At the Margins

Why you should tackle supply chain early on in the path toward systemness

by Elizabeth Goodman-Bacon

As an increasingly competitive marketplace pushes health systems to prove their value, many executives are prioritizing integration to become more strategically nimble. The goal is to act cohesively and achieve “systemness” to improve cost, quality, and patient experience.

Though pursuing integration is a huge undertaking that involves initiatives of all types, in a recent survey of over 150 organizations, 9 out of 10 executives told us that centralizing their internal purchasing functions is an important step to delivering on their integration goals.

Supply chain efficiencies important for effective integration

We recommend tackling supply chain inefficiencies early on the path to becoming an integrated health system. This past year our Spend Performance Solutions team worked with a health system that had recently merged over 15 facilities from multiple regions. However, the union—up to this point—had been in name only.

A cultural shift was needed to improve operations, and the executive team felt that changes to the supply chain could provide immediate impact. As things were, the value analysis structure varied at each local site, no forum for regional input existed and there was little decision-making authority on the corporate level. Leaders wanted a more centralized function empowered to make decisions for the entire system.

To achieve this, an improved governance model for sourcing and contracting was needed. The new model engages stakeholders from clinical and non-clinical areas, as well as from cross functional teams at each level of the organization (i.e. local, regional, and corporate). Within each region, there are dyad leaders that include a lead from supply chain (e.g. materials management or value analysis) and an operational leader (e.g. service line leader, physician chair, or VP) that meet monthly to review project progress, engage local leaders and coordinate regional communications for system-wide efforts. These regional dyads help ensure both local accountability and familiarity.

Governance Model

On the surface, this new structure achieves the goal of combining multiple facilities into one integrated supply chain organization. However, leaders across the system also believe a new culture has been nurtured and that this will transcend beyond the supply chain organization and help to advance the goals of the entire system.

Contrasting today’s purchasing function vs the future

Looking more broadly, one in three organizations reports that their process for product and vendor selection, contracting, and performance tracking is mostly already centralized. But the really interesting fact is that nearly everyone else reported that these functions will also be more centralized within three years.

Percent of Respondents Reporting that Purchasing Function is Already or Expected to Become Centralized in Three Years
n = 170 C-suite executives

This shift from facility-led supply chain management to system-led supply chain management is an important step for organizations’ integration goals. These shifts will be felt most significantly in the areas of purchased services, capital intensive medical/lab equipment, non-clinical supplies and physician preference items.

Where the Majority of Product/Vendor Selection Decisions are Made

Much more than a savings target

As health care systems strive to improve cost, quality, and patient experience, centralizing internal purchasing functions is important. And, while “lowering costs through scale-driven efficiencies” remains the top reason for this effort, supply chain leaders can contribute much more than hitting a savings target.

Best in class supply chain organization also help improve quality performance by reducing variation in care delivery, and assist with aligning products and services with the organization’s strategic priorities (e.g., service mix, consumer experience, brand perceptions).

With increased focus on clinical standardization and consumerism, the supply chain organization is uniquely positioned to partner with the entire organization, ensuring that each department and facility has access to what it needs to drive the best outcomes both clinically and financially.


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