Three CEOs reveal how they steer their facilities knotting cost, revenue concerns

After all, despite supply chain management’s monumental street cred in every other industry, healthcare CEOs couldn’t be bothered with such mundane details that represented a considerable chunk of operations and a significant slice on the balance sheet. They have more important issues to deal with on their plate.

But we did it anyway.

Now, four years and 16 supply chain-focused CEOs later (including the three SURE winners this year), HPN only can smirk at conventional wisdom and industry zeitgeist. Contrary to popular belief, hospital and health system CEOs seem to be more interested – and more well-versed – in supply chain management activities than ever before. And they didn’t need a nosediving economy or a federal government admission that the United States has been wandering through a recession since late 2007 to do it.

Instead, HPN’s three SURE-fire CEOs of 2009, who are Nick Desien, CEO, Ministry Health Care, Milwaukee; Gary Duncan, CEO, Freeman Health System, Joplin, MO; and John Duval, CEO, Medical College of Virginia (MCV) Hospitals and Virginia Commonwealth University (VCU) Health System, Richmond, VA, make the connection. In fact, they acknowledge a tanking economy offers that much more justification for wrapping their arms around supply chain management as a key C-suite function with tentacles throughout the entire organization.

Desien, Duncan and Duval, who, incidentally, embarked on a three-week expedition to Antarctica following this interview, all challenge supply chain managers to step up to the plate and their colleagues and peers to pitch to them – particularly in a tightening economy that should justify and reinforce supply chain management’s seat among senior management executives.

In a wide-ranging interview, Ministry Health’s Desien, Freeman Health’s Duncan and VCU Health’s Duval highlight their vision of supply chain success, outline their expectations of supply chain performance and offer insightful encouragement to a profession that hungers for it.

DESIEN: The CEO has ultimate accountability for company performance. As such, the CEO sets the company direction and then allows his leadership team the flexibility to execute on that direction. Our supplier/3rd party expenditures represent the second-largest expense for our company, after salaries and benefits, and therefore this area gets time on my agenda. As an example, I meet with our Corporate VP & Chief Supply Chain Officer every 2-3 weeks to review key Supply Chain activity and ‘progress vs. plan’ against expected deliverables. We also track supply cost per adjusted discharge at all of our facilities and it is monitored by our local and corporate Boards of Trustees.

DUNCAN: In our organization the CFO is responsible. The CEO should be involved with physician/clinical supply chain management directly. The CEO doesn’t have to be directly involved but must select competent, creative supply chain management.

DUVAL: I see the relationship between the Supply Chain Administrator and the CEO as being that of a team. Clearly, the CEO is responsible for establishing the culture of accountability within the organization that allows/enables the Supply Chain Administrator to accomplish his/her work and ensures that the correct level of attention is paid to maximizing the value of excellent supply chain management for the organization. To optimize this relationship, the CEO must be willing to carry a message that the supply chain value proposition is an essential element in the strategic and tactical success of the organization. When needed, I believe the CEO must be willing to engage organizational elements that might not have fully recognized this fact to ensure a broad continuity for supply chain initiatives where feasible.

DESIEN: I would encourage them to look at how other CEOs outside of the healthcare industry view Supply Chain. I belong to TEC (an organization for Chief Executives across industry) and I continue to be influenced by how my peers in other industries view their Supply Chain as a key lever for competitive advantage. Our GPO is an important tool, but it is but one tool in our toolkit and it is not the driver in our efforts to improve patient care and total cost at the bedside.   

DUNCAN: You are not providing your consumer best value. One size does not fit all.

DUVAL: Whether supply chain functions are outsourced or are provided within the organization, it remains the responsibility of management to ensure that the value proposition is optimized across the organization. While functions can be outsourced, the core responsibility for the success of supply chain management still falls to the CEO and his/her management team.

DESIEN: In my mind, an effective Supply Chain Leader is an individual who is a strong leader with a business and financial acumen that can bring/deliver his or her supply chain expertise into the culture of our institutions. Specifically, I’m looking for a clear, business voice at my leadership table that can readily translate how Supply Chain aligns with our organization direction and impacts our company performance at the P&L level and can relate to individuals providing care at the bedside.

DUNCAN: I look for someone who is always looking at potential best value and someone who can work with physicians. I want them pondering new possibilities for the organization.

DUVAL: Beyond the basic technical skills, in my opinion the successful Supply Chain Administrator must be an individual who is outgoing and engaging. They must value the importance of operating areas they support and be willing to engage their counterparts in dialog to understand the needs of these areas while partnering with them to bring the best balance of price and quality in their product selection. Further, I see the role as one that has institution-wide impact, and so the effective Supply Chain Administrator needs to be as comfortable in the C-suite as they are working with departments or the folks on the loading docks. I also see innovators. The nature of supply chain, the role of GPOs, and how they are managed continues to evolve; hence, I see a call for ever increasing levels of creativity in extracting supply chain value for our organizations.

DESIEN: For our Fiscal Year 2009 we have targeted a $9.75-million cost reduction/positive impact to our bottom line. To get this same impact to the P&L from a revenue perspective, we would need to find an additional $100+ million or so worth of new revenue. Our belief is that through good supply cost management this savings is ongoing and will position us competitively in our markets. As management of your costs becomes part of your culture you are on your way to a best-in-class performer.

DUNCAN: They are proactive in reducing our service unit costs. They work with managers and physicians to constantly look for savings opportunities. They are disruptive to supply chain status quo.

DUVAL: Healthcare organizations are under tremendous pressure from any number of points: Labor costs, benefits costs, the costs of new/emerging drugs and technologies, reimbursement issues...the list goes on. Effective supply chain management can play a key role in moderating the impact of these varied issues by helping manage the overall cost of production. Simply stated, it is one area where we have a greater measure of control should we as managers elect to use it.

DESIEN: I think the biggest misunderstanding is in Supply Chain’s impact to company performance. Many CEOs have been conditioned to believe that supply chain management is all about price and they have not taken a total cost approach and looked at other factors, such as utilization, in their model. Up until about 4 or 5 years ago, I was not very educated on how Supply Chain could help me better run the company. Fortunately for me, I was influenced by many, including some members of my team, outside consultants we worked with and my fellow peers/CEOs outside of healthcare, who have embraced Supply Chain as a strategic imperative. We are now on a path that puts our supply chain strategic planners at the table with our local operations senior leaders.       

DUNCAN: That supply chain managers can operate on their own and just get best price. They have to be integrated with the rest of the organization.

DUVAL: I think the biggest misunderstanding is that CEOs too frequently expect the Supply Chain Administrator to ‘just get it done’, and not engaging them in setting a shared agenda for how the power of the CEO’s office can facilitate much greater performance and corresponding cost control.

DESIEN: I’m human and hence there are only so many things I can focus on at one time. So when you need my attention, keep it simple and crisp with a keen focus on how your ideas can help me advance the organization direction and drive meaningful business results, and they should be tied to our ultimate goal of keeping our patients first.

DUNCAN: It is not always as simple as it seems. There is more to it than best price.

DUVAL: That no matter how busy I am…if the success of their efforts can be improved by engaging me, or my office, then they should feel comfortable doing it. Supply choice decisions are all too frequently political and they become emotionally charged. I think that an engaged management team can help with this.

DESIEN: Category Management. Not that long ago, I had never heard of Category Management, and yet today we are well along our way in developing our first Category Procurement Strategies to drive $1.5 million in cost out across our System. This has been really eye-opening for me. Deep dives into our spend categories allows us to reveal opportunities to improve in our total cost model.

DUNCAN: Working with our VHA shareholder hospitals in VHA-Mid America to establish our own central supply center.

DUVAL: They have exceeded my expectations in many initiatives, but the one that comes most frequently to mind is in managing cardiology implant products and related costs.

DESIEN: We believe in consensus decision-making and giving people a voice at the table. This doesn’t mean everyone gets their way, but what it does mean is that we ask for opinions and respectfully listen to each others thoughts. As an example, our Chief Supply Chain Officer chairs our Supply Chain Operations Team (SCOT) which meets once a month. This team is a cross-functional, cross-location senior executive team that includes physicians, administrators and Supply Chain. The purpose of this team is to ensure we make more informed System-wide Supply Chain decisions that make sense for us clinically and financially and mitigates risk throughout our system.

DUNCAN: We have our supply chain manager and nurse at each of our meetings with each physician specialty group. They are the first item on the agenda. We discuss new potential items, show them and work a schedule to pilot whatever it is. We also review items with problems.

DUVAL: This is where the skills and key characteristics of the successful Supply Chain Administrator comes in. I don’t have to spend much time because my team actively engages clinicians in these decisions as part of their work processes.

DESIEN: For me, I think keeping it simple and continually making the connection to our company direction. As an example, our Supply Chain does a nice job of repeating and reinforcing how Supply Chain actions translate into supporting hospital/clinic operations’ objective of improving patient care and enabling our System to be financially successful, and that our 125-year past history will be structured for the next 100 years.  

DUNCAN: To get out of the office and develop working relationships with the C-suite, physicians and department managers.

DUVAL: I believe that it comes down to case-making – the Supply Chain Administrator needs to present their needs and issues in the context of a ‘value proposition.’ Meaning, if you do ‘x’ and grant me ‘y resources,’ I will deliver the following items of value. Keep it simple, direct and value-driven.

DESIEN: The current economic environment truly highlights that our focus on our second-largest System expense – supplier expenditures – is indeed a very common-sense approach. It is tied to our four core values, primarily Justice – managing the resources that have been entrusted to us. As an example, we are creating our first-ever, written category strategies and sharing these with key members of our System Leadership – administrators and physicians – to further exemplify our ‘new model’ of Supply Chain and further demonstrating that this is ‘not business as usual.’ A more specific example is with our Total Joint Project where we have been working with our orthopedic surgeons and our hip and knee suppliers to better match supplier pricing/costing with the insurance reimbursement we receive for these procedures and bring better value to our patients.

DUNCAN: I want them to learn and investigate best practices and feed them back to provoke out-of-the-box  thinking. Help us not miss opportunities for improvement.

DUVAL: Beyond the basics of managing selection and price, I believe there are important roles for the Supply Chain Administrator in working with clinicians in improving patterns of use, reduced waste, implementing responsible ‘green’ solutions that can reduce the waste stream, and in innovating ways of improving processes to ensure a more efficient consumption of products.