5 Ways to Prevent or Correct Supply Chain Failure

When you work in healthcare supply chain you are entrusted with operating complex product selection, procurement, and logistic systems that provide critical product to healing hands. But it is more than boxes of supplies and crates of equipment we are moving. These are the tools of the healing ministry, and MONEY. A lot of money. A solid half of what the health system will spend is directly in your trust.

For the most part, I would say that we feel like we are held accountable for our participation in the delivery of quality care, and we feel the weight of fiscal responsibility for the trust we are given… But as new economic challenges on the horizon become current realities, we need to hold ourselves to account for comprehensive fiscal stewardship with increasing rigor.

To get started challenging ourselves with demonstrating that we are living up to our responsibility, here is a list of just 5 things supply chain leaders fail to do.

Challenge 1: Failing to demonstrate contract performance accountability.

Corrective action: Solid methods to assess, diagnose, inform and compel correction on compliance, off-contract buys, over-payment for contract items, under-payment for rebates and fees, full contract implementation, and contract-related cost savings.

Result: High reliability contracting, currency of discounts, optimized contract value. If this is an area of improvement the potential value proposition range is comfortably 7-15%.

Test yourself: What is your contract penetration as a % of spend? How has that improved year-over-year? What is the last over payment recovery result, and how has that improved since the last time the service was performed? How long is the mean contract implementation cycle to get to full compliance? 85% compliance? 50% compliance? What is your over-all compliance ratio today?

Challenge 2: Failing to demonstrate competent 3-part match.

Corrective action: Integrate suppliers as accountable partners in getting the order and pricing correct ahead of shipment. Deliberate demand management continuous improvement. Specific responsibilities to manage invoice price discrepancies within 24hrs of invoice receipt. Make contract pricing corrections with supplier to stave off repeat pricing issues, and have a specific action requirement for repeat offenders. Set performance baseline and corrective strategies for RNI/INR (Received not invoiced, invoiced but not received) A/P cycle time, and invoices out for coding and approver sign-off. Drive utilization of e-invoices.

Result: Minimized suspended invoices and vendor credit holds. Maximized early pay discounts. Where this area is deficient the financial loss is commonly 1-5% of affected spend, but the interruption of service and the effects of simple operating distraction are devastating and demoralizing to the A/P and supply chain team.

Test yourself: What is your current RNI/INR, and invoice $s suspended for coding and approval, and how have those amounts changed over time? What % of available early pay discounts are taken? Current % of e-invoicing?

Challenge 3: Ignoring or down-playing reverse supply chain asset recovery.

The value proposition we are building on is based on an industry assumption that +/- 45% of an assets value erodes with ineffective reverse supply chain management… Most of that is simply lost to the ravages of time. Asset depreciated value, general condition, short-dated inventory, unrecoverable tax value, and lost or unrecoverable product. Effective practitioners of reverse supply chain can stem the tide of that loss by planning for effective salvage ahead of time, reducing planning errors that create over supply, and where assets are legitimately under-utilized, they are effectively converted to value with readily accessible programs.

Corrective action: Demonstrate how much asset value you are recovering from which channel, how your team identifies causes of waste and eliminates current waste as much as possible, then maintain a pace-layered strategy to continuously develop new venues for asset value recovery as the past venues diminish from upstream improvements.  Look for high-return, low operating cost solutions. The value proposition is solid, but the cost of operations to reverse supply chain is often substantial. For some health systems simply optimizing a few areas of 3^rd-party reprocessing is a big improvement and a good place to start.

Result: Optimal asset value, reduced waste due to spoilage. Better stewardship of the system’s assets, and the trust placed in supply chain to manage and be accountable for them.

Test yourself: What is the simple $ amount recovered from reverse supply chain activities? What deliberate plans are in place to leverage the reverse supply chain further to continuously improve asset value recovery?

Challenge 4: Accepting poor inventory accuracy.

End of period write-up / write-down is a frustrating adjustment that causes expenses to be out-of-synch with gross revenue and probably drives contractual allowances, and even complications from over-billing on high volume procedures. Unexplained inventory shrinkage can be an audit trigger, and stasis inventory can lead to run-away spoilage and waste.

Corrective action: Know your baseline and period-over-period changes in reporting inventory adjustments. Set improvement targets, and hone in on high impact inventory locations first.

Result: Surprises are kept for birthdays – not for financial statements!   Expenses and inventory assets are recorded as projected.

Test yourself: What is the last write-up/down for over-all inventory, how does that compare to trend, and what are the areas of focus?

Challenge 5: Failing to manage order fulfillment effectiveness.

Corrective action: Manage in a LEAN environment… Time study and value stream analysis of the current order fulfillment process. Identify non-value-added steps and note the amount of time spent on each of them. Then, assess overall workflow to reveal inefficient product pick paths, wasted motion, excessive delays, excessive footsteps, aisle and work area congestion, and equipment availability. Reduce reliance on manual processes and increase use of hand-held devices, pull technologies, and e-requisitions. Look for opportunity to release time to care by minimizing direct care-giver labor in the order fulfillment cycle.

Other measurements for time study and waste identification:

• material handling time in order picking, put away, palletizing and shipping.
• truck and containers loading and unloading times.
• time spent checking and looking for inventory.
• the number of times inventory is picked during specific time frames
• time spent keying data
• trend incidence of zero-on-hand, zero-on-order (ZOH/ZOO are common MMIS report functions)

Result: Direct Caregiver satisfaction from a hi-reliability order fulfillment process. Minimizing duplicate orders, over ordering, rogue buying, and hording.

Test yourself: What is your simple fill rate – and what inventory locations represent leading and lagging performance?  Inventory turn ratio? Customer satisfaction scores or key customer comments? Fill rate? ZOH/ZOO trend? Back-order rate? How is the % rate of e-requisitions to total incoming requisitions?

Is your supply chain enjoying a reputation for being a high-reliability service line and demonstrated fiscal competence? Let’s make sure by holding ourselves accountable for the high standard of stewardship reflective of the great trust placed in supply chain leadership and our teams.

Until next time… I appreciate all that you do to fill the hands heal!

TH

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