A CLOSER look
Memorial Hospital’s GPO compliance trends since SWOT
analysis in 2003 (see related savings chart)
| 2004 | 2005 | |
| Jan | 62.4% | 71.45 |
| Feb | 70.4% | 75.7% |
| Mar | 67.1% | 59.8% |
| Apr | 59.0% | 60.3% |
| May | 64.2% | 67.0% |
| Jun | 75.4% | 68.9% |
| Jul | 66.2% | 63.3% |
| Aug | 74.4% | 67.1% |
| Sept | 71.6% | 73.5% |
| Oct | 64.0% | 70.7% |
| Nov | 64.3% | 69.3% |
| Dec | 76.8% | Not yet available |
When Memorial Hospital of Fremont, Ohio, decided to bring in a team of consultants to help strengthen its supply chain, materials manager Joe Buti was not happy. Granted, the privately owned hospital had too many suppliers for its size (licensed for 186 beds) and its purchases were “all over the board” through multiple group purchasing organizations, he admits. Buti, energetic but a relative newcomer to materials management and self-taught in the business, acknowledges spending much of his time “putting out fires” in supply orders, distribution and inventory.
Still, hiring outside experts with their clipboards and questionnaires just didn’t seem the best way to make improvements to the process. “I thought it was going to be three wasted days of my life,” says Buti. “I don’t want people looking over my shoulder when I’m doing my job.”
Ultimately, though, the effort proved so worthwhile that he found himself giving a joint presentation on it with the lead consultant last summer at the AHRMM conference in Anaheim, Calif. Buti was able to demonstrate how this improved supply chain management process has helped Memorial reduce inventory and supply expenses and bring discipline to its supply chain decisions.
A key to the success of any such initiative is the openness and acceptance of the materials manager, according to Bev Slate, associate vice president of the QHR (formerly Quorum Health Resources) Materiel (sic) Resource Group, a Brentwood, Tenn.-based health care consultancy, who headed the Memorial consulting work.
Buti overcame his initial skepticism and realized the project could be beneficial.
“What I tell materials managers is from a consultant’s standpoint—Joe’s approach for how he used us was excellent,” says Slate. “He viewed us as a tool that he could use, versus a threat. By doing that and through working in a collaborative relationship, he had an idea of what he wanted to achieve from my visit.”
An analytical approach
The approach taken by QHR, which provides management support services to Memorial, illustrates how organizations can improve their materials management process without a drastic shake-up or costly restructuring.
Following a discussion by Memorial’s board of directors about the need to reduce its increasing supply ratio—supplies as a percentage of net revenue—Slate’s team from QHR worked on-site for three days in June 2003 to take a snapshot of the process.
It would use the findings, including follow-up legwork via e-mail and phone, to compile recommendations for changes and lay out a management action plan.
The company applied a decades-old strategic management tool to Memorial’s supply chain, using a SWOT analysis (strengths, weaknesses, opportunities and threats) to assess the five areas of acquisition, distribution management, product management, consumption and financial/audit. After an initial discussion with Memorial about the project, the consultants sent the organization a fact-finder survey—about 20 pages of questions addressing such topics as finance, how the supply chain is functioning and operational matters. Rather than being asked to focus on one specific need, the hospital staff was given the latitude to explore any areas it wanted.
For Slate, whose group assesses the supply chain, materials management is always the natural place to start when looking for possible improvements. “It’s also pharmacy, dietary and other departments, not just materials management,” she says. “But a lot of our time is spent with a materials manager because that’s the big portal coming into the hospital.”
Working closely with Buti, QHR consultants quickly established the strengths of Memorial’s materials management unit and its staff of 5.8 full-time equivalents. The consultants concluded that the materials manager had great energy, was focused on doing the best for the organization and had a clear understanding of the hospital’s goals and initiatives.
However, the lack of a strategic plan meant considerable disarray within the ordering, inventory and distribution procedures. QHR identified numerous weaknesses: fragmented supply chain services, a fragmented replenishment process, an unsatisfactory physical environment in the general stores area and nonexistent case cost management.
Its use rate for supply purchasing was just 58 percent, a sign of inefficiency in the ordering process. Buti says Memorial was using five or six GPOs, which meant extra money and extra staff time.
“Weaknesses (like that) are going to increase your costs,” he explains. “By way of comparison, why would you drive around town and waste a whole Saturday trying to shave a nickel off the price of bananas when, if you figured out your main items were cheaper at one place, you’d go there all the time and get your other items when you were there, too.”
It seemed as though suppliers were doing an end around of materials management as the hospital’s portal, too, pitching various other departments directly and successfully.
“A vendor would call and say ‘I’ve got a great thing,’ and they (departments) would get whatever they wanted, maybe without trying to get the best price or the best contract,” Buti says. “They just saw something they liked—film, endomechanical, sutures—and they’d get it. They wouldn’t put it out to bid or anything.”
Other shortcomings Slate identified were:
- Deliveries of similar products were done by employees in receiving and storeroom technicians—a duplication of efforts that added inefficiency.
- The hospital needed to better analyze and stock the right mix of products on the shelves.
Buti was encouraged to act as an “internal consultant” for any areas involved in the supply chain. He also was given extensive training by veteran materials managers and sent to three three-day sessions at QHR’s College of Material Management in Tennessee to learn more about the job and products.
At the urging of QHR consultants, Memorial took a number of steps to realize opportunities for improvement. It eliminated some GPOs and concentrated on buying from just one or two. Slow-selling items were taken out of stock. And the central supply department has been combined with materials management in the storeroom, without losing any positions, for better coordination. Also, vendors are required to check in at materials management and don visitors’ badges, halting the practice of vendors roaming departments on their own.
“That has been a great improvement,” says Tami Binger, Memorial’s infection control practitioner and compliance officer. “People don’t just stop in like they used to. Having the sales person register at materials management not only cuts out people’s buying items on their own, it also increases security.”
Richard Ruppel, Memorial’s chief financial officer, is among the fans of the SWOT strategy at the hospital. No question, it has helped reduce supply costs, which run near $600,000 annually, he says. “The SWOT analysis was an excellent way to look at every aspect of materials management.”
Peggy Pollick, supervisor of the central processing department, also thinks the recommended improvements were effective, particularly merging the receiving and storeroom departments to avoid duplication of duties. “QHR has made Joe more aware of contract pricing and we have more things that we get from the suppliers that are on our Novation contract, so we’re more in compliance than we were before,” she says.
Buti built QHR’s recommendations into a spreadsheet to track progress on those measures month to month and ensure better compliance with purchasing supplies through a GPO.
But not all the proposed moves were quickly adopted—bar coding has yet to be accomplished. The standards committee doesn’t meet as often as it is supposed to. And the supply ratio has been hard to rein in, largely because of Memorial’s growing oncology business, where supplies are not bought on contract.
Purchasing compliance, however, is now hovering near the board’s original goal of 80 percent—a good measure of the action plan’s success.
Dave Carpenter is a freelance writer based in Grayslake, ILL.
SWOT savings
| 2003 | $166,000 |
| 2004 | $552,000 |
| 2005 | $378,000 |
| 2006 (1st qtr,) |
$95,000 |
Supply cost savings estimated by Memorial Hospital of Fremont, Ohio, as a result of changes it made following a consultant’s SWOT analysis in mid-2003 (excludes the impact of chemotherapy drug costs, as they cannot be purchased through a GPO).
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