Charlie Miceli at Fletcher Allen: Meaningful Informatics Leading the Way

Having worked for and with Airborne Rangers, an elite light infantry special operations force of the U.S. Army, Charlie Miceli learned the importance of performing recon before every mission. The motto "Rangers lead the way" became his battle cry.

That credo still guides him today as Vice President of Supply Chain for Fletcher Allen Health Care (FAHC) in Burlington, Vt.

Proactive by nature, Charlie is not one to wait for a savings mandate from the CEO or CFO before he leaps into action. Instead, he and his team build the supply chain goals and objectives for themselves upon four key pillars: customer service, cost management, enhancing business processes and meaningful informatics.

"We are constantly using meaningful informatics tools to monitor spending trends and to establish target opportunities for cost management. We're telling people what we're doing before they can bring it up to us."

We talked to Charlie recently about how this aggressive mentality has served him in the supply chain world at FAHC.

MediClick: As someone who always wants to set the goals rather than have them be set for you, what do you feel is the appropriate role of the supply chain at Fletcher Allen?

Charlie Miceli: Supply chain is resource management more than anything else. Rather than managing just supplies, we provide support in managing the entire spend—whether it's a bandage, capital equipment or business processes.

Fletcher Allen had this infrastructure in place before I got here. As a team we are just taking a good system and making it a great system. The executive support helps because our leaders have given the supply chain the ability to work as a team with departments to find opportunities for resource savings.

That means we need to keep our team multi-dimensional. So we're developing our next tier of leaders within our team. Our director of purchasing, contracting and value analysis is an example. She's a newbie in the supply chain business, but she's already been recognized by ERCI.org for using meaningful informatics to eliminate a pricing error that reduced our costs by over $177,000.

MediClick: What tools do you have that ensure that your supply chain team is being as effective as possible?

Charlie: The key to supply chain management is meaningful informatics: using the right tools to look at supply chain spending so we can identify clear savings opportunities.

I believe you should always have analytics tools that provide meaningful informatics. That's why we have as many tools working in synergy as we can. Even if the tools are sometimes redundant, something always differentiates one from another.

Using MediClick, for example, we have expanded the general ledger in the med-surg world from about seven or eight codes to about 19 or 20 using an UNSPSC-type mythology. The purpose is to get more stratified within the groups.

We used to look at our OR spend, which is almost $3 million a month, and see it broken up among only seven codes—two of them were over a million dollars each with a large number of transactions in them. There was no significance except that it's a considerable amount of money.

Now, we've become more granular, expanding to 19 codes. So we have better detail to start peeling apart layers using MediClick to differentiate what was spent on meshes, sutures, platforms and all types of stuff. So we can see exactly where the high supply chain expenses are.

When we put in MediClick, we ran it as a transactional system, which it does very well. But it's also very intuitive as a strategic tool. I set the strategy with it and then teach the supply chain staff how to break out the data and analyze it—from acquisition to getting money out the door.

MediClick: In the Culture of Savings Series, we're always interested in how supply chain executives leverage the power of the people to find savings opportunities. Have you found any interesting approaches to do this?

Charlie: Every member of the hospital staff can make a difference to the bottom line. I saw this first hand when I worked at Newton-Wellesly Hospital in Newton, Mass. We had a cost management/margin enhancement program that provided recognition bonuses for staff who provided effective cost-saving ideas.

Some members of our front-line staff who worked in linens were on a team that recommended and implemented the in-sourcing of our linen cart makeup. We examined their suggestion, implemented it and reduced our costs by more than $100,000 per year. These team members each received a one thousand dollar check right before Christmas as a reward for their efforts.

When we asked for their help, we let all ideas come in. You have to move fast and grab onto the great opportunities, but you also have to be able to know when to set aside the "parking lot" ideas that may be useful in the future.

That same philosophy holds true here at FAHC. We go out and engage folks as members of our team. We have active value analysis committees that cover the major supply expense areas of the hospital. Our mission is very collaborative. That's the kind of culture we have here.

MediClick: Is it an important part of your strategy to build relationships outside of the hospital staff?

Charlie: We maintain a strong relationship with our distributor because we do a large chunk of business with him. We try to be a good customer who tries to help him meet his goals, too. For example, our distributor has deliveries for us every day. We have given him the option to queue our orders so he can send less than five trucks up here per week. This action gives our supplier an opportunity to reduce costs; that has become as valuable as the transactional nature of the relationship.

If we are engaging a supplier to lower his unit costs, and we are not doing anything to help reduce his operating costs, then that's not fair. But if we can help by changing our operations to remove waste, redundancy in business processes, etc., without increasing our expense, that's reasonable.

We present an advocacy model where we strive to understand and accommodate the business requirements of our supplier so we can mutually take unnecessary costs out of the supply chain like rush deliveries, use of EDI transactions, managing pay terms, quarterly reviews, etc.

As we progress in this model, our goals are to use meaningful informatics and advocacy to maintain aggressive stewardship of our resources and ultimately reduce costs in our supply chain.

MediClick: Thanks Charlie!

Tony Johnson at Novant Health: Everyone Has a Seat at the Table

As a U.S. Army officer specializing in health care logistics for 20 years, Tony Johnson's discipline kept the military supply chain moving in health clinics, combat units and military hospitals in Europe, the United States and Africa.

Tony's military-style command catapulted his career into supply chain roles in hospitals stateside. He quickly learned that the authoritative approach to materials management he used in the military was less effective in the traditional hospital setting.

But he's ok with that! In fact, he's adapted quite well to Novant Health System's collaborative philosophy. As Senior Vice President and Chief Supply Officer of the 13-hospital, Winston-Salem-based health network, Tony builds relationships that keep supply chain costs in check.

He says this teamwork—backed by the skills of his strategic sourcing group—has netted $65 million in cost reductions in fewer than two years. Tony believes that success breeds success. The more his team reduces costs, the more folks from all over the health system want to join him.

This collaborative environment is due in part to a model of cooperation that Novant uses during strategic sourcing events. ARCIE, as the model is called, ensures that everyone—from executives to physicians—is involved in finding the best solutions to the supply chain issues.

We sat down with Tony to talk about Novant's collaborative culture and how the company's commitment to the supply chain impacts savings.

MediClick: What is the role of the supply chain at Novant?

Tony Johnson: The supply chain is integrated across the entire Novant system and is completely accountable for all supply-related costs. That means we're moving the supply chain into all areas of the hospital.

Some time ago, the operating rooms had a spike in costs that no one could explain. When the CFO asked me why, I told him that supply chain doesn't control what they do with supplies inside the OR. He said, "You're the chief supply chain officer, I don't care where the supplies are, you are accountable for them."

That was our catalyst to move into the operating rooms in our smaller facilities. Today, we're moving into the OR in our larger facilities, too. We want an end-to-end visibility of what happens in the operating room: who's buying what supplies and what supplies are actually stored there. Our next target is the cath labs.

In addition to being accountable for supplies, any contract for goods or services also comes through supply chain—from the C-suite on down. That enables us to receive standard supply chain pricing across all of Novant's facilities.

In fact, the supply chain group actually sourced a general contractor along with engineering for three new hospital projects. Then the Novant Strategic Sourcing Group purchased materials that the contractor would have traditionally purchased and marked-up. And for supplies that the contractor did need to purchase, we looked at the market price and collaborated with the contractor to get a better one.

MediClick: Supply chain managers are good at the process sides of change, but there's also an enormous cultural side of creating a vision, communicating it and building support. How do you go about creating a vision and building support for it at Novant?

Tony: Nothing beats having a great vision from the beginning. You've got to get the blueprint right, it has to be viable, and it has to be something that will make a change. Before I even joined Novant, the supply chain executive was senior in the organization. This vision enables us to easily communicate with anyone, from the highest levels of the executive team all the way down to the operating room.

Novant's chief medical officer is an advisor for strategic sourcing. He's the one who recommends the experts who we should be using as a resource. It's like having a direct connection with all the physicians all of the time.

Now certainly you have to earn their trust, but you can build those relationships and put that vision out there and sell it.

But it's not the supply chain person out there preaching; the company believes in it so the executives at the highest level are stepping forward and being the voice. It makes our jobs a lot easier.

MediClick: One of the main issues that divides supply chain managers and care providers is physician preference items. What is Novant's philosophy on physician preference items and how does that impact the way supply chain earns the trust of physicians?

Tony: Novant's culture, at its core, is very collaborative. So instead of strong-arming physicians, we build relationships with them. We also let them know that our goal is to not limit their product choice in any way. Instead, we go after what we think is an aggressive best in class price in the market.

Our process is very structured. First we analyze the market and learn everything we can about the supplier. Next the staff in our contracting department spends time with physicians to evaluate products, look at the market and explain costs differences.

Then these physicians sit at the table with us to negotiate contracts. Most vendors market their product directly to the physicians. By bringing physicians into the negotiations on our side of the table, we effectively eliminate the vendor's divide and conquer techniques.

We recently had a vendor who stuck with a premium price after we told them the price we were willing to pay. So we put the vendor on notice that we won't pay them a premium just for the privilege of using their product, which is no different than the others. We told them to conform to our pricing requirements or they have to go.

The vendor saw this as a bluff because they had already developed a good relationship with the physicians. They waited until two weeks before the deadline to give us the prices we wanted.

That was a huge contract. It was about $30 million worth of purchases. Initially, the physicians were uncomfortable with this type of negotiating. But since we brought them to the table, they trusted us. They looked at us as partners.

MediClick: With your organization being so collaborative, what is your process for strategic sourcing?

Tony: I have a fairly robust staff in the strategic sourcing group. We made the decision to invest in recruiting team members from various industries because that's where we found the skills we needed. So we've got folks from Ford Motor Company, Ingersoll Rand, General Electric. The typical profile of our sourcing manager is an MBA who is Six Sigma and Lean certified.

The result has been phenomenal. We started recruiting these professionals in 2006 and from August 2006 to the end of 2008, the cost reduction that group has brought us was $65 million, but they haven't done it alone.

We involve all of the stake holders in each sourcing event using what we call an ARCIE model [Approve, Recommend, Consult, Inform and Execute]. That means for every project, an executive approves it, a group recommends the solution, a group consults the stakeholders, a group informs the audience and a group executes the solution.

When we put our projections out there, folks know they can trust our numbers and they see what's happening on their balance sheet. Success breeds success. The more successful we are with our numbers, the more people want to work with us as part of the process.

MediClick: Cost reduction is a very controversial term in that it can be measured in a variety of different ways. What do you mean by cost reduction?

Tony: When our accountants validate savings for supplies, they consider cost savings as the old price, minus the new price and only when it is purchased. We do not book things in advance.

When we wrote a contract for orthopedics, the estimate was initially $5.5 million below the old contract. We didn't take $5.5 million savings; we go implant by implant, screw by screw as they're purchased and we add them up every month. We only take them for one contract cycle.

So if the contracts are written for three years, we count those reductions each month for three years. When those contracts run out we can't claim that anymore. We have to start over at that current price.

The reason we do this is because integrity in what we report is paramount. The CFO is looking for money that actually came out of the expense column.

I've been in this business a long time. Believe me, it's satisfying when you get a call from one of the hospital administrators and they say "Oh my gosh! I've been looking at my financials and the supply costs are really down."

MediClick: Thanks for the insights, Tony!

TXT Savvy Dad Applies Lessons from the Supply Chain

It may be poor form to strut my newfound text-savviness after so long a blog hiatus, but since leaving my youngest child at college in August (whose imminent departure was the reason for the hiatus in the first place), I have learned to thumb my way around a QWERTY keyboard pretty darned well.

Yes, this former texting phobe has learned that, like a Skinner rat pounding for food pellets, my persistent thumb jabs also are rewarded: my daughter "talks" to me! I live for the tinny buzz that signals a new message of abbreviated words and punctuation smiley faces.

How does this relate to the hospital supply chain? Give me some latitude, and I think you'll see where I'm going.

So my youngest daughter and I are texters. My oldest daughter, a bona fide Facebook fanatic, uses the browser function of her cell phone to provide status updates to all her cyber-friends. And then there's my wife…she actually believes cell phones are meant for talking. Strange concept, I know.

Here's my dirty confession: since we each got cell phones at different times, our accounts were with different vendors. Yep. A brief lapse in paternal oversight, and they had effectively divided and conquered the family cell phone dollars! Not only did we use all these different features (billed for individually I might add), but we let the cellular carriers charge us top rate because I didn't bother to pool our accounts to get some purchasing power.

A colleague showed me this article about a poor dad whose teenage daughter was apparently trying to set the world record for number of texts sent in a month. She beat 10,000! The phone bill was $4,756.25!

My family never did that kind of damage, but you can be sure it snapped me to attention. I decided to take control by borrowing a page from the value analysis play book.

I brought together all the various bills from the phone carriers to analyze the expense. As expected, it was a lot!

Next, I sat down with my family to determine what everyone really needed to stay in the communication loop. Unlimited texting was a given. But my oldest daughter took one for the team, offering to give up the phone-based internet access and foregoing the real-time Facebook updates. Finally, it was clear that – with my wife as the only "talker" – we didn't need quite as many minutes as our plans allowed.

I had buy-in from my "users", I had the information I needed to shop around for a better deal, and so I started calling the cellular carriers to find the best price.

Cutting to the chase, we ended up with a family plan (one consolidated bill) where we could share voice minutes and take advantage of unlimited text messaging. Best yet, I got rid of the variable components of my monthly bills (mainly overage charges), and we're saving over 30 percent a month!

What's the moral here? For one, sometimes what we learn at work can help in our personal finances, too. More importantly, even though I let multiple vendors take advantage of my inattention to this expense for a brief period of time, it's never too late to take control.

The same basic rules apply in the hospital supply chain. To take control you need to be able to aggregate your spend data, analyze exactly where your dollars are going, sit down with your users to understand their needs (separating "nice to haves" from true needs), identify where you can standardize, and take this new purchasing power to market to negotiate the best price possible.

It works for a family with out of control phone bills, and I see it work every day for hospitals that decide to take control of their supply expenses.

Postscript: Last week, my younger daughter told me that she wanted a webcam for her laptop so she could Skype with her friends. It doesn't end, does it?