliesDependencies:Comprehensive Supply Chain Cost, Inventory, Documented CostSavings, Contract Adherence Cycle time, Span of Control, SupplierConcentration, Supply Availability, Demand Forecast, ContractCompliance

Charge Capture% of chargeable items captured in billing cycle asallowedDependencies:Accounts Receivable, Cash to Cash, DocumentedCost Savings*

The Hierarchy of HealthcareSupply Chain Metrics V 1.0DemandForecastSupplyAvailabilityComprehensiveSC CostAssessCash-to-CashAPInventory TotalARDiagnoseSupplierPerfectOrderSupplierConcentrationContractComplianceContractAdherenceCycle TimeSpendUnderContractCorrectPurchaseOrder CycleTimeChargeCaptureDocumentedCostSavingsSpan ofControlSC CostComponents

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Additional Categories in “Supply Chain” -- AllNon-labor, Non-Clinical• Professional• -Legal• -Audit• -Tax• -Consulting• -Architecture• -Marketing/Advertising• -Banking• -Insurance• -HR Benefits•• Support• -Temp/Contract Labor• -Environmental• -Biomedical• -Printing• -Dietary• -Laundry• -Transcription• -Facilities• -Media/Advertising• -Waste removal• -Shredding• -Document Storage• -Catering• -Grounds Maintenance• -Travel• -Vehicle Maintenance• -General Contractors• -Marketing materials• -Equipment maintenance• -Records storage• -Vending• -Valet• Rents and Leases•• Equipment• -Beds• -Vehicles• -Helicopter• -Pumps• -Lithotripsy• -Surgical• -Mobile imaging• -Copiers and Printers• -Office• -Grounds•• Real Estate• -Retail Space• -Ambulatory Centers• -Clinics• -Offsite locations• -Resident housing• -Property management•• Utilities• -Electricity• -Water• -Sewage• -Telephony•

Huge category of cost and potential savings under served by theGPO… many categories of spend for contract reduction andutilization reviews.• Support• -Temp/Contract Labor• -Environmental• -Biomedical• -Printing• -Dietary• -Laundry• -Transcription• -Facilities• -Media/Advertising• -Waste removal• -Shredding• -Document Storage• -Catering• -Grounds Maintenance• -Travel• -Vehicle Maintenance• -General Contractors• -Marketing materials• -Equipment maintenance• -Records storage• -Vending• -Valet• Clinical• -Physician• -Anesthesiologists• -Dialysis• -Imaging• -Lithotripsy• -Cell Saver•• Non-Clinical Supplies-•• -Dietary• -Environmental• -Linen• -Office Supplies• -Computer supplies• -Telecom• -Minor equipment• -Information technology• -Forms• -Cleaning Supplies• -Software• -Hardware• -Chemicals

Balance in the DetailsSCM CostsCompany ACompany BCompany CCompany D

Product Based Supply Chain