Effective supply chain management is hard. While its costs account for 25 to 35 percent of overall operating expenses, too many hospital CEO's still don't treat it like a core competency. Respectfully, that's a mistake.
I recently finished Jim Collins' book Good to Great. It chronicles 11 publicly-traded companies that made and sustained the transition from average performers to outstanding industry leaders, discussing the traits they have in common. These traits are often surprising and always illuminating. They range from the personalities / leadership styles of the CEO's to the use of technology as a core competency enabler rather than a strategy in and of itself (remember Pets.com?). It's worth the read, and its lessons apply very well to hospitals.
There was no sudden burst of speed, Collins writes, which launched any of the companies from middle-of-the-pack obscurity to market front-runner. Instead each spent years perfecting their business models, always with an eye on the world around them, until they executed better than anyone else. Over time, "good" became "great" as the companies generated momentum their competitors couldn't duplicate. After years of hard work and preparation, you might say, they became overnight successes.
Collins compares the journey to turning a 2 ½ ton steel flywheel mounted on an enormous axle. At first you push it with all your strength, yet its progress seems imperceptible. But you keep at it. You push relentlessly, fueled by informed conviction. You recruit others into your organization to push with you. Slowly, it responds to your force and begins to pick up momentum (as you knew it would). This motivates the team to push harder, keeping at it until the flywheel's own momentum lends a hand, cycling it smoothly around its axle.
Each of the good-to-great companies identified the key revenue and expense components that were critical to achieving their strategic goals. They put knowledgeable, self-motivated people in charge of them. And they made sure that these people had the tools to enable their success.
Winning hospital CEOs approach their supply chain this way. They view it as core to the business, (i.e. a component upon which strategic success depends). They invest in the right people – self-motivated people – and provide them the tools they need to make the supply chain more efficient and more effective. They enable them to create substantial savings.
All too often, I fear, some CEOs feel toward their supply chain operations as Sisyphus must feel about his boulder. Remember him from Greek mythology? He managed to anger the gods and was forced to push a massive rock to the top of a hill only to see it roll back to the bottom. "Now repeat, Sisyphus – for all eternity." OK, maybe not that bad but, to me, seeing hard-earned revenues eroded to dust by sharply escalating supply expenses definitely qualifies as a recurring nightmare.
Imagine this Sisyphean scenario: one of your value analysis teams spends months evaluating drug eluting coronary stents. The members decide they can consolidate from three separate suppliers to one, and the winning bidder commits to pricing that promises six-figure savings in the coming fiscal year. Your team has pushed a big rock to the top of the hill.
Unfortunately, you only see Sisyphus at work. Despite a successful project of stent standardization and market share leverage, the savings don't seem to make it to the bottom line. When your CFO reports new numbers from the cath lab, expenses are higher! The boulder has rolled back down the hill, right?
NO! It turns out that expenses increased because case volume increased. The savings on stents were actually higher than projected, because you used more. The value analysis team should be celebrating. Instead, they're wearily pushing the eternal rock again. The very legitimate six figure savings, and the stent project that should launch a thousand similar projects, are hidden under a thick overcoat of red ink.
Hospitals must employ tools (like this) that quantify projected savings in the supply chain and then track actual savings over time. If you're behind schedule, the tools will tell you why. (Perhaps it signals a need to focus on decreasing product conversion time.) If you're ahead of schedule, great! Replicate! But most importantly, measure. The drug eluting stent price reduction may not have salvaged the bottom line, but it sure as heck helped. And it's the perfect poster child for projects that can change P&L red to beautiful black.
As I said, the supply chain is hard, but it is also rich with savings opportunity. Quantifying and tracking realized savings with accuracy, accountability, and repeatability can be the difference between lugging giant rocks to the hilltops and seeing that flywheel spin in circles using its own momentum.
Sincerely,
Mike



