Recent years have seen a move in numerous industries – including healthcare – toward the adoption of the high-reliability organization (HRO) concept. These high-performing organizations exist in the kind of very complex, fast-evolving environments where you would expect chaos to prevail. So, how do some organizations adapt to chaos where others are overwhelmed? Is it through heroic efforts that some prevail or through mindful efforts to organize, adapt, and manage through difficult circumstances or conditions?
For the past 2-1/2 years, healthcare supply chain has been subjected to chaos. Within the framework of high reliability, we are challenged to focus not on the failures or circumstances, but the anomalies that are the pointers to larger problems. As a result, we may need to adjust our perspective to cope and thrive with unexpected conditions.
Our theme for Prodigo’s 2022 User Conference, which will be held Oct. 26 to 28 in Nashville, TN, is “Building High-Reliability Supply Chains.” Through the conference tracks and shared experiences of our peers we’ll explore the elements that deliver the high-reliability supply chain.
Tenets of the High-Reliability Supply Chain
In a recent article, Balancing Risk Assessment with the Move Toward Sustainability and Diversity in the Supply Chain, we discussed the importance of applying high-reliability concepts to the healthcare supply chain. We identified three guiding principles of the high-reliability supply chain that must be practiced – responsiveness, compliance, and efficiency – while also considering two other priorities in corporate social responsibility (alignment with the values of the communities we serve) and overall supply chain sustainability (our financial and environmental footprint).
Responsiveness refers to the necessity of the supply chain anticipating and responding in real-time to demand, supply, and financial disruptions while managing them to achieve a preferred outcome. It must align supply with demand in pursuit of the lowest cost, which can refer to both financial sustainability and the environmental footprint of our choices. It is important to maintain balance between delivering care at the lowest cost while ensuring that all products meet acceptable quality standards to deliver the best outcomes for care receivers.
The supply chain’s aim for compliance means satisfying clinical, operational, and financial requirements when matching products to their intended use, identifying preferred sources of supply, and negotiating the best cost. The right items are evaluated for suitability and approved for use by a health system’s value analysis process. The right source is driving practitioners to contracted, approved sources that reliably deliver the volume of the items being purchased and are aligned with our corporate values. The right price is determined where the buyer pays the contracted amount that they expect.
The efficiency of supply chain removes the friction between the source of supply and the point of demand by streamlining the movement of a product from the point where it’s made to the point where it’s consumed. When the supply chain is efficient, it allows clinicians to spend less time on restocking products and more time on patient care. Modern digital supply chains are connected, so transactions between trading partners can be automated from source to pay and powered by accurate data.
Every high-reliability supply chain’s goal is to deliver the perfect order – the right item from the right vendor at the right price. In recent years, additional considerations – such as responsibility and sustainability – have also been factored into the supply chain equation. This means the supply chain must give equal access to procurement opportunities for vendors and workers who are reflective of the demographics of the population that characterize its community. It also involves making business decisions based on corporate social responsibility objectives of worker safety; fair employment practices along with environmental factors such as waste, packaging, and end-of-life care for items; determining the risks of products’ chemical compositions; and how much pollution results in moving goods from the point of manufacture to the point of consumption.
Two Competing Priorities in Healthcare Supply Chain
As part of a presentation on Prodigo’s 2022 Roadmap, Marlin Doner, VP Data Analytics & Product Strategy, highlighted two opposing factors facing the modern supply chain: increasing service levels while also decreasing costs. While an aim to increase service levels across the customer experience is a good and noble objective, the possibility of doing so while also reducing costs won’t be easy, considering such recent challenges as supply chain disruptions and rising costs due to inflation.
Over the past few years, Doner said, supply chain costs attributed to patient care – everything from labor costs to services as well as the amount spent getting goods from the point of supply to the point of demand – have risen more than 15%. As a result of rapid cost escalation, the top 100 IDNs in U.S. healthcare had an average operating margin of -0.6%. The deterioration of the financial health of organizations has led to a consolidation of some of the strongest healthcare organizations for the purpose of survival.
Cornerstones to the Evolution and Modernization of Supply Chain
Success in addressing the chaos around us is not determined by our vision; it is an outcome of our behaviors and actions – what we are willing to do differently to achieve different results.
Modernization is not as simple as deploying the latest technology gadget or system. We need to rethink our business models, trading partner relationships, and the underlying architecture of the technology ecosystem that will be needed to deliver high-reliability supply chains. Within supply chain, the difficult aspect of modernization – the real value driver – is the synchronization of data across sourcing, contracting, procurement, accounts payable functions, and clinical workstreams.
As a trusted partner in your journey, Prodigo has embedded these cornerstones into the foundations of our product strategy.
- Extended Span of Control. Supply chain needs to squeeze savings from every category of spend. Supply chain spend now accounts for 37.3% of the total cost of patient care (up more than 18% in the past two years). Bringing more spend-under management allows supply chain to shape demand for every dollar of spend across each purchasing pathway and expense category in the continuum of care (acute, nonacute, homecare).
- Rigid formulary management. Supply chain needs to direct each purchase decision across every purchasing channel for clinical and nonclinical supplies and services. The ability to control the front end of the procurement process (point of demand) enables supply chain to standardize the item formulary, drive more spend to contracted sources, and enforce compliance to contract terms, conditions, and prices. In addition, a robust virtual item master provides a dynamic response to product shortages and contract conversions by redirecting noncompliant activity to approved sources.
- Data Integrity. Supply chain is the entry point for item + price data coming into your ecosystem. As the front door to your vendor community, supply chain needs to ensure that item data is complete and accurate to support downstream clinical and financial work streams. Supply chain needs to satisfy the demand for complete and accurate data within the clinical enterprise to inform decisions, simplify product identification, and streamline data capture at the point of service.
- Automation Through Integration. Supply chain needs to connect all trading partners to your ecosystem, so that data and transactions flow seamlessly across your network. This includes integration of product and contract data with your ERP and clinical systems as well as external integration of purchase transactions with your trading partners.
- Actionable Decision Support. Supply chain needs to drive visibility, in real time, for both internal (clinical, operational, and financial) and external (suppliers) stakeholders across the network to forecast demand, inform users of preferred behavior, and drive corrective action where needed. Metrics are the fuel to improve operational and financial performance and, most importantly, transform the cost and quality of patient care.
The supply chain can achieve the status of high reliability through a concentrated focus on being responsive, compliant, and efficient, while also placing an emphasis on aligning values with the communities it serves and undertaking sustainability initiatives.
High reliability is also results-oriented and built on repeatable actions that drive success across many small victories. The path to high reliability requires us to overcome some common obstacles.
- Big problems do not emerge fully formed, so be ready to iterate everywhere in your strategy.
- Complex systems are prone to failure, so keep it simple.
- Stay focused on the desired outcomes – not distracted by transactional anomalies/disruptions.
- Our goal is not to be error-free, but we cannot be disabled by the errors we will make.
- Find a trusted network of advisors and defer to the experts.
In the supply-chain context, we must anticipate (be ready), correct (be agile) and lead (be equipped) with the technology, people, and processes to transform our operating models. As one supply-chain professional recently told Doner, “We are no longer looking for $100 bills; we need to be focused on finding the nickels and dimes.” The high-reliability supply chain will be equipped to achieve both goals of service improvement and cost reduction.
Balancing Risk Assessment with the Move Toward Sustainability and Diversity in the Supply Chain
Prodigo Solutions’ 2022 Roadmap (2021 User Conference Session)