Laboratory: Final frontier for performance improvement?

Supply Chain aims to boldly go where limited value analysis has gone before

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Should the core Laboratory become a testing ground for Supply Chain facilitation?

Among the leading top-line revenue streams and bottom-line cost centers in a hospital, the core Laboratory as a service department ranks at least as high as the direct patient care areas, including Surgical Services, Critical Care, Emergency Department, Diagnostic Imaging, as well as the specialties, such as Cardiac Catheterization Laboratory and Interventional Radiology.

And yet, over the years, the core Lab seems to remain relatively undiscovered territory for many Supply Chain departments that can share their expertise with pathologists who need to control costs and better manage supply and equipment purchasing as they provide a valuable service to patients.

Some experts contend that forward-thinking Laboratory leaders, working with resolute Supply Chain leaders, have been making some remarkable strides in bolstering Laboratory budgets and reinforcing performance improvement in the areas of product evaluation, contracting and purchasing. (Editor’s Note: For more additional examples, check out the July 2010 and November 2013 editions of Healthcare Purchasing News or search HPN Online for Supply Chain and the Laboratory.)

From adopting centralized ordering and purchasing to implementing Lean management, these organizations push the boundaries of what has been possible all along but were largely unable to punch through whatever artificial barriers prevented such progress.

Yet if Supply Chain wanted to introduce process efficiencies in the Laboratory, is it as simple as replicating in that area what Supply Chain has accomplished in the OR and other areas? Record and share data, recruit clinician participation and support, trumpet successful outcomes in a “wash-rinse-repeat-like recurring cycle?

Mixed signals

Unless financial pressures force lab accountability, Lab leaders tend to pull the Byzantine card, dismissing Supply Chain as being “incapable of managing the lab’s unique supply chain demands.” In short, outside of a clutch (cost crisis), rely on a crutch (convenient excuse).

The refrain sounds eerily familiar.

During the healthcare reform movement of the 1990s many Supply Chain leaders faced similar pushback from OR leaders and physicians conjuring up clinical pathways in reaction to threatened reimbursement reductions by payers, budget cuts by hospitals and economic credentialing of physicians patient-care decisions. Supply Chain simply didn’t understand the needs of the OR and the surgeons, no matter how many nurses they recruited to oversee value analysis projects and serve as clinical liaisons, and no matter how many “Show docs the data!” educational sessions they attended.

Several prominent lab-focused suppliers declined to speak with Healthcare Purchasing News about the prospective financial and operational discipline Supply Chain could contribute to the core Lab, but several general suppliers who provide services to core labs echoed the impression of a gulf between the two departments.

“Most hospital supply chains are not set up to manage their inventory on a ‘demand-driven’ basis,” noted Glenn Tamir, Vice President, Sales & Business Development, Chicago-based Supplymind LLC. “The unique challenges of effectively managing laboratory supplies require this type of system.”

Matthew Miller

From Matthew Miller’s point of view, core labs within healthcare provider organizations remain “very segmented” and “very specialized” with “very different needs.”

“In both Supply Chain and Laboratory departments, patient care and outcomes are paramount,” said Miller, Business Development Manager, TRIOSE Inc. “However, each department adheres to the best practices within their areas of discipline. Supply Chain is held to cost reduction, while laboratories must do everything possible to satisfy the patients’ needs, regardless of cost. We’ve noticed an inherent tension between Supply Chain and Laboratories. Without looking at the bigger picture of an integrated and optimized supply chain, we understand how it can be difficult for each of these departments to draw parallels of best practices between the two.

“Those who operate tightly within their discipline may wonder, for example, ‘Why would a laboratory want to mimic a surgical center? Why would a pharmacy want to mimic a distribution center? Why would a box of gloves be treated the same as a lab specimen?’ Miller continued. “The reality is that optimizing best practices across the entire supply chain will, in fact, streamline cost and operations, making more resources in the health system available for patient care.”

Chris Dean

Chris Dean, Vice President of Lab Sales, Acute Care Sales division, Medline Industries Inc., Mundelein, IL, concurs. Although Dean says his company only entered the hospital laboratory market five years ago, he and his team have witnessed the disconnection as communication barriers between two specialized functions.

“Due to the specialized nature of each department, best practices are not always shared across disciplines,” Dean said. “Optimizing the entire supply chain and identifying best practices to employ across the healthcare system can drastically enhance operational efficiencies and reduce costs. However, because Laboratory departments are so specialized, Supply Chain professionals often are unable to convince the labs to follow supply chain best practices.

“Oftentimes, there is a lack of understanding of the laboratory business, and Supply Chain departments are not necessarily bridging the gap between supply chain services and lab,” Dean continued. “They need to better understand the needs of each other and the goals they have with respective departments. Many times that can be done with Value Analysis Committee or Lab Committee/Supply Chain Committee to work towards those common goals.”

Dean indicates that understaffing and a lack of resources may prevent Supply Chain from helping Lab manage its services efficiently or effectively. Looking forward, as hospitals strive to enhance operational efficiencies and increase cost savings, Supply Chain needs to get more involved with managing hospital lab expenses as they count on that department for savings opportunities, according to Dean.

David Boyce

At Carolinas HealthCare System, Charlotte, NC, David Boyce, CMRP, Vice President, Materials Resource Management, represents one of a small number of Supply Chain executives partnering and working successfully with the Lab for the last several years.

Boyce acknowledges that an off-side, out-of-sight mentality typically feeds the schism between the two departments to the point that it’s almost like a sacred cow.

Supply Chain helping Laboratory cost-effectively manage its products and services generally is seen as “out of scope” by both departments, according to Boyce. There’s a barrier to trust and doubt about whether Supply Chain can manage Lab’s supply chain as effectively, he added.

“Historically healthcare supply chain has been defined in a limited space of medical/surgical supplies,” he said. “Areas such as Pharmacy, Lab and Operating Room have ‘always’ managed their own supply chain.”

Another complaint is that “lab supplies require special handling that Supply Chain doesn’t understand,” Boyce continued. “There are unique characteristics with many lab supplies, such as refrigeration, lot control and reagent rental contracts. These challenges will fit into the basics of demand, lead time and safety stock, but only after collaboration with the lab and suppliers. The years where Lab has managed its own supply replenishment creates a trust barrier”

Boyce emphasizes the stories behind Lab’s products should be considered, recognized and respected by Supply Chain.

“All items used in our facilities have a story and to be successful in supply chain, we must understand that story and bring solutions that maintain or improve lab supply service levels,” he said. “Establishing common goals around fill rates, understanding all the individual “stories” each lab supply item has and building a robust supply chain model across the enterprise is critical. Success is paramount to the establishment of trust and hitting the common goals.

Three years ago at a session on lab purchasing during the AHRMM conference in Orlando, Boyce spoke about his team’s initial struggles but ultimate success with the lab team. Back then, he quipped that fill rates, which can frighten clinicians on the nursing floors and in the operating room, weren’t so much an issue in the lab. “We have enough that if [our vendor] missed four days of deliveries, we’d be fine,” he told attendees. “Labs still have to trust fill rates.”

Blocked chain

Before Supply Chain even can advise Lab on contracting, pricing accuracy and reduction, product tracking and tracing, and replenishment it has to be invited in, once Lab recognizes and acknowledges — or is told — that it has some problems.

“Supply chain is often blocked by the laboratory themselves,” said Medline’s Dean. “Hospitals labs have traditionally had their own budget and the autonomy to buy what they need. However, the changing industry has forced them to collaborate to enhance the hospital’s bottom line.”

Resources represent another issue, according to Boyce.

“Supply chain management is not a resource free flow,” he noted. “In fact, one of the primary components is material associates managing conveyance and replenishment in the supply chain. To do the job well, lab resources that are currently managing materials must be transferred to Supply Chain. In our system, we want to ensure that each teammate is working to top of license. Allowing lab technicians to return to bench production adds great value to the patient experience, and managing products with trained material associates increases the value of the supply chain.”

Sheer volume can pose a challenge, Supplymind’s Tamir argued.

“There are a huge number of SKUs in a typical laboratory, numbered in the thousands,” he said. “This is something that only the Pharmacy department compares with. On top of that, the lifecycle for many of these items are quite short, with expiration dates that are very tight — especially by OR and surgical supply standards.

“This is why it is critical to have an effective ‘demand-driven supply chain’ in place, and one that incorporates statistical forecasting so that inventory levels can be tight without either excess or out-of-stock risk,” he continued. “In fact, being able to offer suppliers visibility into their product’s inventory, enabling a vendor-managed inventory process, allows suppliers to effectively manage, and be responsible for, their products.”

Transporting surgery sample specimens offers a common challenge, according to Dean. “They have to constantly think about whether it’s being put into the proper container and how the specimen is stored,” he said. “Point-of-care testing is also very important for pre- and post-surgical procedures. This helps maintain patient’s blood levels before, during and after procedures.”

Don’t overlook the importance of shipping and the contents of the shipment or package either, Miller urges.

“While all shipments are important, there’s always an emphasis on the next shipment,” Miller said. “The key difference with Laboratory is the sense of urgency for each particular shipment because you must manage delicate, temperature-sensitive, life-altering cargo that directly affects the patient(s) and their family and friends.”

Channel wins

Despite any suspicion and tension, Supply Chain can reach out to and work with the Lab to help them manage costs via contracting, purchasing and replenishment.

“One way to build the success would be to start small with one Lab sub-department,” Boyce advised. “All necessary supplies will need to be identified, as well as replenishment tactics and any special handling requirements. Once the supply chain structure is built, stand it up and refine until it proves the value and establishes trust.” (See sidebar, next page.)

Communication and mutual education establish the roots, according to TRIOSE’s Miller.

“To overcome some of the inherent industry language differences between Supply Chain and Labs, educate the Lab with specific examples where a few small changes can mean big savings,” he said. “Given the critical role Labs have in healthcare, we need to help them identify how they can enhance trackability, efficiency and timeliness without risking costly and unnecessary expenses.

“It is critical for supply chain professionals to understand the specialized needs of Laboratories in order to introduce specific solutions to help them improve performance without increasing work load,” Miller continued. “We believe that breaking down the communication barrier propels a greater understanding of the labs’ needs, as well as some of the dangers they may face by not adapting to effective best practices in supply chain optimization that can help them properly manage key concerns, including costliness and lack of trackability.”

To overcome the challenges and help bridge the gap between Supply Chain and Lab, Medline’s Dean encourages Supply Chain to form a Value Analysis committee to figure out annual spending costs within the department. This committee should include someone from Laboratory and Infection Prevention because they’re usually a part of laboratory services, a representative from the Finance department and someone from Materials Management, he noted. Together, he added, they can help drive standardization and savings efforts with real-time data on supply movement and expenses.

Price transparency is crucial, too, Dean argued. “It is important that Supply Chain and Laboratory work together to ensure their vendor is informing them of price changes on supplies and pricing accuracy,” he added.

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