Fundamentals for Supply
Chain Operations
Transformation
Larry Bramble, Vice President
CAHPMM 2014
VHA Inc. Confidential information.
Strategic Transformation of Supply Chain Operations
Industry Observations
No clear central point of responsibility and authority for Supply Chain
No clearly defined and consistent processes for short or long term success
No clear basic infrastructure
Existing technology not maximized
“Staff doing the wrong things
for the right reasons”
No clear central point of responsibility and authority for Supply Chain
Why
Historical outlook / expectation of “Materials Management”
Shift from transactional to strategic
Evolution of improvement
– Doing old things better or incrementally improving
– Optimizing
– Transforming
VHA Inc. Confidential information.
“If you continue to do what
you’ve done, you’ll continue
to get what you got.”
Strategic Transformation of Supply Chain Operations
Overview
Transform end-to-end Supply Chain Operations to Leading Practice
performance levels
Position the Supply Chain Operations team to meet and surpass the overall
performance & financial objectives established by their Leadership, as well as
the customer service expectations of both internal and external customers
Strategic Focus
Operational Focus
Organizational Structure
Data & Content Management
Staffing, Training, Development
Strategic Sourcing & Contract Mgmt.
Operational / Process Improvement
Purchasing and Procurement
Technological Advancements
Logistics, Distribution, and Inventory
Performance Metrics / Benchmarks
Accounts Payables / Settlement
VHA Inc. Confidential information.
What Does it Look Like?
Operational
Focus
Sourcing and
Contracting
Procurement
Technology
Data & Content Management
Strategic
Focus
Organizational Structure
4 | VHA Inc. Confidential information.
Distribution and
Logistics
Settlement
Performance Metrics
Staffing, Training & Development
Process Improvement
Operational Focus
Where does the work focus?
5 | VHA Inc. Confidential information.
Effective Sourcing and Contracting
Standardizing vendors, products and
monitoring compliance
Leveraging value analysis to engage
clinical stakeholders
Orienting process to support item master
management
Consistent / Continuous management of all
contracts
6 | VHA Inc. Confidential information.
Sourcing and Contracting: Stages of Optimization
•
•
•
•
Stage 4:
Transformational
INTEGRIS
Health After
Stage 3: Leading
•
•
•
•
IDN Summit
Average
Value analysis focused on value of care across continuum
Proactive, technology-supported item master management
76% or greater of spend sourced through strategic sourcing
Less than 5% of active suppliers for 80% of spend, 85% or
greater spend under management
Value analysis led by multi-disc. teams, focused on value of care
Proactive item master management process
Greater than 29%, less than 76% of spend sourced through
strategic sourcing
20% to 5% of active suppliers for 80% of spend, 35% to 85% of
spend under management
2.9
Maturity
Industry
Average
Stage 2: Emerging
Stage 1:
Traditional
•
•
•
•
•
•
•
•
Value analysis led by supply chain, price focused
Reactive item master management process
29% or less spend sourced through strategic sourcing
Greater than 20% of active suppliers for 80% of spend,
35% or less spend under management
No value analysis process
No clearly defined item master management process
No formal strategic sourcing process
Don’t know performance to key KPIs: % of active
suppliers for 80% of spend, % of spend on contract
Efficiency
7 | VHA Inc. Confidential information.
IDN Results: Sourcing and Contracting Stages of
Optimization
6%
20%
24%
50%
Traditional
Emerging
Findings:
•
•
The average for this function was a 2.8 out of 4 or slightly below “Leading”
Half identified under “leading” maturity, almost as many were emerging as were
transformational
Primary research from “Fundamentals for Supply Chain Operations Transformation,” VHA Session at IDN
Summit 2014, n= 48, summary of 5 responses
8 | VHA Inc. Confidential information.
Leading
Transformational
Sourcing and Contracting: Before and After at INTEGRIS
Health
5
Leading
Practice
4
3
Industry Average
Where We
Are Now
2
Where We
Started
1
0
Vendor Standardization
9 | VHA Inc. Confidential information.
Product Contract
Coverage
Product Contract
Compliance
Productive Procurement
Achieving visibility into purchasing behavior
Consolidating purchases to a central
location
Engaging technology to streamline
requisitioning and purchase orders
10 | VHA Inc. Confidential information.
Procurement: Stages of Optimization
Stage 4:
Transformational
Maturity
INTEGRIS
Health After
IDN Summit
Average
Stage 3: Leading
2.8
Industry
Average
Stage 2: Emerging
Stage 1:
Traditional
• Fully maximized and integrated online requisitioning system
• Very good visibility into purchasing behavior and
compliance to process
• Price exception rate: less than 2%, PO processing errors:
less than 5%, contract validation: greater than 90%
• Well utilized online requisitioning system
• Good visibility into purchasing behavior, processes in
place to ensure ongoing visibility
• Price exception rate: 2 - 10%, PO processing errors: 5 –
20%, contract validation: 75% - 90%
• Present but minimally utilized online requisition system
• Some visibility into purchasing behavior, little ability to
affect change
• Price exception rate: greater than 10%, PO processing
errors: greater than 20%, contract validation: 45% - 75%
• No or ineffective online requisitioning system
• Little visibility into purchasing behavior
• Don’t know performance to key KPIs: price exception %,
PO processing errors %, contract validation %
Efficiency
11 | VHA Inc. Confidential information.
IDN Results: Procurement Stages of Optimization
400
350
19%
9%
13%
300
250
200
150
100
50
59%
0
Traditional
Emerging
Leading
Transformational
Traditional
Leading
Emerging
Transformational
Findings:
•
•
The average for this question was: 2.9 out of 4 or just below “Leading”
Almost 60% of respondents identified with maturity level 3, one of the highest concentrations
from the entire session.
Primary research from “Fundamentals for Supply Chain Operations Transformation,” VHA Session at IDN
Summit 2014, n= 44, from summary of 5 responses
12 | VHA Inc. Confidential information.
Procurement: Before and After at INTEGRIS Health
5
Leading
Practice
Where We
Are Now
4
3
2
Where We
Started
Industry Average
1
0
Requisition & Ordering
13 | VHA Inc. Confidential information.
ERP Systems
Use of EDI
Optimized Distribution and Logistics
Leveraging technology to improve the
receipt, stocking, internal distribution, and
management of supplies
Continuous focus on the reduction of
inventory levels, waste, carrying costs
Implementing performance metrics to
govern inventory management
performance
14 | VHA Inc. Confidential information.
Distribution and Logistics: Stages of Optimization
Stage 4:
Transformational
Maturity
INTEGRIS
Health After
IDN Summit
Average
Stage 3: Leading
2.7
Industry
Average
Stage 2: Emerging
Stage 1:
Traditional
• Very satisfied clinical stakeholders
• Maximum revenue capture through compliance
• Maximized inventory management system, automated
inventory management
• Inventory turns: 15 or greater; no stockouts
• Satisfied clinical stakeholders
• Solid connection between inventory management
and revenue capture
• Well utilized inventory management system
• Inventory turns: greater than 5, less than 15; rare
stockout
• Dissatisfied clinical stakeholders
• Limited connection between inventory management and
revenue capture
• Minimal use of inventory management system
• Inventory turns: less than 5; many stockouts
• Very dissatisfied clinical stakeholders
• No connection between inventory management and
revenue capture
• No or ineffective inventory management system
• Don’t know performance to key KPIs: inventory turns or
stockouts
Efficiency
15 | VHA Inc. Confidential information.
IDN Results: Distribution and Logistics Stages of
Optimization
14%
9%
21%
56%
Traditional
Emerging
Leading
Transformational
Traditional
Emerging
Leading
Transformational
Findings:
•
The average for this question was a 2.7 out of 4 or between “Emerging” and “Leading”
Primary research from “Fundamentals for Supply Chain Operations Transformation,” VHA Session at IDN
Summit 2014, n= 44, from summary of 5 responses
16 | VHA Inc. Confidential information.
Distribution and Logistics: Before and After at INTEGRIS
Health
5
Leading
Practice
Where We
Are Now
4
3
Industry Average
2
Where We
Started
1
0
Receiving
17 | VHA Inc. Confidential information.
Point of Use
Technonlogy
Stocking and
Warehousing
Efficient Settlement
Automating invoice processing and
payment
Maximizing payment terms
Enabling 3-way matching between PO,
receipt, and invoice
Automating supplier invoices
18 | VHA Inc. Confidential information.
Settlement: Stages of Optimization
Stage 4:
Transformational
Maturity
INTEGRIS
Health After
Stage 3: Leading
•
•
•
•
•
•
•
•
•
Viewed as industry leader
Cutting-edge technologies and processes leveraged
Scale economies optimized via shared services processing
98% of invoicing electronic or outsourced
Majority of PO/non-PO spend processed electronically
Scanning done “in-line” vs. separate process
Reaping benefits of investments
Looking to the next “transformative technology”
50-90% of invoicing electronic
IDN Summit
Average
2.5
Industry
Average
Stage 2: Emerging
Stage 1:
Traditional
•
•
•
•
•
•
•
•
•
•
EDI in place with prime distributor and 1-30 vendors
Streamlined policies and procedures
One function-wide project implemented
Looking forward to the next improvement opportunity
5-25% of invoicing electronic and growing
Little to no automation
No or cumbersome policies and procedures
Little collaboration across functions
Significant pressure to do more with less
0-5% of invoicing done electronically
Efficiency
19 | VHA Inc. Confidential information.
IDN Results: Settlement Stages of Optimization
Traditional
Emerging
Leading
Transformational
120
8%
9%
100
80
33%
60
40
50%
20
Traditional
Emerging
0
Traditional
Emerging
Leading
Transformational
Findings:
•
•
The average for this function was a 2.5 out of 4 or between “Emerging” and “Leading”
This was the least optimized function respondents were surveyed on
Primary research from “Fundamentals for Supply Chain Operations Transformation,” VHA Session at IDN
Summit 2014, n= 44, from summary of 5 responses
20 | VHA Inc. Confidential information.
Leading
Transformational
Settlement: Before and After at INTEGRIS Health
5
Leading
Practice
Where We
Are Now
4
3
Industry Average
2
Where We
Started
1
0
Invoice Processing
21 | VHA Inc. Confidential information.
AP System
Credit Card Utilization
Strategic Focus
What does the work
22 | VHA Inc. Confidential information.
What Does it Look Like?
Operational
Focus
Sourcing and
Contracting
Procurement
Technology
Data & Content Management
Strategic
Focus
Organizational Structure
23 | VHA Inc. Confidential information.
Distribution and
Logistics
Settlement
Performance Metrics
Staffing, Training & Development
Process Improvement
Strategic Focus: Use of Technology
An End-to-end Technology Assessment to Support:
Improved Operations
Cycle Time Reduction
Data Organization
Performance Tracking
Customer Service Improvement
KPI Development
24 | VHA Inc. Confidential information.
Contract Management Technologies
Contract Catalog / Repository
– Electronic vs Manual
– MMIS vs 3rd Party Application
– Access / Excel
Analytics Systems
– Price Benchmarking Tools
– Tier Optimization
– Track Savings & Monitor
Compliance
Coordinate Data Synch:
Supplier / Distributor / MMIS
www.ahrmm.org
VHA Inc. Confidential information.
Clinical Quality Value Analysis
(CQO)
Optimizing Contract Analytics Systems
Prioritize
– Identify Savings
– Match to upcoming expiration
– Set goals
Analyze/Negotiate
– Build Implant Constructs
– Tier Optimization
– Standardization Programs
– Group Buys
– Use Savings Analysis in
Negotiation
Implement/Control
– Sign and Implement Contract
– Track savings to goal, set
QBRs, manage rebates
VHA Inc. Confidential information.
Purchasing Technologies offered
MMIS Systems
– Automatic PO Creation
– Purchasing Templates
– Supply Formulary
3rd Party Systems
–
–
–
–
E-reqs
EDI/Autofax
Bill Only Manager
Office Supplies
P2P
P-Cards
VHA Inc. Confidential information.
Inventory Management Technologies
Warehouse Management
–
–
–
–
WMS
MMIS
Bar Code Scanners
Carousels
Inventory Management (Nursing or Procedural)
– 2-bin
– Point of Use Systems
– Closed/Open/Hybrid
– Bar Code
– RFID
– Weight Based
– Sterile Processing
Asset Tracking
– RTLS
VHA Inc. Confidential information.
AP Technologies offered
E-Invoicing (810)
Optical Character Recognition
Electronic Banking (E-Payables)
Electronic Funds Transfer
Auto payment (ACH)
2/3 Way Matching
VHA Inc. Confidential information.
Key Supply Chain Operations Metrics
Contracting
Purchasing
% of spend on contract
% orders via electronic requisition
% lines on contract
% of purchases on PO
Savings goal to target
% X type orders
% contracts completed on time
% of PO via EDI
Inventory
Accounts Payable
Inventory variance
% Electronic invoice
Inventory turns
% paid on time
% expired to total
Invoice cycle time
Slow/No turn Inventory
Prompt pay discounts
30 | VHA Inc. Confidential information.