supply chain mantra: Change before you have to
by Joseph M. Dudas
the reform machine starts healthcare may never look the same. And, as
[Former General Electric Chairman and CEO] Jack Welch may have said it best,
"Change before you have to."
To truly change, we are going to need to
master the essential skills to lead this change. In the past, one or two
"change agents" might have muscled their way through. However, that is not
going to cut it.
The change we are facing will not be
isolated to our own internal organizations (in other words, this is much
bigger). This is why the Mayo Clinic Category Management Team recently
ranked talent management as our highest priority (and right behind that
supplier relationship management). It is our people that are and will be the
foundation of our Supply Chain of the future.
Category Management is new for us and what
better place to start as we learn and adopt this strategic philosophy in
healthcare. At Mayo we have identified six core competencies and 30 of the
most important skills that we believe are needed to be successful. Following
is a summary:
• Analytics – Spend Analysis, Financial
Analysis, Price Decomposition, Benchmarking, Strategic Tools
• Purchasing – Project Management,
Negotiations, Risk Analysis, Legal, Cross Functional Teamwork
• Supplier Relations – Supplier Management,
Performance Measurement, Relationship Management, Continuous Improvement,
• Personal Effectiveness – Collaboration,
Communications, Facilitation, Adaptation, Time Management
• Sourcing – Methodology, Strategy
Development, Breakthrough Thinking, Stakeholder Management, Supply Market
• Technical – Requirements Development,
Information Technology, RFx, Auctions/Group Buys, P2P
We then defined five behavior scenarios
that align with each skill (ranging from "learner" to "expert"). For
example, a learner in the area of "spend analysis" might be someone who may
benefit from but not be involved in the creation of the analysis. An expert
would someone who could coach others on both the creation of the analysis
and its use.
We then completed a formal skills
assessment with everyone in the organization including both a
self-assessment and interview led by an outside consultant. What we found is
that we have a very strong foundation in Supply Chain skills, such as
"Purchasing Essentials," but we have opportunities to grow in the other
This is quite normal for any organization
going through this type of change and generally what we expected. In other
words, we are very good at managing the process to create supply agreements,
but we lack some of the skills needed to fully leverage a supplier
relationship. In order to think and act strategically, we need to develop
strategic planning skills as well as master the tools needed to stimulate
breakthrough thinking and innovation. By no means is this meant to be overly
critical towards our staff as I believe we have some of the most talented
employees in the industry. The issue at hand is that we (our organization)
can and will get better. We have to. As a result, our next step will be to
develop and execute plans to close these gaps.
Now, I know what you are thinking. What
good is it to develop the type of skills necessitated by category management
if the suppliers continue to operate the way they always have? This brings
us to one of the key differences between "Strategic Sourcing" and "Category
Management." It is Supplier Relationship Management. In parallel to our
Talent Management Program, we have also recently launched a "Supplier
Program." It encompasses the "Supplier Management" concepts of the past
(with a few twists) but also a new "Supplier Relationship" component.
Supplier Management is a basic program that
is built on establishing key performance indicators, a scorecard and a
business review. Most would agree with this definition and that execution of
such a program with your primary suppliers would be a best practice, and we
The following process may give you a better
idea of what we have in mind (for Supplier Management):
1. Establish a few, 5-10, key performance
2. Create a scorecard for each supplier for
a given category.
3. Meet with each supplier and share the
results with them.
4. Establish a plan to improve.
5. Put the plan into action.
What we will do differently this time
around is measure only those things that are critically important and
instead of measuring one supplier at a time we plan on reviewing all the
suppliers in a single category at the same time. These changes will give us
the focus and scale needed to be successful.
However, "Supplier Management" is a program
modeled after our current organizational skills and while there is always
room for improvement this is the way we do business today (capitalizing on a
few basic levers such as market share and price optimization). That brings
us to the concept of "Supplier Relationship Management". We have decided to
also augment our category management process with a formal "Supplier
Relationship Management" program and methodology. This is very different in
that it is not a "management" process it is a "relationship" process.
We will be adopting a strategic business
planning process with formal objectives, research efforts, strategy
development and an implementation plan. Our primary goal is to break free of
our current time based contracting cycle so that we can fully focus our
attention to those areas that will have the best overall business return.
Our objective is to master the skills mentioned earlier and to engage a few
"partners" in our strategic planning process. I think you would agree that
this is quite different from "Supplier Management" and how buyers and
sellers work today in our industry. We believe this is the type of program
that will fully leverage our supplier’s full capability.
The following process may give you a better
idea of what we have in mind (for Supplier Relationship Management):
1. Complete business intelligence review
including surveying experts, market analysis, research papers, review of
2. Complete a strengths, weaknesses,
opportunities and threats (SWOT) assessment for the category.
3. Create a Mission, Vision and Objectives
for the category that aligns with the Mayo Clinic strategic plan.
4. Establish a 3 year plan with emphasis on
the next 12 months based on the biggest opportunities to provide an impact
and create breakthroughs.
5. Align resources to the plan.
The key to this type of effort is to first
obtain the skills needed for strategic planning and second to think
differently on how a "partner" can assist in this process.
In the retail industry, Category Managers
have what they call "Category Captains." Category Captains (a supplier
organization not an individual) assist the Category Manager with product
selection, pricing, promotion and merchandising strategies.
In healthcare, we don’t sell products so
will need to take a step back to adapt the philosophy rather than the
mechanics. That is, we need to involve our suppliers in the "strategy" part
of our process. I believe this can be effectively done but it is going to
take a willing and able supplier. What is in it for us is a supplier-based
viewpoint, and what is in it for them is just the opposite (first hand
insights from a provider). What is going to be tricky is to not lose what
has made us successful to date, a very competitive market place. For that
reason, we are going to pilot with two categories this year.
We hope these thoughts help you and your
organization and we look forward to your insights on this important topic
With the recent decision by the United
States Supreme Court to uphold the Patient Protection and Affordable Care
Act, we need to re-emphasize our need to change. It is important to
recognize that healthcare organizations face many challenges. Beyond
healthcare reform, we are facing a declining commercial reimbursement, aging
population, changes in demand, increased regulations, soaring costs of new
technologies and ongoing economic uncertainty. These challenges have forced
Mayo Clinic to institute efforts to significantly reduce our operating
expenses. Our plan is to function effectively at Medicare reimbursement
Some of our suppliers have already stepped
up and proactively brought price decreases as well as innovative ideas on
driving cost out of the supply chain. To be successful we will have to work
together and be open to new ways of thinking. Unfortunately, I think we need
to revise Jack Welch’s quote for healthcare to "Change because you have to."
Joseph M. Dudas serves as vice chair of
category management at the Mayo Clinic where he is responsible for all
strategic sourcing, contract administration and informatics. To read all of
his articles, visit HPNOnline and search for his byline.