By Joe Walsh, Founder at Supply Chain Sherpas
January 2018 – Healthcare is experiencing profound macro pressures including revenue compression, growing consumerism, rapid provider consolidation, population health strategies, payor-provider integrations and the emergence of many non-traditional disrupters and competitors. Aggressive cost reduction targets inevitably become a large component of a multi-faceted strategic response to these pressures. Cue the supply chain team (or procurement team in some organizations) for supply expense reduction efforts. To unlock the full potential of the supply chain, we must be willing to reimagine the supply chain function and invest in talent management strategies.
Let’s consider the current state of the typical healthcare supply chain function. It is grossly underfunded and understaffed when benchmarking the investments relative to world-class performers such as Proctor & Gamble, Unilever, McDonald’s and Cisco. Healthcare too often benchmarks within healthcare exclusively, which may be one of the root causes preventing revolutionary progress. Supply chain typically influences purchasing decisions for only 50% of the total addressable non-payroll expenditures; thus, leaving significant annual expenses on consulting services, marketing services, IT infrastructure, construction services and HR services relatively unmanaged. Supply chain typically relies on Group Purchasing Organization(s) for the majority of its contracting activities with suppliers. Therefore, the supply chain team hasn’t had the development time or resources to progressively advance its own cost management capabilities.
Far too often, supply chain is only measured on its ability to reduce operating expenses by showing how it negotiated lower pricing with suppliers. This myopic measurement process results in industry-wide value shifting. Simply stated, value shifting means that a hospital saves money by negotiating away a bigger slice of the supplier’s profit margin. The supplier’s cost structure has not changed at all and therefore the total cost structure of healthcare remains unchanged. Rather, the provider and supplier have just renegotiated how to redistribute the value between them (i.e value shifting). Healthcare has an underlying cost problem and this problem can’t be address through value-shifting activities alone.
Compounding these supply chain challenges is the underinvestment in supply chain talent. We have experienced an unprecedented number of retirements of C-level healthcare supply chain leaders over the last five years, many of whom are industry icons. There are currently more than 20 Vice President or C-Level open roles at hospital systems alone, which also suggests succession plans didn’t exist or failed. Healthcare is not yet a destination industry for the thousands of talented graduates from supply chain management degree programs. Our professional associations, trade shows and education opportunities do not provide accredited leadership education programs that adequately develop our executive supply chain leaders of tomorrow. Most healthcare supply chain functions do not have budget for talent acquisition, talent development, coaching and education, even if the solutions existed.
This is a call to action to everyone in healthcare. The supply chain function matters more today than ever before. Ask more of the supply chain function; fight the temptation and peer pressure to inadvertently relegate the team to a price management department. Supply chain has the potential to impact cost, quality, patient satisfaction, innovation, physician engagement and so much more. They also have the potential to influence 100% of an organization’s non-payroll expenditures, which includes all supplies, all purchased services, all drugs, all software and all capital across every line of business. This team can return ten dollars for every dollar you invest in them, every year for the foreseeable future. You may be strategically hurting the company with budget cuts that are uniformly applied across every department of the organization.
Once you ask more of your supply chain, it’s also important to invest in your supply chain team. An intentional talent management strategy unlocks the business strategy! Exercise uncompromising discernment when hiring talent and offer total compensation packages consistent with world-class performers from beyond healthcare. Goal and incentive alignment is also part of a comprehensive talent management strategy. Imagine a future where we measure the effectiveness of supply chain through the lenses of lower total cost of ownership, improved clinical outcomes, increased patient satisfaction or even increased revenue capture.
Effective talent management also means investing in the development of your supply chain team members. Technical competency development is essential, especially for front line team members. AHRMM, Sourcing Interest Group, APICS and other trade associations offer relevant technical certification programs. Leaders have an obligation to value these certifications and to help their team members pursue mastery in their roles.
Technical competencies must also be complemented with leadership competencies, especially as a rising star assumes more responsibility in a rapidly growing organization amidst rising expectations. Currently, there is no industry-wide leadership development program for healthcare supply chain leaders. The nuances of our healthcare industry, combined with the uniqueness of the healthcare supply chain profession, implore us to develop a supply chain leadership competency model. This model would help current leaders, emerging leaders and next generation leaders with specific leadership development, including attracting and engaging talent, change leadership, strategic visioning, execution, alignment, emotional intelligence, relationship building/collaboration, communications, customer centricity, quality management and possibly others.
Finally, talent management also includes succession planning for key roles and talent management reviews to ensure we are fostering the early and intentional development of our next generation of leaders. I’m grateful for the extraordinary executive coaches and mentors I’ve had throughout much of my professional life. These coaches have accelerated my development, deepened my self-awareness, expanded my worldview and dramatically improved my self-confidence. Competency development programs, succession planning and talent reviews become exponentially actionable with formalized coaching and mentoring programs.
Healthcare is a service industry, which means people are our most valuable resource. Have the courage and conviction to invest in a talent management strategy for your supply chain. Ask your supply chain team to do more, to immerse themselves into the business, to deliver more forms of value and to just be more courageous. Talent management unlocks a new world of possibilities so profound, you may find yourself having to re-name the supply chain function itself. Any suggestions?
About the Author
Joe Walsh recently started an innovate practice called Supply Chain Sherpas, which provides distinctive talent management solutions designed to help elevate and transform the healthcare supply chain. Supply Chain Sherpas offers executive coaching, mentoring, strategic advisory services, education services and interim leadership services to Providers and Suppliers. Joe is inspired to minimize the suffering of the vulnerable by meaningfully improving the financial health, patient access, quality of care, service levels and affordability of our U.S. healthcare system. Joe is a visionary leader with a 20-year track record of leading nationally-recognized supply chain transformations and new business development ventures at multibillion dollar organizations.
For most of the last decade, Joe has continued to learn healthcare and its supply chain while in progressive leadership roles at Pensiamo and at Intermountain Healthcare. Joe served as the Executive Vice President of Operations for Pensiamo, where he led sourcing, purchasing, accounts payable, integrations and account management for UPMC while developing Pensiamo’s offerings for external clients. Previously, Joe served as Intermountain Healthcare’s Vice President of Supply Chain & Chief Procurement Officer where he led the award-winning transformation effort and helped the team earn the number one ranking in Gartner’s “Healthcare Supply Chain Top 25.” Individually, Joe was recognized as the “Contracting Professional of the Year” in 2013 by Healthcare Contracting News.
Prior to joining the healthcare industry, Joe held progressive procurement and business development roles at Foodbuy while helping the company grow to become world’s largest foodservice GPO. Joe also led the global sourcing transformation for Corporate Express (now Staples) while helping to launch its successful integrated supply business.
Howard G. Mann
Joe’s comments on the state of affairs within Supply Chain in healthcare are accurate and thoughtful. His emphasis on talent management is critical to the success of total non-labor spend management that underpins the relevance to organization achievement in the changing landscape of healthcare. There are other aspects which shackle Healthcare Supply Chain’s ability to be a critical success factor for their organizations.
A critical look at hospitals inability to achieve price transparency or the ability to aggregate volume outside of GPO’s has been addressed by the development of Collaboratives or sometimes through the acquisition of a GPO by hospital systems. However more successful contracting occurs in other countries whereby vendor selection is achieved though national contracting. Our separation as individual units continues to close as Integrated Delivery Networks expand, but Supply Chain remains in a vacuum for contracting.
The adoption of standards in business communications through EDI and voluntary and sometimes mandated requirements continues to limit all levels of hospital Supply Chain and our Supplier partners by continuing massive cross-indexed (or not) databases between manufacturers, distributors, healthcare providers and (GPOs) even though mandating and regulating standards have demonstrated the ability for pricing effectiveness and, more importantly, product and patient safety.
The ability to attract talent includes having a compelling reason for one to choose a career in healthcare Supply Chain. The challenges, given just two examples above, are great. Pulling in talent, without making more changes than administrative investment isn’t enough. But, I do agree with Joe, that it is a start.
James Patrick Connor
Great article! Well written and timely. There is talent out there, but, if you can not find it, build the team yourself…
Very insightful article
Terrific column and spot on! Supply chain in healthcare indeed is terribly undervalued AND under utilized. Strong talent is essential now. Talent that can not just negotiate price and correlate it to value, but also can discern associated “soft” cost savings which can be achieved via efficiencies and associated inter-department/system hard cost reduction. Hope to see more healthcare systems invest in supply chain.
Great article. I had the good fortune to mentor under Joe. I appreciate his investment in me and agree that in healthcare, supply chain is vital to change the cost trajectory.
Great article Joe, the villain, for the lack of a better adjective is saddled into other technologies that have taken a higher importance versus Supply Chain. It not that some of the technologies are important, but their promises of reduced Length of Stay, Recovery improvement etc., have not been empirically proven. The cost for new technology in the OR, Cath Lab, IR and even IT have trumped the investment in SCM arena. Undervalued is probably an understatement to the enormous opportunities that Supply Chain can achieve with the right tools. The push to have a SCM Professional in the C-Suite has only been achieved within bigger systems. I can’t help but feel that SC is still not seen as an asset outside the Supply Chain circles, but only a necessary operating expense that only receives the minimal amount of investment. The MMIS systems are still “add on” to the EHR purchases, that are seen as clumsy P&L systems that allows for Contracting, Purchase Orders, replenishment and Inventory Management systems, and even the finance side receives only the most anorexic form of a profit and loss and invoice management system, that struggles to achieve any predictive analytics or line item cost analysis. This is not an ALL statement, there are champions out there for SC, just not enough.
Great wisdom and insight in this article. Joe is in the right track
Luther E. (Ed) Rounsaville
Great insight and right on target – the simple tools in supply chain operations for many industries such as consumer goods are not deployed in most healthcare settings. The US Fast Food industry has more complex supply chain solutions for available inventory and waste management than most of our providers we trust to save our lives.
It’s time to look outside the 4 walls of our hospitals for better human talent solution options to help improve and solve the Supply Chain issues in the Healthcare industry.