The Application of Contemporary Resource
Management Practices to Health Care Systems
Jody Lynn Bapst
2070 Creek Way
Lansdale, PA 19446-5102
(610) 584-0496
The University of Pittsburgh - School of Pharmacy
APICS Philadelphia Area Network
Full-time Graduate Student
Jody Bapst is currently a Pharm.D. Candidate at the University of Pittsburgh’s School of
Pharmacy in Pittsburgh, Pennsylvania with an expected graduation date of May 2001.
The Application of Contemporary Resource
Management Practices to Health Care Systems
ABSTRACT
Contemporary resource management practices have been applied to health care systems
within the service sector, often facilitated by models for structured understanding and
ease of implementation. This paper explores contemporary practices in use and
encourages the use of a practical model to promote Supply Chain Management in health
care systems.
The Application of Contemporary Resource
Management Practices to Health Care Systems
Many of today’s contemporary resource management practices have had their
origin in the manufacturing sector and are now finding their way into the service sector.
Perhaps the reason for their origin in the manufacturing sector is due to the pressure for
improvement caused by demanding competition in the 1970’s and 1980’s. Today
considerable performance improvement pressure is being experienced in the service
sector and an example focus area is health care systems reform. Models have often been
used to facilitate a structured understanding and ease implementation of new business
practices and processes. This paper explores several practices already in use in the health
care area that probably have their root in the manufacturing environment over the past
several decades, and encourages the use of a practical model to establish Supply Chain
Management in health care systems. A focused example of what supply chain
management could accomplish in the health care industry is presented.
PRACTICES IN USE TODAY
CQI (Continuous Quality Improvement) is an example of a business practice,
adopted from the manufacturing sector for use in the service sector and more specifically
for this paper in health care systems. Ms. Sue Skledar, RPh., MPH, of the University of
Pittsburgh Medical Center Health System, gave a presentation on this concept, entitled,
“CQI Practicum: Application to Practice” in March 2000 at the University of Pittsburgh
(5). Ms. Skledar described the originating experts of CQI as E.A. Codman (quality
assessment), J.M. Juran (Pareto Principle and Cost of Quality), W.A. Shewart (Statistical
Process Control (SPC) and PDCA), W.E. Deming (Fourteen Points For Management and
Five Deadly Diseases and Sins) and A. Donabedian (SPO model and Seven Pillars of
Quality). Most of these experts had their roots in the manufacturing sector and developed
models to describe their thinking and approach to improving quality and performance.
Walter Shewart studied the manufacturing processes at the Hawthorne Manufacturing
Works in Chicago, Illinois and saw the need to gain control over their variability as a
very important task (3). He developed the PDCA (Plan, Do, Check, Act) Model, which
describes an approach to studying a problem, determining its cause, testing possible
solutions and institutionalizing the change to insure ongoing success. He also developed
the SPC methodology that is still used today to mathematically analyze processes and
their characteristics. W. Edwards Deming followed in Shewart’s footsteps and took
Walter’s quality message to the world along with creating a few models of his own,
including the Fourteen Points for Management and the Five Deadly Diseases and Sins.
Shewart and Deming are used as examples from this group of experts since they both had
a very profound impact on the world through their contributions to the body of
knowledge of quality and resource management, and they both resorted to explicit
models to get their message across and implemented effectively in use. These models
have become part of the Total Quality movement in the United States and the world at
large. Other practices emphasized in the CQI approach for health care include the use of
benchmarking, cost of quality and use of computer technology for inventory
management, each of which has associated models for educational/training purposes and
use. These practices may have had their initial influence on the manufacturing
community, but now are also being felt by the service sector and the sub-sector of health
care systems that is the focus of this paper.
JoEllen Shore Norris and Richard Crandall spoke at the 1998 E&R foundation
Summer Academic Workshop on “The Use of Crossfunctional Teams in a Continuous
Improvement Program”(4). Their presentation focused on the application of this practice
at Watauga Medical Center (WMC), a 129-bed acute care rural hospital. The goal of
WMC is to develop a process to standardize care delivery and patient outcomes. The
authors described the changing environment in the health care industry and the growing
pressure to control costs without adversely affecting the quality of patient care. They
comment “Some very creative measures are currently being undertaken within the health
care industry…Many involve a thorough evaluation of business practices and attempts to
more accurately match appropriate resources with the services provided” (4). They
further suggest that the ultimate goal may be to “develop a seamless and comprehensive
continuum of care”. They are resorting to reengineering, continuous quality
improvement, and the use of crossfunctional teams. They suggest in their paper that there
appear to be great similarities between the elements in the Care Path approach and the
APICS Body of Knowledge. Examples include similarities to APICS routings, quality
approaches, effective use of resources, capacity planning, product costing, inventory
management and information system requirements to discuss a partial listing from their
report. The approach of the authors includes a modeling approach for creating a
procedure to develop Care Paths. The procedure consists of the following steps (4):
1. Choose a target population.
2. Establish the boundaries of the Care Path.
3. Select the people to serve on a task force to develop the Care Path.
4. Staff of the Care Management Department reviews patient diagnoses and
evaluates the current practices and provides baseline information for task
force development of the Care Path.
5. Information is obtained from external sources for task force use such as
standards and guidelines related to the patient population, Critical Paths
developed by other hospitals and information from literature searches.
6. The task force develops a Care Path.
7. The Care Path is piloted.
8. The results of the pilot are evaluated and changes made as necessary.
9. The Care Path is implemented.
10. The Care Path is periodically reviewed and updated as warranted.
Another source of organizational performance practice modeling that is being
carefully reviewed by the Health Systems Community originates in Walt Disney’s
“Inside the Magic Kingdom” by Tom Connellan (2). This book and approach are the
source of lecture material given to pharmacy students at the University of Pittsburgh’s
Pharmacy School, in Pittsburgh, Pennsylvania. This book focuses on the “Seven Keys to
Disney’s Success” in customer focus and management. This approach describes how to
create and sustain a powerful corporate culture, identify the real competition, actively
engage all employees in the positive performance of their roles, how to proactively
handle feedback, and encourage dynamic teamwork in an organization. The Seven Keys
approach is an effective and strong model for achieving ongoing customer satisfaction as
can be can be seen in the following summary of the keys and major highlights that follow
(2):
1. The competition is anyone the customer compares you with
a. Internal customers look for the same things that external customers
do
2. Pay fantastic attention to detail
a. If you knew that paying more attention to detail would improve
customer loyalty, how much more attention would you be willing
to give?
3. Everyone walks the talk
a. Every time a customer comes in contact with your organization,
you have an opportunity to create value
b. Actions thunder loudly over spoken words
4. Everything walks the talk
a. Everyone needs to focus on providing customers with what they
want, even people who never have direct contact with the
customers
5. Customers are best heard through many ears
a. Surveys can be crucial, but other sources of information can be
equally important to allow you to assess how you are doing
6. Reward, recognize and celebrate
a. Extinction – the absence of feedback can cause a withdrawal of
employee commitment
b. The two most common by-products of outstanding success are
arrogance and complacency
7. Xvxryonx makxs a diffxrxncx or Everyone makes a difference
a. To achieve effective teamwork and achieve customer loyalty, you
have to break down functional silos
b. Every employee should be respected for the contribution they can
and will make if properly treated
ANOTHER PRACTICE WORTHY FOR HEALTH CARE SYSTEMS
Supply Chain Management is defined in the APICS Dictionary as “the planning,
organizing, and controlling of supply chain activities”(1). Supply-chain activities extend
from the earliest contributing supplier to the ultimate end user of a product or service.
Supply-chains can be refined to provide benefits to each of their members beyond what
they normally could achieve on their own without partnering. Companies in the
manufacturing sector have had to remove non value-added activity within their own
organizations to be able to survive and thrive. They are now beginning to lean more
heavily on their supply chain partners to do the same and create what is sometimes
referred to as a value-chain. There is a practical management model, SCOR (SupplyChain Operations Reference-model), associated with the practice of effective supply
chain management. The Supply-Chain Council (SCC), a not-for-profit trade association,
has developed SCOR and promotes its use. All who use the SCOR model are asked to
acknowledge the SCC in documents that describe or use the model (6). Voluntary SCC
member companies today include a wide spectrum of products and services, including
members from health care related products such as Abbott Laboratories, Baxter, Bayer
Corp, Johnson & Johnson, Warner Lambert Co. and Wyeth Ayerst Pharmaceuticals (7).
SCOR enables the assessment and development of integrative supply-chain management,
and thereby building practical inter-enterprise supply-chains for fast, cost effective, high
quality customer support.
SCOR Model Methodology
SCOR is a process reference model that incorporates the use of business process
reengineering, benchmarking, best practices analysis, and seeks to promote alignment
and cooperation between elements in a supply-chain for mutual success. Steps in the
general process are as follow:
1. Define the “as is” current and “to be” future desired states for a process in
the supply-chain.
2. Quantify process performance goals based on “best-in-class” of similar
organizations.
3. Characterize the practices and enabling solutions that would lead to “bestin-class” performance.
There are four distinct SCOR management processes that are routinely examined
using the above steps to describe, measure and evaluate supply-chain configurations:
1. Plan – supply resources, demand and capacity requirements, production,
inventory and distribution channels and information sources
2. Source – locations and products
3. Make – product manufacture, packaging, testing and release methods
4. Deliver – customer order, warehouse, transportation and channel delivery
There are potentially four levels within the SCOR model, starting with top-level
processes and decomposing down through organizationally specific supply-chain
practices. Each of these levels has its own relevant performance metrics. Examples of key
metrics include:
1. Flexibility and responsiveness
2. Cost
3. Reliability
4. Inventory days of supply
The model methodology to initiate evaluation of a supply-chain is suggested in
the following manner by the SCC:
1. Select the organization for model application
2. Describe the physical locations associated with the SCOR management
processes:
a. Sourcing activities involved in obtaining needed product
b. Production facilities that create the needed product
c. Distribution channels used for delivery of the product
3. Map the material flow through the chain
4. Describe activities in detail at each step in the chain as they relate to
Source-Make-Deliver supply-chain capabilities
5. Review the resulting model, benchmark, apply appropriate metrics,
baseline, initiate process improvement and continue to monitor progress
using the same metrics
Application of the SCOR Model to Health Care Systems – Focused Example
1. Select the organization for model application – a pharmacy department
within a hospital
2. Describe the physical locations associated with the SCOR management
processes:
a. Sourcing activities involved in obtaining needed product
1) Prescription orders are placed by hospital-affiliated doctors and
nurse practitioners through the hospital pharmacy for patients’
use.
2) Purchase orders are placed daily with a wholesaler by the
hospital pharmacy purchasing clerk as inventory order points are
reached or when a drug product is out of stock. The clerk uses a
personal computer software program to analyze past trends for
determining some future drug orders and to link to one
wholesaler for order placement. The clerk places a daily drug
order with the wholesaler for next day delivery. The clerk also
uses bar coding on drug labels to assist with inventory accuracy.
Drugs become out of stock fairly frequently. When not available
from the distributor, the hospital may “borrow” the drug item
from another hospital, a nearby drug store or possibly go direct
to the manufacturer for a purchase. “Borrowing” occurs fairly
often and involves borrowing a quantity of a specific drug from a
legitimate alternative source, and then paying back the source
with actual product at a later time in the quantity borrowed. In
emergency situations, such as outbreaks of meningitis or
hepatitis, the hospital may go direct to the manufacturer for items
needed quickly that are not in stock at the wholesaler nor able to
be “borrowed”.
b. Production facilities that create the needed product
1) These are typically drug company FDA regulated facilities. They
employ drug representatives to meet directly with hospital staff
for drug information purposes. Their drug products are usually
sold indirectly through wholesaler channels.
c. Distribution channels used for delivery of the product
1) Drug manufacturer to Drug Manufacturer’s wholesaler network
to intermediate distributor to hospital
2) Drug manufacturer to Drug Manufacturer’s wholesaler network
and direct to hospital
3) Drug manufacturer to Drug Manufacturer’s wholesaler network
to intermediate retail distributor to retail drug store to hospital
4) Drug manufacturer to Drug Manufacturer’s wholesaler network
to intermediate distributor to a participating hospital to the
hospital with the need
5) Other modifications of the above can also occur
3. Map the material flow through the chain –see attachment one: Hospital
Supply Chain Map Patient Drug Support
4. Describe activities in detail at each step in the chain as they relate to
Source-Make-Deliver supply-chain capabilities
1) The hospital pharmacy described in this paper is an example of a
typical hospital located in the suburbs and rural areas of the U.S.
This pharmacy does have a standalone computer that can link to
one wholesaler for order placement. Some hospital pharmacies
have yet to obtain this capability. Their main means of
communication is the telephone for contacting other supplychain links. They utilize couriers to expedite obtaining drugs
from other sources when an out of stock condition occurs and
they distribute drugs to the hospital floor through pharmacy
technicians. Drugs delivered to the floor are often dropped off in
a nursing station bin and this sometimes leads to accountability
issues. Some times a drug may be difficult to obtain due to a
manufacturing or distribution issue, and this often results in drug
substitution if approved by the physician. Drug substitution may
be more expensive. Communication tends to be slow and
inefficient between the hospital pharmacy and other links in the
chain.
2) Wholesalers tend to utilize computerized inventory control
systems for ordering, inventory management and sales orders.
3) Drug manufacturers may be relatively sophisticated in their use
of computerized planning, production, inventory and distribution
techniques. These corporations are embarking upon E-Business
strategies to utilize the web for enhanced supply-chain
communications.
4) Chain retail drug stores utilize computerized ordering and
inventory control systems for internal management purposes.
5) Independent pharmacies may use computerized inventory
management procedures with varying levels of sophistication.
5. Review the resulting model, benchmark, apply appropriate metrics,
baseline, initiate process improvement and continue to monitor progress
using the same metrics
1) The weakest communications technology link in the example
supply-chain is often the hospital pharmacy. Other links in the
chain may be very advanced, but are limited in their own
effectiveness by the weakest link.
2) Many organizations in other business sectors, as well as drug
manufacturers and wholesalers, are moving rapidly toward web
enabled business systems which are capable of rapid
communication and response to emerging customer needs.
3) Metrics often applied to supply-chain networks include:
flexibility/ responsiveness (total source lead time), cost
(materials management as a percent of material acquisition
costs), reliability (% defective/accuracy) and inventory levels
expressed in days of supply. These metrics appear to have
potential for the supply-chain in this example.
4) The supply-chain in this example could most likely benefit from
the manufacturers and wholesalers sharing their automated
management and communications capabilities with the hospital
pharmacy. Automated inventory management systems may
increase inventory accuracy and accountability, while web
enablement may allow more rapid communication with other
supply chain links, regardless of the software and hardware
employed by any link in the chain. E-commerce may challenge
some traditional supply-chain relationships as well as facilitate
communication and reduced response time for replenishment.
The partners in the existing supply-chain should carefully review
a change in customer strategy first, to avoid unnecessary
disruption or loss of trust.
5) The purchasing clerk has little formal education in planning,
inventory control and purchasing management. Educational
offerings through APICS and NAPM may be valuable to the
development of the hospital pharmacy purchasing function.
6) The metrics of flexibility/ responsiveness (total source lead
time), cost (materials management as a percent of material
acquisition costs), reliability (% defective/accuracy) and
inventory levels expressed in days of supply appear to be logical
metrics for ongoing monitoring of the progress in supply chain
effectiveness.
SUMMARY
This paper has reviewed some of the best practices transferred from the
manufacturing industries to the health care sector and in use today. The case has been
made that models facilitate the implementation and use of new improved methods and
practices. The SCOR model for supply-chain management assessment and
implementation has been described and a health care systems example of its application
has been provided. There appears to be considerable opportunity for improvement in this
example case, and it would suggest that application of the model to other aspects of
health care systems might also yield positive performance improvement results. The
SCOR model is relatively easy to learn and apply. This paper demonstrates that this
model’s use can challenge existing organizational paradigms and contrast them to best
practices inside or out of their product or service sector. It might also be valuable to apply
some of the organizational models, such as the Seven Keys to Disney’s Success, to the
entire supply chain by some simple rewording of the elements, while utilizing the SCOR
assessment approach. The opportunities for improvement appear to flourish as the
improved practices described in this paper are viewed for their potential when used
together.
REFERENCES
1
APICS Dictionary, 9th Edition, APICS-The Educational Society for Resource
Management, Falls Church, VA, 1998.
2.
Connellan, Thomas K., Inside the Magic Kingdom: Seven Keys to Disney’s
Success, Bard Press, Austin, Texas, 1996, 1997.
3.
Melnyk, Steven A., Denzler, David R., Operations Management: A ValueDriven Approach, Richard D. Irwin, 1996.
4.
Norris, JoEllen S., Crandall, Richard E., The Use of Crossfunctional Teams in
a Continuous Improvement Program. The APICS Educational & Research
Foundation, Inc. 1998 Summer Academic/Practitioner Workshop Proceedings
- Integrated Resource Management: The Role of Education and Research,
Seattle, Washington, July 1998.
5.
Skledar, Sue, CQI Practicum: Application to Practice, The University of
Pittsburgh Medical Center Health System, Pittsburgh, PA, March, 2000.
6.
Supply-Chain Operations Reference-Model: Overview of SCOR Version 3.1,
Supply Chain Council, Pittsburgh, PA, 2000.
7.
Supply Chain Council Members, Supply Chain Council, Pittsburgh, PA, April
6, 2000.
Attachment 1
Hospital Supply Chain Map
Patient Drug Support
Doctor’s Prescription
Order
Wholesaler
Emergency Only
Drug Manufacturer
Wholesaler
Other Hospitals
Hospital Pharmacy
Rx
Wholesaler
Retail Pharmacies
Patient
A Drug’s Multiple Product Delivery Paths
Drug Component
Suppliers