KEYNOTE ADDRESS: Embracing the Autonomous Supply Chain and Rethinking Innovation
Rethinking supply chain management - CAHPMM.ORG · Rethinking supply chain management: How better...
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Rethinking supply chain management:How better practices impact the bottom line
Steve Thompson
VP, Supply Chain Innovation
Lean Six Sigma Master Black Belt
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ESSENTIAL TO CARE are trademarks or registered trademarks of Cardinal Health.
Cardinal Health
2
Recognized leader in healthcare supply chain transformation
• Ranked #1 by Gartner 2011, 2012, 2013, 2014 in transforming the
healthcare value chain to meet new challenges around costs,
revenue and outcomes.
Unparalleled understanding of healthcare value chain
• Supplier and leading manufacturer of med/surg products
• Leader in providing supply chain services with +40 years experience
Building for the future of healthcare
• Investments in innovative technology and data solutions
• RFID footprint in 41 countries and tracking medical devices in over
4,000 hospitals
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A changing landscape
• Affordable Care Act (ACA)
• Unique Device Identification (UDI)
– FDA
• Census & demographics
– 10,000 people turning 65 every day
– 10M Americans over 80
– 20% Population >80 by 2030
Source: The Centers for Disease Control and Prevention (CDC), The State of Aging and Health in America, 2013
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The silver tsunami
*CIHi - National Health Expenditure Trends 2014I
The average spending on someone age 80 and older is nearly
9x what it is for someone between the ages of 1 and 64.
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A changing landscape
• Affordable Care Act (ACA)
• Unique Device Identification (UDI)
– FDA
• Census demographics
– 10,000 people turning 65 every day
– 10M Americans over 80
– 20% Population >80 by 2030
• CMS is growing
– Over 50% of patients are CMS
– Increasing bundled reimbursement by DRG
• Supply chain becoming more important
55%
Labor
35%
Materials
10%
Other
Expenses
Source: American Hospital Association, Underpayment by MediCare and Medicaid Fact Sheet, November 2009
Source: Massachusetts Health Policy Commission, 2013 Cost Trends Report, January 2014
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Immense waste in the supply chain
Does not include
indirect costs of:
• Excess time spent by
nurses searching for
inventory
• Time spent (or patient
risk) during product
recalls
• Risk of non-compliance
with FDA/UDI
regulations
10%-30%Waste in PPI supply chain
$5,000,000,000*Estimated loss per year
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Back officelabor
Low inventoryturns - owned
Loss &expiration
RevenueLeakage
Low inventoryturns -
consigned
Low valuesales tasks
Provider Manufacturer
Mill
ion
s
*PNC Healthcare; GHX quantitative research study (August 2011)
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Ever changing environment
Must be agile and adaptable
to control costs
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Sources of variation
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Fluctuating patient census
Ramp up clinical staff Seasonal staff
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Demographics
Gender GeographyAge
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Clinical practice
Lack of standardization Diseases treated
differently
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Seasonal impact
Summer WinterFlu
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Multiple variables effect
Interactions magnify
demand variation
Demographics
Census
Seasonality
Clinical
practice
Disease states
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Adapting to change
• Grocery stores adapted to a lean model
• Point-of-use data collection/analytics
• Just-in-time inventory (logical unit-of-measure)
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Ensuring financial success
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Freight management
• Freight has become a profit
center for manufacturers
– Included in price of product
• For example, consider the
Operating Room
– Next-day delivery
– Transportation budget managed
elsewhere
• Unit cost vs total delivered cost
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Number of suppliers
• More invoices
• More time spent
ordering
• More time
unloading trucks
• More cost
$60.08 (HIDA)
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Manual cycle counting
• No value add in counting
– 50% materials management time
• Too many mistakes
– UOM issues
– Fat finger
• Correct cycle count frequency?
– Weekly, monthly, quarterly
– NEVER?
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Reviewing consignment
• Built in costs
• Expired/obsolete products
– charged?
• Inefficient delivery method
• Ineffective controls and
tracking
• Impact due to the FDA
Unique Device
Identification law (UDI)
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How do you replenish?
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Traditional forecast-based purchasing
Positive Negative
Low effort Inaccurate
Creates storage solution mentality
Lack of visibility
• A retail model of purchasing
• Established based on some criteria
• A “stocking strategy”
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Traditional demand-based purchasing
• An industry model (automotive, aerospace, etc.)
• Based on utilization
Positive Negative
Based on actual demand Inability to react quickly to
unexpected demand variation
Replenish only what you need Requires supply chain visibility
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The art of finding the right
balance
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Three-legged stool
Technology is
the enabler
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Best practice for high value items
Best practice Reason
Using an RFID-enabled system • Real time visibility
• Unique Device Identification
• Accurate tracking
• Eliminate manual counting and errors
Point of care charge/data capture • Compliance
• Accurate charge capture
Carefully choosing open vs. closed storage • Time management
• Inventory control and compliance
• Cost
Interface with HIS • Integrate inventory management in eco-system
• Eliminate double entry
Targeting the desired end state • Inventory profile changing with successful
implementation
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Best practice for commodity products
Replace your PAR system!
Best practice Reason
Using 2-bin Kanban methodology • Proven best practice in other industries
• Less labor
• Supports FIFO (first in first out)
No over investment in technology • ROI not realized
Eliminate manual counting • Upside down transactions
Strong analytics platform • More predictable ordering patterns
• Use data to optimize purchasing
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Balancing the investment
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Metrics for success in supply
chain
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Before you begin
Consistency
is key
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Ranking common metrics
Rank Tracking methods Reason
Good Total supply expense
as a percent of net
patient revenue
• Variability in Net Patient Revenue distorts month over
month trends
• Does not effectively illustrate true supply spend
performance
Better Total supply expense
per adjusted discharge
or CMI adjusted
discharge
• Better aligns supply spend with patient volumes and level
of acuity
• Does not capture supply spend performance at the
patient level
Best Supply Intensity Score • Measures supply costs by patient and procedure type
• Provides more precise and actionable data
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Are you measuring the right metrics?
• Every hospital measures similar benchmarks
– But your waste is hiding in what you’re not measuring
New metrics to track Improvement opportunity
Expired Supplies • How much are you expiring out each month?
• These are products that could have been returned, redeployed, or
even resold.
• 2% - 5% annually lost
Lost Products (Leakage) • How much product is missing each month?
• Leakage can be mitigated with enhanced tracking and inventory
controls.
Clinical time spent on
supply chain (HCAHPS)
• How much clinical time is spent on finding stocked out supplies,
logging in/out of POU systems, or recording takes/returns?
• This represents time could have been spent with the patient.
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Choose the right tool for the right inventory
Type of
supplies
Low-cost supplies
like gauze
and bandages
Low-cost supplies
that require
each-level tracking
Surgical packs and
other mid- to
high-cost supplies
High-cost
physician preference items
and implantables
Optimal tracking &
data capture
system
2-Bin Kanban BarcodeRFID-enabled
Smart Wand
RFID-enabled
Smart Cabinets
32
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Hospital/
healthcare provider
Patient and
procedure
Supplier/
manufacturer
Distribution
center
The total supply chain approach
Cardinal Health Inventory Management Solutions
33
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ESSENTIAL TO CARE are trademarks or registered trademarks of Cardinal Health.
Q&ASteve Thompson
VP, Supply Chain Innovation
Lean Six Sigma Master Black Belt
614.553.4572
cardinalhealth.com/cims