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More and more hospital executives are developing a healthy appreciation for supply chain managers who can help them cut costs. In a growing number of hospitals and health systems, directors of supply chain/materials management are being included in the executive team meetings. Some have even ascended to the CEO, CFO or COO level. This trend is important, experts believe, because it presents an opportunity for other supply chain leaders to get their most important issues heard and, hopefully, addressed. |
Callers waiting on hold for the administrative offices at Sisters of Mercy Health System, St. Louis, don’t listen to canned music or cheery admonitions to watch their blood pressure. Instead, they hear about the glories of the supply chain. A friendly, female voice explains the virtues of online ordering, the consolidated distribution center and performance consultants who help departments save money on supplies. How did this happen?
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“I realized you can help build a culture through the supply chain. You can help people learn how to work together.” —Mike McCurry Executive vice president and COO, Sisters of Mercy Health System, St. Louis |
Moving into leadership roles
As a health care organization that has fully embraced participation by materials management in its overall operations, Mercy may be unique at the moment. But industry observers see growing numbers of materials managers either achieving executive status or receiving more attention from top management.
The fact that more materials managers are moving out of the “basement” up to the “C-suite” is important because supply chain management is so much more than checking off packing lists on the loading dock and taking phone calls from nursing units looking for bandages.
Supply costs—including equipment, pharmacy and other nonlabor expenses—are currently estimated by many experts to represent 30 percent or more of hospital expenses. A recent analysis by a group of large integrated delivery networks (IDN) estimated that by 2038, nonlabor costs will exceed those of labor. Mercy was part of that IDN group, along with the Mayo Clinic, Rochester, Minn., BJC Healthcare, St. Louis, Intermountain Health Care, Salt Lake City, and the University of Kentucky Healthcare, Lexington.
Vance Moore, president of Resource Optimization & Innovation (ROi), Mercy’s supply chain division, participated in the study. He explains the trend this way: “If you go back 30 years ago, care was touch-based, and supplies were almost incidental. Today, I can’t think of an instance of care that is not dependent on technology and supplies.”
In 2002, Mercy began to centralize purchasing, logistics and other supply chain functions under a new department—ROi. Britton, ROi’s first president, is now Mercy’s CEO. Britton had worked in supply chain management at the retail chain Dillard’s while pursuing an MBA. “Compared with the retail supply chain business model, health care has more middlemen,” he discovered.
Recognizing this fact, Mercy management chose to consolidate purchasing and take over contracting and distribution for its 22 hospitals and many small clinics.
First, sweep the floor
McCurry, who succeeded Britton at the helm of ROi, learned supply chain operations working in his father’s automotive distribution business. “My first job was sweeping up the warehouse.”
An early interest in computers led to a job installing electronic supply chain systems in 1988 at St. John’s Regional Health Center in Springfield, Mo., which is now a member of Mercy Health System.
McCurry’s responsibilities at St. John’s grew from automation of purchasing to developing logistics systems for an increasing number of facilities. There he ran into a classic problem: a clash of cultures among the formerly independent hospitals and clinics Mercy brought together across the Midwest and rural South.
“Integrating logistics was easy,” he recalls. “The hard part was integrating the culture.”
Ultimately, materials management revealed an unlikely solution to the cultural dilemma.
McCurry noticed that people liked to gossip. Drivers transporting supplies from building to building were popular visitors, since they had contacts at all of the Mercy facilities. So instead of using his MBA’s notion of clockwork efficiency to stop such communication, he allowed drivers to linger a bit during deliveries, passing along news and building relationships.
“I realized that you can help build a culture through the supply chain,” he says. “You can help people learn how to work together.”
A seat at the table
Moore, ROi’s current president, is an industrial engineer by training. He entered the health care industry as a consultant at Baxter Healthcare, where he specialized in distribution, facility design and logistics. One client was Mercy, which later recruited him to be part of the ROi leadership.
“We had leadership that blended hospital and industry backgrounds,” he notes. The combination of business skill and credibility allowed Mercy to not only save millions of dollars on supplies, but also to create $15 million in new annual revenue.
Mercy bowed out of its group purchasing organization in 2007, and created ROi—a GPO of its own that contracts for Mercy hospitals and for 1,400 other members, mostly small clinics. The system then built a central warehouse and a consolidated service center.
This overhaul and consolidation would have been impossible without the complete support of top management, Moore notes. Having executive representation, he says, “provides a seat at the table, rather than a seat in the gallery.” At the same time, he adds, “They challenge us to take more of a leadership position. We are held almost to a higher standard.”
Soldiering on
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“Historically, a materials manager was looked on as a leader with many clerical folks. We didn’t pay attention to the skill set.” —Tony Johnson Senior vice president and chief supply officer, Novant Health, Winston-Salem, N.C. |
He is part of a 33-executive operations group, and is responsible for $1.2 billion in annual nonlabor spending. He was hired about five years ago with a mandate to consolidate purchasing and logistics throughout the IDN. Novant is a member of VHA, Irving, Texas, but also negotiates its own contracts. “We get better pricing than Novation (VHA’s purchasing arm) by a long shot when we go to the market and contract ourselves,” Johnson says. “We truly do consolidate the volume. A lot of people say they do, but we really do.”
For most of his career, Johnson was a health care logistics officer in the army. He directed materials management at military hospitals in the United States and Germany, with added responsibilities for maintaining medical supply lines for combat troops from Bosnia to Somalia, refugee camps in Rwanda and worldwide logistics networks.
After retiring in 1998 as a lieutenant colonel, Johnson made a quick transition to civilian hospitals. “I just stepped right in,” he says. “Of course, the cultures are different. You have to get used to that. But the core issues are the same.”
On the way to consolidating Novant’s supply chain, he managed to turn his culture shock into a history lesson. Novant’s six hospitals were located a maximum of 80 miles apart, but management balked at the idea of centralizing distribution.
“It was an uphill battle to convince folks that we could supply them from 80 miles away,” he recalls. “So I got out my military slides, and showed them where we supplied Italy, Spain and Africa from Germany, and they said, ‘OK, I get it.’”
According to Johnson, the military provides a good training ground for materials management. Several of his fellow veterans serve on his management team.
However, he notes, the industry is changing, and so are the sources of talent.
“Historically, a materials manager was looked on as a leader with many clerical folks. We didn’t pay attention to the skill set. Today, I’ve got a lot of MBAs working for me, and they’re not all coming out of health care. Their skills are invaluable, especially when it comes to sourcing. They’re very analytical.”
Moore also sees the profession changing from a specialty of nurses and military veterans to a more competitive career field. In the past, “materials management was a second career for someone,” he says. “Today, we’re seeing more new talent entering health care. With the rise of the importance of the supply chain, we need more knowledge. It can be scary for the people who are there today.”
The early adopters
Mike Merwarth is CEO of MediClick, Raleigh, N.C., an 8-year-old software company specializing in hospital materials management and accounting applications. In the process of selling and installing the software, Merwarth talks with materials managers around the country.
He is beginning to see more of them take leadership roles in their organizations, but believes that it isn’t happening quickly enough.
“What we are finding,” he says, “is the success of the product is directly related to the ability of the director of materials management to take control of the entire supply chain. We can give them tools, but they need the authority to use them.”
Merwarth reports an increasing tendency of other department heads to view materials managers as peers. “I see it in the early adoption phase, and I see it in larger IDNs because they have the spend volume and the potential for savings,” he says. “It’s the scope of the operation that justifies the title. Smaller hospitals are running ragged, just trying to keep up as opposed to innovating.”
He agrees that materials managers who want to move up need to expand their supply chain knowledge beyond health care. Also, he says, they need to expand their relationships within the hospital. “They need to accept and embrace a broader sense of involvement in the health care organization, from negotiation with a vendor all the way to measurement of the outcomes for the ultimate customers—the patients. In many hospitals, in the past they have not had that exposure.”
Learning the ropes
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“Mentors are important. You need people to teach you the ropes.” —John Woodrich CEO, Mercy Health System of Kansas |
While still in high school, he began working part time in sterile processing in a nearby hospital. “I never thought I’d make a career of it,” he says.
During college, he continued to pull shifts in sterile processing, under a nurse manager who became his mentor and promoted him to assistant manager while he was still in college. Following graduation, he was hired at another hospital as a sterile processing manager and over the next five years worked his way up to materials management director.
He continued working at various hospitals, taking whatever opportunities occurred, finally becoming vice president of operations at a Michigan health system. “I had mainly all the non-clinical departments,” he recalls. That was in 1996, making Woodrich likely one of the first materials managers to reach that level.
Shortly after he was hired, the CFO left. Woodrich wanted to apply, “but I did not have the physician relationships.” A new CEO became a mentor, allowing Woodrich to join meetings with medical staff and leadership.
That was all it took; Woodrich joined a small hospital as CEO, then progressed to larger hospitals until reaching Mercy three years ago. Along with his interest in the work, he credits the mentors who supported him along the way. “Mentors are important,” he says. “You need people to teach you the ropes.”
Now, he says, he tries to mentor others. Recently a former subordinate became vice president of operations at an Idaho hospital, while another has been named CEO of a hospital in Missouri.
Such grassroots efforts to help supply chain leaders reach their full potential seem to be occurring with greater frequency. And as senior hospital leaders across the country focus on improving the bottom line, more and more of them have newfound respect and appreciation for the value talented supply chain leaders bring to the table.
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Side bar - Reaching the Top |
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Following are ways materials managers can reach executive positions and help top management understand the importance of the supply chain, based on advice from industry experts: FIND A MENTOR You’ll need someone to encourage and guide your career development. NETWORK Build relationships outside of your department. This way, as you progress you will have the support of your peers. EDUCATE YOURSELF This need not mean getting a graduate degree, but rather learning about other industries and how their supply chains operate, as well as how the supply operation in your own hospital influences the bottom line. LEARN TO MAKE A DRAMATIC PRESENTATION Select a high-priced, high-preference product such as a stent or hip implant and prepare a presentation showing current vendors, pricing and case costs and potential savings through standardization. KNOW YOUR SKILL SET Understand that your current skills—negotiation, price analysis, logistics-apply to more than medical-surgical products; they are also valuable in facilities planning, service contracting, and other corporate strategies As Mercy’s Vance Moore, president of Resource Optimization & Innovation (ROi), points out when explaining the importance of the supply chain to hospital executives: “Look at where their money goes.” |
This article first appeared in the July 2009 issue of Materials Management in Health Care.
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