INSIDE THE CURRENT ISSUE

January 2008

Central Services

Effective CEOs can be hard to find. Ask any hospital searching for one – the right one. Great CEOs can be even harder to find. And great CEOs who also happen to support, understand, recognize and empower supply chain management activities, including the supply chain management professional in charge, can be downright improbable to locate.

HPN: Strategically and tactically, who should control and be completely responsible for your organization’s supply chain management activities – the CEO, the CFO, the COO or the supply chain management executive – and why? How hands-on should a CEO be in this area?

Delos M. "Toby" Cosgrove, M.D. President and CEO, Cleveland (OH) Clinic

COSGROVE: Supply chain management for Cleveland Clinic is led by a supply chain executive responsible for enterprise-wide supply chain activities, reporting through our COO. Given the size of Cleveland Clinic, a $4-billion operation, it is impractical for me to understand the day-to-day operations of supply chain, though I am aware of their strategy, vision, major initiatives and performance to agreed-upon goals.

MURRAY: Supply chain management is a ‘team sport’ because it involves strategic partnerships with suppliers and it permeates the operations of the company. In healthcare, independent physicians, as well other employed professionals, have a major say in specifying the kind of products needed. This at times requires the involvement of the CEO, but ordinarily involves the COO and CFO. In view of the fact that supply chain touches all aspects of the operation, the COO is usually the best person to provide direct oversight to this function.

SAMET: Strategically and tactically, supply chain efforts should reside fully within the influence of the supply chain executive. However, strategic direction and cutting edge initiatives must be connected to and supportive of an organization’s broader strategies. The CEO leads strategic decisions that impact the direction of the company, and in turn, leaves the day-to-day operations to the supply chain executive. Obviously, this approach should be conducted in a way that incorporates the needs, as well as the creative and unique aspects, of the institutions it serves.

COSGROVE: Supply chain management has significant impact on Cleveland Clinic’s finances, operations and patient care. I would suggest CEOs research all options and identify the ones that work best for their organization given available resources. Although we are an owner of a GPO we also have an internal structure that allows us to capitalize on opportunities that third parties cannot provide.

MURRAY: In hospitals, the spend on supplies represents 20 percent of net revenues, the second largest expense behind labor, which is somewhere between 40 percent to 50 percent. In an era of declining reimbursement, it is critical that the leadership is building strategic partnerships with both vendors and GPOs. While the management of the supply chain can be outsourced, the critical oversight and responsibility for this essential function must be retained at a senior level of the organization.

SAMET: I would inform the CEOs of the value of supply chain as an imperative component of overall expense management activities, as well as operational improvement redesign efforts. Executive support is required to implement leading edge strategies.

COSGROVE: Supply chain leaders must demonstrate strategic acumen comparable to that of others in leadership roles. The ability to develop, communicate and implement their vision in a complex environment is essential. Additionally, the supply chain leader must have the courage and confidence to challenge traditional industry paradigms.

MURRAY: In order to be an effective supply chain leader, an individual must have an intellectual curiosity to adopt new technologies and a passion for helping users embrace change and drive for better value. It is a high-energy endeavor that requires a lot of resilience.

SAMET: The characteristics of the supply chain executive should include solid clinical and technical knowledge base, innovation and change management expertise. Communication skills are critical, as is the ability to understand the overall business imperative.

Specifically, how does supply chain management contribute to your organiza-tion’s financial performance and market position?

William M. Murray, President and CEO, Sisters of Charity of Leavenworth Health System (SCLHS), Lenexa, KS

COSGROVE: Supply chain is accountable for a significant portion of our cost structure. Their ability to acquire products and services through best-in-class pricing models gives us a competitive advantage in the industry. Additionally, supply chain’s efforts to reduce owned inventory improves our cash flow. Their efforts support our ability to fund Cleveland Clinic’s growth plans.

MURRAY: Effective supply chain management allows us to bring the best technology to our hospitals for the care of our patients. By saving money on supplies, we can afford to have more nurses at the bedside. Achieving better value in supply chain makes our healthcare more affordable to the people who need our services.

SAMET: Supply chain management has been a major contributor to our total expense management strategies. Its impact is measured quarterly using several national, regional and local benchmarks.

COSGROVE: Speed...It is difficult for CEOs to understand the time and complexity to implement supply chain initiatives. It’s important for both parties to proactively voice concerns or roadblocks.

MURRAY: In the healthcare setting, CEOs tend to think that the supply chain manager should be able to achieve savings on their own. In fact, decision-making about supply procurement is very political in hospitals, and therefore, CEOs often time have to lend their time and political support to get physicians and other professional to make prudent buying decisions.

SAMET: The biggest disconnect is that some still may believe it is all about price. Price is an important component but utilization, standardization and distribution strategies account for more. Through proper education of service executives, this disconnection can be overcome.

COSGROVE: With 36,000 employees and facilities spanning the globe, Cleveland Clinic is a very large organization and our leadership team is working on many complex projects. Our overall goal is to improve patient care and our supply chain team contributes to this effort.

MURRAY: Often times, supply chain managers overestimate the ability of the CEO to lead by fiat and are oblivious to the political sensitivities involved in decisions about physician preference items. Thus, the supply chain manager should show some care in picking battles for the CEO to fight.

SAMET: There are so many ‘Priority 1’s’ competing for time and resources. There are also often times conflicting political and practical pressures impacting implementation strategies and timelines.

COSGROVE: Over the past two years we have re-engineered the purchasing department, implementing a strategic sourcing process and negotiation strategies that are progressive to healthcare. These efforts have yielded cost savings nine times historical levels for Cleveland Clinic.

MURRAY: Working with Broadlane, our outsourced supply chain manager, we have been very successful in doing group buys on major technologies such as [magnetic resonance imaging units] and [computed tomography] scanners. A very participative process has been established involving clinicians, and this has led to excellent compliance on the pre-commitments required by the group-buy process.

SAMET: Our advanced distribution model and managing physician preference items have been important to us, along with the evaluation and acquisition of capital equipment.

COSGROVE: Clinicians and supply chain management co-champion the strategic sourcing process through cross-functional, system-wide teams. The teams own the process and must consider clinical, operational, financial and social responsibilities when qualifying products and services. These teams have been aggressive in standardizing suppliers and products, especially on physician preference items. Supply chain works within the strategy parameters to negotiate and finalize the contract.

MURRAY: A critical part of the design of our supply chain process is the establishment of value analysis teams [or] clinical affinity groups. They develop an annual work plan and share it with all of the major stakeholders, including physicians. Their job and focus never goes away so that over time, driving for better value in all parts of the hospital becomes second nature to everyone.

SAMET: By making sure that everyone understands how supply chain decisions impact an organization’s ability to provide high quality care in a cost-effective fashion, it directly sustains our ability to continue to achieve our long-term mission.

COSGROVE: Supply chain managers must be able to effectively demonstrate and communicate their vision and strategy in a way that a CEO can understand. Supply chain goals and initiatives need to align with enterprise challenges. If I am able to see the benefits to the enterprise, I can support and influence others to support supply chain activities.

MURRAY: The critical step for achieving CEO-level support is to craft a future state vision for supply chain that shows a clear pathway to efficient operations and financial savings. The plan and financial forecasts must be well thought out, and able to withstand vetting from the senior leadership team. And finally, the plan must have milestones – and metrics – and credible progress reports must be regularly communicated to the organization in order to keep everyone interested and excited about the work.

SAMET: Supply chain managers can effectively acquire CEO-level support while providing high-quality service by starting conversations with a clearly established value proposition.

COSGROVE: Supply chain was an area where we wanted to infuse new talent with different experiences and skill sets to compliment our existing team members. The blending of proven industry practices and professionals has enabled us to be innovative in our strategic sourcing and challenge healthcare industry practices.

MURRAY: At SCLHS, we crafted a vision that would bring at least a 10 percent reduction in costs over time. First, we invested in the technology – ERP. Next we made a very difficult decision to achieve our vision by outsourcing supply chain management to Broadlane. There is a natural tendency to think that the technology and the outsource vendor will take care of the rest. In fact, they become tools for the leadership to use in achieving better value. Supply chain is a team sport, and the use of metrics and incentive compensations motivates the leadership of the hospitals to have a major stake in the success of Broadlane and vice versa.

Kenneth A. Samet, President and CEO, MedStar Health, Columbia, MD

Mr. Samet, you have developed aggressive personal supply chain-related management-by-objectives (MBOs) for [MedStar Health’s] supply chain leadership, and have made yourself personally accountable for meeting supply chain goals. Why do you feel such personal accountability and responsibility is necessary, and why should other facilities consider that strategy for their own progress?

SAMET: The direct and visible connection to and commitment from the CEO establishes the organizational importance of supply chain activities, and helps to ensure a total organizational commitment to these initiatives.

For more information about our recipients’ organizations be sure to visit their Web sites at www.clevelandclinic.org, www.medstarhealth.org and www.sclhs.org.