INSIDE THE CURRENT ISSUE

August 2012

2012 Supply Chain Department of the Year

Breaking away from the pack of healthcare leaders

UPMC Health System stresses, strives for ‘world-class’ supply chain operations

Receiving the award at AHRMM 2012

by Rick Dana Barlow

Sometimes, going out on a limb and taking a chance can pay off — big time — regardless of any perceived risk.

Six years ago, UPMC Health System, a Pittsburgh-based multi-hospital system that befits the description of integrated delivery network, broke the traditionalist mold and reached outside the confines of healthcare supply chain — and healthcare itself — to pluck someone from industry to realign, re-energize and reposition its own supply chain operations.

When James Szilagy left Alcoa as vice president of its Global Procurement Center of Excellence he made one of those rare — but not unheard of — migrations to a healthcare organization that desired, and needed, to get to the next level.

At minimum, Szilagy, who buttressed himself with a solid, talent-rich group of senior-level administrators, served as a catalyst for a supply chain management division poised for performance, implementing an industrial philosophy as the foundation for propelling supply chain operations closer to the C-suite, and virtually ignoring, yet somehow integrating, all of those deep-seeded claims that healthcare’s convoluted model is "different" from industry.

As a result, UPMC’s reinvigorated supply chain division, which reinforces experience, higher-level talent and training, by establishing a "culture of automation" that uses accurate data to direct and drive centralized oversight of system-wide supply chain operations, creating a detailed blueprint for product evaluation, acquisition and support, cultivating trust and collaboration with clinicians and administrators, developing and managing a consolidated service center and originating and promoting a revenue-generating product-as-a-service that connects everything full circle.

For these reasons Healthcare Purchasing News chose UPMC Health System’s Supply Chain Management Division as its 2012 Supply Chain Management Department of the Year.

Standing Left to Right – Tim Nedley, Sr. Director, Materials Management; Michael DeLuca, Sr. Director, Supply Chain Solutions & Consulting Services; David Hargraves, Vice President, Clinical Supply Chain; Patrick Flaherty, Director, Supply Chain Management; Kelly Coxon, Director, Procure to Pay; Lynn Koziak, Director, Finance

Seated – Left to Right – Toni Silva, Director, Supplier Relations; Mary Beth Lang, Vice President, HCP and SCM Commercial Operations; Robert Pavlik, Vice President, Non-Clinical Supply Chain;
 James Szilagy, Chief Supply Chain Officer

Fast Facts on UPMC Health System

Headquarters: Pittsburgh, PA

Facilities: 20+ acute care hospitals, 9 urgent care centers, more than 50 imaging centers, five pharmacies and a host of non-acute care sites, including community outpatient facilities, cancer care centers, international locations, retirement and long-term care facilities and rehabilitation facilities

Beds (licensed and average operating):

4,516 and 4,329

2011

2012

Inpatient Admissions:

190,216

201,322

Outpatient Visits:

3,269,844

3,671,558

Surgical cases:

173,997

175,365

Total net revenue:

$9 B

$9.6B

CEO: Jeffrey A. Romoff

CFO: Robert A. DeMichiei

Supply Chain Management Division

Chief Supply Chain Officer:

James A. Szilagy

Joined organization:

2005

Previous position:

Vice President, Alcoa’s Global Procurement Center of Excellence

Started supply chain career:

1986, Buyer, Ryobi Power Tools

Vice Presidents, Senior Directors, Directors at UPMC:

David Hargraves
Vice President, Clinical Supply Chain

Kelly Coxon
Director, Procure to Pay

Robert Pavlik
Vice President, Non-Clinical Supply Chain

Lynn Koziak
Director, Finance

Mary Beth Lang
Vice President, HCP and SCM Commercial Operations

Patrick Flaherty
Director, Supply Chain Management

Tim Nedley
Senior Director, Materials Management

Toni Silva
Director, Supplier Relations

Michael DeLuca
Senior Director, Supply Chain Solutions & Consulting Services

In addition, the UPMC Supply Chain Management Division has 3 Assistant Directors, 2 Associate Directors, 2 Senior Managers and 26 Managers.

Employees/FTEs (UPMC Supply Chain Management Division): 501

Conduit to CEO: Robert A. DeMichiei, CFO

GPO affiliation: MedAssets

Annual purchasing volume/supply expenses (FY2011 vs. FY2012):

2011

$1.7B

2012

$1.9B

Percentage of purchase orders transmitted electronically:

51%

Percentage of requisitions processed electronically:

100%

Division functions:

I. Clinical Supply Chain

a. Strategic Sourcing

b. Consolidated Service Center

II. Non-Clinical Supply Chain

a. Strategic Sourcing

III. Hospital Operations

IV. Materials Management

a. UPMC Transportation

b. Moving and Storage

V. Finance

a. Catalog & Content Team

b. Quality Assurance Team

VI. Procure to Pay

VII. Commercial Operations

VIII. Healthcare Pharmacy

IX. Supply Chain Systems & Consulting Services

X. Supplier Relations

Purchasing and contract management:

Centralized

Total annual operating expenses:

2011: $8.6 B

2012: $9.2B

Source: UPMC Health System, Supply Chain Management Division, June 2012
C-suite puncture

To bridge the historical gulf between supply chain management and the C-suite UPMC created the position of Chief Supply Chain Officer (CSCO), tapping Szilagy to "guide the team in expanding the reach of supply chain" after evaluating the health system’s challenges and developing a strategic plan to solve them.

"UPMC’s desire to create a CSCO is a clear indication of their belief that a progressive supply chain organization is not a luxury but a necessity in order to be able to compete and grow within the challenging healthcare environment," Szilagy said. "UPMC recognized healthcare’s lagging understanding of progressive supply chain practices and reached out to an industrial leader with world class experience."

Szilagy reports to the Chief Financial Officer. While UPMC does not have a Chief Operating Officer, Szilagy unofficially fills that role, even though he does not report directly to the CEO.

"A CSCO needs to have real time access to operational ownership of the organization," he noted. "It is more practical to align supply chain management with finance in order to optimally affect day-to-day operations.

"Our CEO sets the strategy for the organization and is engaged in the operations where appropriate, but allows his leadership team the freedom to execute on his vision across all operating areas," he continued. "The CSCO has day-to-day autonomy and decision-making ability for this $10 billion enterprise."

Yet Szilagy insisted that his non-healthcare background need not be a requirement for successful change.

"At the very least you need a strong and creative business leader who is willing to take on the high risk challenge of leading a very large multifaceted organizational transformation in an industry that historically has been reluctant to change," he advised.

Szilagy saw UPMC’s opportunity as the next phase of his career and a way to parlay his experience to make a difference for clinicians, administrators and patients.

"The opportunity to work in the healthcare industry was appealing to me in that by leading the transformation of the supply chain organization from an underperforming group to a high performing team I could contribute significantly to UPMC’s primary mission of providing outstanding patient care," he said. "Creating and managing an efficient and predictable supply chain for our clinicians and employees who care for our patients provides me with a personal and professional gratification beyond what I envisioned when I
joined UPMC."

Elevating supply chain operations’ stature at the top didn’t stop with the leader but extended more deeply into the division as UPMC "upgraded the talent level of the supply chain team," according to Szilagy. In fact, UPMC requires a Bachelor’s degree for "most" open positions, which has increased the number of degreed staff members. In addition, a number of staff members have earned Master’s degrees and one — Mary Beth Lang, R.Ph., MPM, ScD, vice president, Health Care Pharmacy and Supply Chain Management Commercial Operations — recently earned a doctoral degree.

"UPMC recognizes the value of experience but recognizes the critical importance of higher level training as it moves forward," Szilagy indicated. "UPMC has an education support system that continually encourages all employees to pursue personal enrichment and development."

Catherine Onorato, Lead Nurse, and Brian Haley, Supply Specialist, replenish stock in the Radiology Department.

Ray DiCaprio, Pharmacy Warehouser, Controlled Substance Specialist, checks inventory in the Healthcare Pharmacy Distribution Center.

Michelle Felice, Supply Specialist, replenishes PAR stock.

Tyrik Watson, MedSurg Warehouser, ships a completed order from the UPMC Consolidated Services Center.

Adam Sines, MedSurg Warehouser picks supplies in the UPMC Consolidated Services Center.

Setting up shop

Shortly after arriving at UPMC Health System in 2006, Szilagy created an internal "Supply Chain Management Consulting Services" group to evaluate operations and processes and to prepare UPMC for an automated end-to-end, procure-to-pay transformation over time that also would serve as a litmus test for supply chain expansion and centralization of supply chain operations.

He hired a former colleague from Alcoa with supply chain systems and e-business integration experience in the manufacturing, software and consulting services sectors to lead a team that "leveraged its combined experience across multiple industry sectors to drive automation/efficiency in the procure-to-pay and supply chain space." This group would tackle a variety of initiatives ranging from ERP application implementations to the project management of system-wide clinical equipment deployments.

Szilagy originally walked into a decentralized system of operations that didn’t extend to individual hospital materials management departments because of inherent distrust.

"Hospital operations were reluctant to cede control of materials management due in part to historical distrust in purchasing/supply chain departments’ ability to maintain appropriate levels of critical supplies," Szilagy noted. "Automation and transparent electronic data systems, which drive measurable performance, are the foundation that allow for these unfounded prejudices to be modified."

Since then, Szilagy’s team assumed responsibility for "on-site materials managers embedded in UPMC system facilities to ensure that any defects or process gaps are identified and corrected in a timely manner," he said. "The placement of these on-site managers has strengthened supply chain’s relationship with hospital administrators and nursing staff, who no longer have to question if a needed supply is available, or if it is past the expiration date when it is needed in the treatment of patients."

A supply chain process improvement team promotes and facilitates exposure to and expansion of central supply chain operations, and a value analysis team, led by a nurse with a Master of Business Administration, "encourages buy-in from clinical staff. While the nurse reports to the supply chain management division she also maintains a "dotted-line" to UPMC’s Chief Quality Officer. Her team "meets regularly with different clinical groups to discuss supply chain strategy and explain different organizational decisions, demonstrating the benefits of supply chain to the system as a whole," Szilagy said.

"The dotted line doesn’t represent a reporting relationship as much as it illustrates the connection to the value analysis governance structure we have established," he clarified. "Any organization regardless of size should have a governing body that provides oversight of the [value analysis] process and be the final stop for appeals. The point that needs emphasis is the definition of control. Even if supply chain ‘owned’ the value analysis nurse 100 percent and there was no matrixed relationship to a CQO, decisions made by the CQO would trump the supply chain decisions. The critical point of the matrix is the proactive synthesis of business processes that allow for [supply chain management] to make decisions and efficiently implement them without fear of competing initiatives or decisions coming from a Quality department. I encourage integration with a CQO or equivalent and believe it is the fulcrum on which SCM gains more control."

Last year, UPMC’s Supply Chain Division brought pharmacy operations under its umbrella after an in-depth assessment generated a green light.

"Assumption of pharmacy operations was strongly supported by the senior medical director, UPMC Hospitals, who perceived the strategy to align clinical services and supply chain as a significant opportunity to integrate clinical and business controls with strategy," Szilagy said.

"The bottom line and key driver is to demonstrate the synergistic value delivered by aligning pharmacy supply chain activity with the supply chain organization," he continued. "The fundamentals of contracting, buying, paying and distribution are equivalent. I think the order of events is critical to success. Assuming strategic responsibilities and outcomes without having supporting systems and talent is a recipe for failure. My recommendation is leading with an honest assessment of people and technology and building solutions accordingly."

In the current fiscal year, the supply chain division also integrated a newly acquired UPMC hospital, ramped up systems for a newly constructed UPMC hospital and relocated UPMC’s consolidated service center to a more centralized location, "accomplished with no disruption of service for the numerous entities that it serves," Szilagy said.

The supply chain division also assumed management of the system’s transportation operations from a third-party provider.

To reinforce their progress and success on every initiative, the supply chain division produces and shares a "structured status report" on a monthly basis for stakeholders.

Through a 7-step process (see sidebar online), UPMC Supply Chain Division develops sourcing plans and employs value analysis to evaluate and standardize products and remove physician and clinician practice variation, uses Cerner Pocket PC scanners and customized reporting of shelf inventory and purchasing trends to efficiently centralize distribution and stocking and manages a vendor justification process, tracking metrics monthly.

"Clinician involvement in the value analysis process is essential in order to understand the material differences in clinical product and services," Szilagy noted. "Controlling the purchasing channel and offering only those products which have been vetted and supported through an evidence-based process is the first step in understanding and reducing practice variation."

UPMC Supply Chain Division
by the numbers

In the first two years of eProcurement participation, UPMC Supply Chain Division reported increased efficiencies and cost savings from front-end (electronic procurement) and back-end (electronic transactions/payment) operations.

  • UPMC improved procurement cost as a percentage of spend to 0.45 percent (vs. the "World Class Benchmark" of 0.63 percent and the "Cross Industry Average" of 0.82 percent).

  • Purchase orders per buyer currently stand at 11,933 annually (vs. the World Class Benchmark of 7,564 and the Cross Industry Average of 3,433).

  • Cost per purchase order is $2.76 (vs. the World Class Benchmark of $8.69 and the Cross Industry Average of $15.42). UPMC declined to reveal the name of the research firm that provides the World Class Benchmarks and Cross Industry Averages of Fortune 500 companies within and outside the healthcare industry.

  • 100 percent electronic-enabled (All PO-based requisitions originate via eProcurement).

  • 77 percent of PO lines are contract compliant.

  • 85 percent of spending managed by eProcurement.

  • 40 percent reduction in time dedicated to managing the Item Master.

  • Almost half of 340,000 POs are fully automated.

  • Contract compliance increased 40 percent.

  • Users spend 30 percent less time to shop/order.

  • Since June 2007, the number of users has increased to nearly 80 percent from 15 percent with a 94 percent end-user satisfaction rate.

  • To date, the work of 25 full-time equivalents shifted to strategic operations from transactional activities.

  • Supply chain also redirected resources for five data entry positions to two senior sourcing positions, each of whom strives to save the facility $1 million per year.

  • EDI transaction costs have been cut in half with guaranteed 100 percent electronic transactions regardless of the supplier’s capability levels.
IT makes a deal

Information technology served as the cornerstone of UPMC Supply Chain Division’s ultimate development and progress.

"Objective data is the foundation for all good business decisions," Szilagy assured, matter-of-factly.

In fact, IT and data collection and analysis fulfilled the "culture of automation" that Szilagy strove to manifest from the start. Such data would open doors and pave the way for the supply chain division to assume its rightful oversight of product and service evaluation, acquisition and implementation among UPMC’s more than 20 hospitals, 400 clinical service locations, an insurance services division and a growing international and commercial services division in which Szilagy’s team plays a key role. UPMC, which generates $10 billion in annual revenue, also maintains relationships with more than 12,000 active suppliers.

Case in point: Eight years ago, UPMC’s supply chain was being smothered in paper. To wit, more than 220,000 paper requisitions and purchase orders were filed in 2004 alone.

"UPMC’s culture of automation was an intentional and critical step as it drove data analytics to support more accurate contracting and was a prerequisite to overall resource optimization," Szilagy told HPN.

That culture superseded traditional "bread-and-butter" functions, such as contract negotiations and inventory management.

"An efficient and reliable procure-to-pay process is a ‘bread-and-butter’ supply chain function in my opinion," Szilagy corrected. "It’s about ROI. Focusing on automating the procure-to-pay process creates multiple sources of value. First, you drive contract compliance by establishing a defined, easy-to-use tool [or] process for your organization to purchase goods and services with workflow aligned with the signatory policy. [That’s] further enhanced by an electronic marketplace that not only makes it easy for users to find what they need, but also guides them to targeted items to ensure optimal value. When resources are not consumed with transactional activity eliminated through automation, they can focus on delivering value through creatively optimizing contracting for a broader set of spend categories."

Yet, Szilagy cautioned against explaining what they accomplished as a "linear" process.

"While we were addressing the IT components, we were looking at all of the functions of supply chain in improving all of the areas, which included, building a value analysis program, increasing resources in sourcing, adopting category management and utilizing the data that was made available through IT."

Supply chain’s efforts catalyzed its "evolution from a heavily tactical, paper-laden operation into an efficiently electronic one, freeing supply chain staff to focus more on strategic activity and enabling clinicians to spend more time with patients," he summarized.

Relying on manufacturing industry experience, Szilagy’s team started by re-engineering its purchasing and accounts payable processes to use an eProcurement platform for contract compliant electronic requisitions.

"This was a vital step toward implementing a totally automated supply chain that could accommodate the creation of purchase orders sent electronically to the suppliers, who in turn could issue electronic invoices that match the purchase orders, significantly reducing match exceptions," he indicated. "It also helped to reallocate resources by re-engineering the A/P and Buyer function within UPMC’s rapidly growing system. The new eProcurement system was an effective solution to operating expense pressure, including reducing staff, cutting the cost of invoice processing, managing cash flow and gaining greater visibility into A/P and Procurement processes."

Rather than sign a contract with a third-party commercial system they opted to develop and use their own in the form of Prodigo Solutions.

"We determined that we needed to move forward with a solution that was healthcare provider-centered and not attempt to fit a third-party solution designed to support other verticals to the specific needs hospitals face now and into the future," Szilagy said. "We can ensure that the product will evolve and stay ahead of the ever-changing healthcare environment. We believed, and continue to believe, that a highly flexible solution with a small IT footprint is correct for healthcare providers, whatever their size or complexity.

The relationship was mutually beneficial, according to Szilagy. "Supply Chain as user and content expert serves as the research and development site for Prodigo Solutions," he added.

STAT MedEvac Flight Crew and ER Nurse. UPMC’s supply chain team not only sources the aircraft, but parts and fuel, too.

UPMC initially worked with the Global Healthcare Exchange (GHX) to adopt and implement eProcurement transaction capabilities, which enabled UPMC’s Supply Chain Division to connect with medical/surgical suppliers that participated in the GHX network. This covered approximately 60 percent of its suppliers and 55 percent of its total invoice lines through a single e-commerce exchange connection for sending orders to suppliers and receiving order acknowledgements, shipping information and electronic invoices.

Because the remaining 45 percent of invoice lines came from about 5,000 suppliers that didn’t transact business through electronic data interchange (EDI), UPMC’s Supply Chain Division contracted with another software-as-a-service supplier to convert paper invoices to electronic invoices, eliminating the manual work of entering invoices into the UPMC enterprise resource planning (ERP) system and instead focusing efforts on the resolution of discrepant invoices and other complex payment issues, Szilagy indicated.

"UPMC’s solution was to leverage a provider of optical character recognition (OCR) services, a generally available solution to deal with the remaining sub-optimized invoices," he noted. "We are still forced to use this because of the continued immaturity of the healthcare market, relative to electronic invoice processing."

Since then, UPMC migrated this service to a platform offered by its Prodigo Solutions subsidiary, ProdigoXchange, which enables them to send POs from non-EDI compliant suppliers through the exchange by converting electronic purchase orders to XML files or e-mails for routing to the appropriate suppliers, which can reply with electronic acknowledgements and invoices, according to Szilagy.

"Procurement Specialists (which are buyers) and Catalog Content and Data Integrity Team personnel are proactively sent personalized reports and data via e-mail so they don’t need to sift through data by login to another application," he noted. "Automated e-mail alerts notify individuals when specific action is required, allowing personnel to stay on task."

Through Prodigo tools, UPMC managed to funnel 100 percent of PO requisitions and 80 percent of spending through electronic procurement. Moreover, nearly half of all POs are fully automated. As a result, in less than two years Szilagy’s team recorded a 40 percent reduction in time spent on managing the Item Master, a 40 percent increase in contract compliance and a 50 percent reduction in EDI transaction costs, all of which translated to $3.5 million in annualized hard-dollar savings to date.

Early efforts to convert to electronic forms from paper ones using first-generation tools and voucher modules were rife with shortcomings, according to Szilagy.

UPMC Health System Chief Supply Chain Officer Jim Szilagy in his element.

"At first, users continued to reinvent the wheel with many of the orders they placed, leaving supply chain out of the loop," he said. "Users initially sent their requests directly to suppliers without involving supply chain and in turn had invoices sent directly to them. This resulted in no visibility regarding how many disbursement requests were out there or what they were for because they weren’t being entered into a cohesive system. The initial eProcurement tools had limited search functionality and did not allow for quickly finding contracted items. This led to 80 percent of orders being entered as ‘free-form’ or as special requests that required excessive time from the buyers who had to qualify orders, confirm prices, check vendors and decipher what the requestor was trying to order."

Today, end users can click on a single link to access a hosted application containing more than 2 million contracted items as well as contract terms, searchable spreadsheets and aggregated data from supplier Web catalogs. "Customized reports are sent daily to buyers, including information on backorders, price changes and out-of-stock situations, enabling supply chain staff to focus real-time on critical activities without having to use multiple Web sites and passwords," he added.

Springing from that success, UPMC Supply Chain Division also added catering and purchased services into the eProcurement system for improved accountability and control.

Szilagy developed a "goal dashboard" for his teams, including Strategic Sourcing, Finance, Materials Management, Supply Chain Systems and Consulting Services, Strategic Sourcing for Clinical Supplies, Strategic Sourcing for Non-Clinical Supplies, Supplier Relations, Commercial Services, Accounts Payable, Quality Assurance, Catalog Content Team, Value Analysis, Travel Program, Employee Transit, Corporate Distribution and Pharmacy Operations. He routinely shares goal progress reports, divisional initiative reports and other data with C-suite executives, he indicated. "These communications provide a transparent view into supply chain management activities strengthening our credibility with UPMC’s leadership team and employees," he emphasized.

Prodigo’s prodigy

Not every supply chain professional has the opportunity to participate in a genuine revenue-generating enterprise for his or her organization. Typically, they’re too busy trying to control the other side of the balance sheet. Not so for Szilagy’s team.

"As the originator and test lab for what eventually became Prodigo Solutions, UPMC is, and continues to be, the poster child, and happily can report that several other healthcare providers have seen similar value in Prodigo by becoming Prodigo customers," Szilagy said. In fact, commercial customers exist across the nation and around the world.

As a wholly owned UPMC subsidiary legally operating under UPMC’s International and Commercial Services division, the for-profit Prodigo Solutions remains separate from UPMC’s not-for-profit functions. Szilagy wears the two hats in stride, along with his group.

"Several members of UPMC Supply Chain’s senior leadership allocate portions of their time to guide the strategic development of Prodigo Solutions as well as providing operational oversight," he noted.

And they’re not finished yet. Within the next year, UPMC Supply Chain will implement a warehouse management system at the CSC, fully integrate a recently acquired hospital, deploy PeopleSoft eSupplier Connection to allow suppliers to inquire on their own POs, invoices and payments, and fully integrate McKesson Automation Pharmacy Devices to Oracle E-Business Suite.

"UPMC SCM is attacking inefficiency and waste in an era of reform that demands this intensity," Szilagy noted. "As the healthcare industry moves forward with uncertainly, what is certain is that Supply Chain Management at UPMC will be ready to answer the call."

UPMC Health supply chain team shares strategies, tactics for success

UPMC Health System Chief Supply Chain Officer Jim Szilagy and a quartet of senior-level colleagues revealed to Healthcare Purchasing News their team’s attitudes and motivations behind what, how and why they do what they do with valuable insights on what makes them so successful. Commenting with Szilagy are David Hargraves, vice president, Clinical Supply Chain; Mary Beth Lang, R.Ph., MPM, ScD, vice president, Health Care Pharmacy and Supply Chain Management Commercial Operations; Michael DeLuca, senior director, Supply Chain Solutions & Consulting Services; and Patrick Flaherty, director, Supply Chain Management.

HPN: What’s the secret formula that makes a leader in supply chain management? How does your department implement that secret formula?

SZILAGY: The basic formula includes integrity, a passion for learning, a fearless commitment to growing and promoting staff, and the ability to continually execute to a strategic plan. Execution of this formula is self-promulgating if the professionals hired match this profile.

The next big trend in healthcare supply chain management will be...what? Why?

FLAHERTY: The next big trend will be in the move away from a cost-based approach to a value-based approach. A value-based system is in accord with the ACO/Bundled Care model and more naturally aligns with population management.

Some in the “C-suite” have criticized materials managers for being too technical and not strategic enough to “join their club.” Do you agree? Why?

LANG: The answer to this is entirely dependent on the context in which it is considered. At first blush, one could easily say “yes” given the tactical demands placed on material managers as a whole. I think the better question to ask is whether those in the C-suite are prepared to address, let alone embrace, the very real strategic recommendations that an empowered materials manager could put forth.

What specific project did your department complete where you felt they didn’t lived up to your expectations?

HARGRAVES: Our initial efforts on orthopedic implants, while moving us forward, were not comprehensive and dynamic enough to deal with the ongoing operational demands placed on this spend category. We have since addressed this initial shortfall and more than compensated in our subsequent strategic management of this category.

What specific project did your department complete where you felt they exceeded your expectations?

DELUCA: The design, build and deployment of our eMarketplace application, [which is] now a commercialized product through Prodigo Solutions. This single application, used by more than 7,000 users across the health system ensures compliance to contract, creates an efficient customer experience and flexes to whatever sourcing strategy we deploy. Compliance at the point of requisition has been the keystone to enable downstream automation.

If you could change one thing about your facility’s corporate resources and materials management department, what would it be and why?

HARGRAVES: Healthcare, as an industry, does not make the same significant financial commitment to formal educational support as can be readily found within industrial segments. I think a more progressive approach to providing a material subsidy to professionals seeking to further their education would allow healthcare to better compete in hiring and retaining top supply chain talent.

In your opinion, what is your department’s toughest administrative challenge? How might you solve it?

SZILAGY: I think the toughest problem is to continually function within a tactical space where success is generally measured primarily in cost reduction. I believe the migration to value-based purchasing and contracting will require the practical use and execution of the strategic skills that many supply chain professionals have but have not been fully leveraged within the healthcare market.

What is your department’s toughest operational challenge? How might you solve it?

HARGRAVES: The toughest operational challenge is finding and retaining clinical strategic sourcing professionals. Our solution continues to be a hire-and-train approach: Hire the best supply chain talent at the entry level and provide progressive clinical exposure and training in order to develop the specialized skill sets required for a high-performing clinical supply chain professional.

What are your top three priorities for the remainder of 2012 and for 2013?

SZILAGY: Consolidate and refine the business processes within our Pharmacy GPO, for which we recently assumed responsibility. Complete a strategic plan to address and support the issues and opportunities raised by the continued consolidation and affiliation of healthcare providers. Assess and prepare for the fundamental changes required to meet the demands of accountable care models.

What do you believe are some barriers to growth for your department in the future and how do you plan to overcome them?

DELUCA: IT resources. Supply chain management must continue to find ways to chart our own destiny as it relates to maintenance and proactive management of the applications/technology we use to run our business. While there will be a need for technical resources on the build/development of specific functionality or enhancements, we must use products and create admin tools to allow supply chain management business analysts to move the ball forward. This concept becomes critically important when you consider that static resource growth will be a reality…in other words, we need to continue to automate and find ways to do more with less. In some cases this will call for us to leverage the development abilities found in our for-profit business, Prodigo Solutions.

What’s the most enjoyable part of your department’s function?

HARGRAVES: The ability to directly impact the quality of the care and services we provide to our patients.

What’s the most difficult part of your department’s function?

HARGRAVES: Assessing the impact of differences in technology and applying it to the real-world of patient care where cost and quality each have an impact on delivering the best outcomes.

How does the CEO view your department? Does he or she see it as a strategic function or a support service? What resources can the department count on and will they come every year – and not just in response to clinician complaints?

LANG: The progressive expansion of this department, which now includes pharmacy distribution, medical/durgical fistribution (internal to hospitals as well as primary distribution), and employee transit, all essential to the continued day-to-day operations of this $10 billion enterprise, is proof positive that the CEO views UPMC Supply Chain as a strategic function.

What’s the one project or task you’ve always wanted your department to tackle but it has yet to pick up the ball?

DELUCA: Further design, test and deployment of strategic sourcing technologies. We have a robust 7-step strategic sourcing process but consistently deploying technology around the process will allow us to further optimize the process, collaborate more efficiently with our vendors, and drive down costs (through tools like reverse auction). Our organization will deploy PeopleSoft Strategic Sourcing in the near future as it fits our ERP strategy and we have it licensed.

What are some practical, common sense ways that supply chain managers can keep patient satisfaction in mind as they’re performing their duties?

FLAHERTY: The easiest way is the most obvious; consider yourself or your loved one as the ultimate end-user of the products and services you are directly or indirectly providing.

If you could change one public perception of your department, what would it be and why?

HARGRAVES: The perception that we do nothing more than compare costs and universally choose the lowest priced products. This perception, as far from the truth as possible, diminishes the significant strategic knowledge  required to develop and execute progressive category strategies which solve multi-factorial business problems.

What’s the one job/assignment your department probably should have turned down?

LANG: Executing a limited business strategy for affiliating with non-related facilities before all departments within the enterprise were formally aligned.

What’s the most creative thing your department has ever done?

DELUCA: Reinvents itself constantly. It is not any one project, but rather a culmination of efforts led by a dedicated, creative leadership team that drives our constant re-engineering. The continual transformation is striking and successful…as indicated by recent awards (Gartner 25 Healthcare Supply Chain Top 25, HPN Elite 18). More than the awards though, it is the comments of other large IDNs that visit UPMC that allow us to validate how much change we really make over a short amount of time.

How can supply chain managers collaborate with other departments and professionals and convince them that their decisions are based on the financial health of the organization and not in denying them quality products or dictating patient care as the clinicians might tell the CEOs?

HARGRAVES: Good data drive the ability to address this very real-world issue. A deeply knowledgeable and engaged supply chain professional, with a full working knowledge of the category (the products, how and why they are used, and the key quality drivers) can produce, in conjunction with other departments, a logical presentation that accurately represents the differences between incremental and material technological variations.

What advice do you have for professionals outside of healthcare wanting to enter into the field of healthcare supply chain management?

FLAHERTY: Healthcare as an industry is several years behind other industries in incorporating best business practices. Yet there is no more dynamic and essential industry on the face of this planet, and no other industry where the progressive practice of supply chain management can better serve as a catalyst for fundamental change, change that has the potential to impact each and every person living in this country.
 

7 steps for strategic innovation

Pittsburgh-based UPMC Health System’s supply chain division manages $1.8 billion in annual purchasing volume and processes more than 70,000 invoices and 4,000 requisitions each month. 

So it’s easy to understand why it cultivated a “culture of automation” to streamline operations and create “efficiencies of scale.” This way the supply chain staff could focus more acutely on strategic initiatives and spend less time on “traditional purchasing activities.” 

That’s why the supply chain team developed a 7-step process to oversee day-to-day operations for its internal customers in an effort to improve efficiency, maintain compliance in supplier management and rein supply chain’s importance to the organization. 

Here’s what it looks like: 

Step 1: Standardize Product Formularies

The Value Analysis Program, through the Value Analysis Steering Team and Specialty Value Analysis Teams, ensures the preservation and improvement of quality patient care while controlling costs and risks related to the purchase and use of products and services. FDA Class 3 medical devices must be evaluated through the value analysis process. Non-Class 3 products that have a unit cost of less than $100 are expected to be low volume in use and/or are from an approved vendor do not require a full review. 

Nearly 40 teams that span hospital purchasing from pathology and infection control, to cardiology, ophthalmology and surgical services, to environmental services and plant maintenance, carefully evaluate and select the best products and services that promote the highest quality patient care.  

Encouraging participation and compliance to these product formularies is rather cut and dry, according to Chief Supply Chain Officer Jim Szilagy. 

“Participation is required in order to vote, and non-participation is equivalent to disenfranchising the participating facility,” Szilagy said. “Compliance to these product formularies is a full function of the ubiquitous deployment of UPMC’s eMarketplace from Prodigo Solutions. Centrally controlling all purchasing channels is a great thing.” 

Step 2: Implement Custom Local Contracting

Due to success in the adoption of a culture of automation and the accompanying re-deployment of staff from tactical to more strategic activities, UPMC Supply Chain Management has been able to cultivate a “robust strategic sourcing team” that has shifted approximately 82 percent of total purchasing volume to local (non-GPO) contracts.

UPMC works favorably with MedAssets as its GPO. 

“We value our relationship with MedAssets as they provide a resource extension to our sourcing organization in terms of selected GPO contracts and some technology tools that UPMC Supply Chain incorporates into its operations,” Szilagy said. 

The team follows a structured seven-step process seen in Figure 1.

Figure 1 

This process ensures that, for all sourcing projects greater than $100,000 annually, the proper due diligence is followed and all regulatory requirements are met, Szilagy indicated. It has also allows UPMC to expand the breadth of sourcing that is handled by the supply chain sourcing team to include non-clinical and/or high expense categories such as travel, advertising, warehouse/logistics, construction and helicopters. 

“Sustained success and excellence drives the ability to control these expense categories,” he said. “The ability to execute world-class supply chain is what drove and continues to drive this type of control.” 

But electronic operations and data transparency contributes to the process, he acknowledged. “The automated operation is a key enabler to resource optimization,” he added. “Said simply; we can cover more categories with fewer resources because we are not consumed by the tactical activity many organizations are.” 

Step 3: Streamline Purchasing: Compliance at the Point of Requisition

UPMC Health System stresses one simple equation: Compliance equals savings. Senior leadership at UPMC directs and drives the standardization of systems and business processes. 

“Full Integration of the entire procure-to-pay process in conjunction with ProdigoMarketplace make it exceedingly difficult for non-compliant behavior,” Szilagy said. “This reality is supported at the enterprise level by strict management policies and procedures.” 

Currently, 85 percent of purchase order lines originate in ProdigoMarketplace, allowing UPMC supply chain to process 80 percent of them “lights-out,” meaning there is no human intervention in the process, resulting in significant match exception improvement, according to Szilagy. This eProcurement system offers better catalog control and improves both business compliance and reporting capabilities, he added. UPMC continues to explore avenues to further enhance P2P efforts with ProdigoMarketplace to mirror the typical online shopping experience, allowing any employee, not just experienced buyers, to accurately, efficiently and securely place an electronic requisition for their supply needs. 

“[Security is] an essential reason why we have integrated full workflow approval and strategic content boundaries into the ProdigoMarketplace and supply chain processes,” he said. 

Step 4: Optimize Delivery Logistics

UPMC Supply Chain manages centralized distribution operations for about 8,000 eProcurement requisitioners, from more than 6,000 active delivery locations, servicing 650 point of consumption carts and 500 unique physical buildings. The consolidated service center offers increased service capacity, supports projected future demand as well as the system’s growth strategy, removes third party costs, reduces waste and increases compliance to preferred vendors, generating more than $1.1 million in annual net savings. This centralization has resulted in reduced headcount through the streamlining of processes. Hospitals are now able to stock less inventory and can anticipate supply deliveries by set schedules. 

They’re even open to offering its CSC services to non-UPMC facilities as a supply chain management-driven revenue-generating operation, Szilagy acknowledged. “UPMC will consider all opportunities for optimal return on investment generation of CSC services,” he said. 

Step 5: Drive Compliance

Approximately 60 percent of clinical supply categories are physician preference items (PPI), and the benefits of tight PPI control are substantial, according to Szilagy. Strong control of PPI also leads to increased compliance in other spend categories, he added. UPMC’s supply chain has achieved more than $100 million in hard-dollar savings since 2008, primarily from PPI spending categories. UPMC continues to work toward improved PPI compliance by including physicians in the value analysis and product selection processes, incenting them to perform with a tiered rebate structure and increasing program transparency with spend reporting, he said. 

Just don’t label this gainsharing. 

“The tiered rebate structure should not be considered as gainsharing,” he emphasized. “UPMC does not currently utilize this approach. Our tiered rebate structure should be perceived as a preferred supplier strategy, which incents behavioral modification based on increased financial value to the enterprise.” 

In short, better financial performance remains the key incentive, Szilagy stressed. “Supply Chain is part of the Finance Department as are all of the CFOs. We leverage the accuracy of our financial information to highlight variation in supply expenses and integrate the CFOs within the decision-making process. This alignment, when coupled with the purchasing channel controls leads to compliance.” 

Step 6: Evaluate Supplier Performance

Using a systematic, process-driven and technology-enabled sourcing approach, UPMC measures suppliers through a variety of quantitative metrics in the following categories: Quality, delivery, cost, responsiveness, innovation, risk, [corporate social responsibility] and customer complaints. UPMC employs a formal vendor justification process to evaluate all new suppliers and maintains a supplier scorecard to ensure that factors other than cost alone are considered in the vendor selection and ongoing performance evaluation process. See Figure 2. 

“Our defined and stringent buying process strategy is our primary means of controlling off-contract purchases,” Szilagy noted. 

Figure 2 

Step 7: Close the Loop: Experience Improves Processes

By continually monitoring the work accomplished through the first six steps, UPMC Supply Chain holds itself accountable to all stakeholders, according to Szilagy. Common metrics across payer-provider tracking for clinical and financial outcomes create value and place UPMC in a position of strength moving forward to build sustainable programs that will deliver quality and use resources efficiently, he added.