Top 10 Signs Your Supply Chain Could be in Trouble

Sept. 23, 2010
Every dollar saved in supplies yields the equivalent of $50 in revenue assuming a 2% operating margin.

In the face of unrelenting pressure to keep inventory in stock and budgets in check, it's easy to assume that your supply chain's performance is "good enough." In fact, a 2009 study of supply chain leaders conducted by Huron Consulting Group showed that the majority felt their supplies process was under control -- yet 22% of purchases were not attributed to meaningful categories.

How can you tell that your supply chain may need triage? Here are the top 10 signs:

10. You don't regularly interact with physician and clinician stakeholders in key clinical departments.
9. You can't easily report on spend by supplier, commodity or product SKU.
8. You can't quickly calculate how much of your total spend is 'on-contract' vs. 'off-contract' (getting a report from your GPO doesn't count).
7. You can't tell which items are used most -- or not at all.
6. Your suppliers do not maintain, manage or scrub data on your behalf.
5. You scrub your Item Master at least annually to add new content or remove outdated content.
4. Over 25% of orders from your ERP are 'specials' or X-items that need manual processing.
3. You find it difficult to measure your approval time - or you know it just takes too long.
2. Your OR and surgical departments that consume a high volume of expensive medical devices and implantables use blanket POs to transact with suppliers.

And the #1 sign that your supply chain could be in trouble...

1. Your top category of spend is 'Other.'

Getting your spend under control is not just a nice-to-have. It actually produces tangible bottom-line results. Every dollar saved in supplies yields the equivalent of $50 in revenue (assuming a 2% operating margin), according to (a 2009 article by the Association for Healthcare Resource & Materials Management ). Three key areas are critical to making significant improvements in your Procure-to-Pay process: data management, spend visibility and synchronization of the supply chain.

Making the Item Master More Content-Rich

One of the key obstacles to gaining more control and visibility is lack of sufficient product detail in the Item Master. If your top category of spend is 'Other,' you have a significant blind spot in your spend visibility. This is often caused by people creating a non-item master i.e., 'Other' -- order after not finding what they were looking for in the Item Master. Most ERP systems are not designed to support detailed, highly attributed data. Many of the fields are so short they require cryptic abbreviations. Errors also creep in because the data is hand-keyed by order entry clerks.

What all of this adds up to is lost time and money. Because suppliers do not maintain their own data, it must be updated by employees within the purchasing organization. Analysts must regularly update items, refresh the Item Master data and correct errors brought to light through the purchasing process.

Layering an effective content management solution with your organization's ERP system allows you to offer richer, more detailed information for searches of contracted goods and services. This type of solution provides an active exchange between supply chain organizations and suppliers, so information is kept up to date without excessive time and expense.

Pulling Back the Curtains on Spend

Spend data typically comes from multiple sources, such as Group Purchasing Organizations (GPOs), ERP systems and distributors, which prevents easy reconciliation of the data. ERP systems are effective for managing item stocking and tracking but they provide low visibility into spend. Reports generated by (GPO) provide only a partial snapshot of the organization's actual spend, since patient care and medical devices are not usually covered.

To address this, supply chain managers should consider implementing a content repository that provides line-item detail on all purchases. By tying discrete data to each transaction, managers can validate the accuracy of the contracted price. This level of detail also provides feedback on the top vital signs -- trends by supplier, commodity, or SKU; how much of the purchasing is on-contract vs. off; and which supplies are in high demand vs. little or no demand.

Adopting a Synchronized Supply Chain

Ghost supply chain groups, or ones that use their own processes for ordering goods and services with limited input from the hospital's official supply chain organization, make visibility into pricing, value analysis and benchmarking virtually impossible.

The solution to this begins with human factors, not technology features. It is important to work with materials-intensive departments such as Peri-operative, Radiology, Cardiology and Reference Labs to cut down on or eliminate their use of blanket POS. Additionally, it is important to interact regularly with key stakeholders -- the physicians and clinicians in your organizations' key clinical departments. Improving these processes can then be reinforced with a synchronized supply chain, which utilizes a content management system to let physicians find what they need and order it from contracted suppliers.

Nowhere is it more true that supply chains are the lifeblood of the organization than within the healthcare industry. Like any core system, they require periodic check-ups and maintenance in order to deliver top performance. If any of the top 10 signs sound familiar, it's time to take a closer look at your supply chain and find out how richer content management can translate into greater visibility and control.

Krista Fuller is Director of Healthcare at SciQuest, a provider of on-demand strategic procurement and supplier enablement solutions.

Interested in information related to this topic? Subscribe to our weekly Value-chain eNewsletter.

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!