ver walk into a Walmart store,
survey the vast array of shelved merchandise and think about the retail
Why is a certain product on the shelf, let alone that shelf?
Why is it on a shelf at eye level?
Why is it "on sale?"
Why is it in the back of the store versus the front?
Those decisions are made because of you, the consumer. Every
time you go to the cash register with those items in your cart you are
casting a very important vote to someone in Bentonville, AR, with the title
There is a saying in retail that "customers vote with cash,"
and it is absolutely true and why retailers like Walmart have been so
successful. They are consumed with making you happy to the point you will
hand over some of that hard-earned money in exchange for their services.
That is right, not for the products you purchase, but for their supply chain
to bring them to you.
A little history tells us that this is not the way it always
was. Prior to mega retailers like Best Buy, Target, Walgreens, Walmart and
others, manufacturers pushed products into the marketplace in hopes of
capturing sales. Retailers at the time lacked sophistication and generally
followed the advice of the largest and most powerful suppliers at the time.
A huge sales force and massive advertising campaigns were standard.
Retailers eventually caught on, began to consolidate, create
a brand of their own and develop supply chains as well as a relationship
with those who entered into their stores. They leveraged their newly formed
assets and began advocating for their shoppers. The first step was to start
charging suppliers for access (via shelf space and advertising). Does any of
this sound familiar to you?
Over time decision making transitioned completely from the
seller to buyer, and this is now known in the retail industry as "Category
Management." Healthcare must transition similarly. In the end "The Needs of
the Patient Come First." Reform is here to stay, and quite frankly, there is
no more money to spend on healthcare.
That elusive silver bullet
In just the past five-to-six years we have seen tremendous
healthcare supply chain advancements as well as recognition of its
importance. However, what I see too often is a lack of commitment and
coordination. Organizations often bandwagon from solution to solution
looking for a single "silver bullet." Executives are then often frustrated
because the new overhyped solution does not resolve the overall needs, so
that solution is abandoned.
What follows is an actual conversation that I overheard one
day outside of my office. Contracting Manager: I hate these new spend
Contracting Analyst: Why?
Contracting Manager: They never work. Look, I put in my
items’ numbers, run the report and after several minutes of waiting, I
Contracting Analyst: That is strange. The reports seem to
work fine for other items. Let me call our IT group.
IT Developer: Your report is working fine. There are no
purchasing records for those item numbers.
Contracting Manager: This is our preferred vendor, and these
items are on our contract. We are in my office now, and I just don’t know
how this is possible. I will call purchasing. Thanks.
Contracting Manager: IT is trying telling me that we that we
have not purchased any of the products on our new contract. We made
commitments and they gave us a sweet deal in exchange. What is up?
Purchasing Manager: Relax. We buy those items all the time
and we are surely compliant with your contract. We launched a new P-card
program and decided to use it to purchase those items. The program is
working great for us.
Contracting Manager: What the heck is a P-card?
There are categories where P-cards work great. However, this
conversation is just a very simple yet good example of why we are not great
and are in need of a closed loop system.
Getting on target
The reality is that a single bullet (or solution) is not
what drives the most efficient and effective Supply Chains. Many of the
popular retailers have developed and embraced a complete arsenal of
solutions and a very well-coordinated deployment plan. The plan, Category
Management, leverages the power of the teamwork and collaboration and
applies each solution to a specific category (or groups of categories).
A textbook definition (or Wikipedia in this case) reads
something like the following:
Category management is a retailing concept in which the
range of products sold by a retailer is broken down into discrete groups of
similar or related products; these groups are known as product categories
(examples of grocery categories might be: snacks, washing detergent,
toothpastes). It is a systematic, disciplined approach to managing a product
category as a strategic business unit.
Each category is run as a "mini business" (business unit) in
its own right, with its own set of turnover and/or profitability targets and
strategies. Introduction of Category Management in a business tends to alter
the relationship between retailer and supplier: Instead of the traditional
adversarial relationship, the relationship moves to one of collaboration,
with exchange of information, sharing of data and joint business building.
Category Management is a combination of many things, but
first and foremost it is a strategic approach to meeting or exceeding
consumer demand. It is a closed-loop purchasing process that begins with
business intelligence leading to the best sourcing and contracting results,
optimal procure-to-pay processes, contract utilization and compliance
leading to a high quality patient outcome and financial performance (i.e.,
realized on the financial statements). When all of this works optimally, it
produces the next wave of intelligence to be used in the cycle all over
again to produce continuous business benefit.
Mayo does it
Mayo Clinic has been on such a journey during the past 10
years, like many, to transform its Supply Chain from a very tactical process
to one that is well-defined and significantly improved in each function. We
have consolidated our operations, invested in staff and systems, as well as
improved our relationships with our end users including our physicians.
Here are a few examples:
Partnerships: Mayo Clinic has a unique relationship with our
group purchasing organization, and we have both committed to mutual
objectives and resourcing. We have also committed to work for the mutual
benefits of 35 other healthcare providers in our UMCSC, LLC [purchasing
coalition.] We have deployed integrated teams within Mayo Clinic as well as
clinical quality value analysis.
Skills: Transactional roles, no longer necessary due to
automation, have been replaced (through retooling) with consultants who are
well versed in DMAIC [Six Sigma], project management, technology and
Systems and Master Data: We have implemented an enterprise
resource planning (ERP) system to automate and integrate our administrative
back office. On the front lines we have deployed materials resource planning
(MRP), point-of-use, e-commerce and optical character recognition (OCR).
Mayo Clinic has also been on the forefront of GS1 Healthcare US data
Business Intelligence: Through our GPO partnership we have
invested in and deployed spend analytics and benchmarking. Additionally, we
have invested heavily in enterprise data warehousing.
The return has been well worth the effort, and as a result
we have documented more than $600 million in savings. Yet, while this is
good, we recognize it is not great.
Great performance is what we are going to have to achieve in
order to meet the future needs of our patients. For this reason, we have
committed to transition a large portion of our supply chain activity to
Our first steps are to consolidate our sourcing and
contracting, value analysis, contract administration and systems units into
a single highly empowered team. We have also launched a three-year program
to completely integrate supply chain and clinical data, recommitted to the
basics, as well as invested in a fully automated contract management system.
But most importantly we have committed to work together,
across those well-performing supply chain processes, to develop solutions
that work best for each category of products. Our objective is to not only
accelerate savings and efficiency for Mayo Clinic but also to provide
incremental value to all of our partners (including the suppliers). These
changes will not be easy, but as we look back on history and into the future
we are sure the changes are very much necessary.
We believe that others have been progressing similarly and
will naturally transition into this next phase of advancement. In short,
healthcare can adopt Category Management.
What follows is our hope for healthcare’s future supply
Hospitals eventually caught on, began to consolidate, create
a brand of their own and develop supply chains as well as a relationship
with those who entered into their facilities. They leveraged their newly
formed assets and began advocating for their patients. They skipped the
first step, which was to start charging suppliers for access. Instead,
decision making transitioned completely with a strategy that was well known
in the retail industry called "Category Management."
Healthcare supply chain management transitioned just in
time. They realized that in the end "The Needs of the Patient Come First."
Now there is more money to spend on healthcare research, education and