Strategic Management of the Healthcare Supply Chain E-Book

Eugene Schneller

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 603

Veröffentlichungsjahr: 2023

Beschreibung

A systems approach to understanding the needs of today's healthcare supply chain Strategic Management of the Healthcare Supply Chain offers a big-picture overview and a proven strategic framework for supply chain management in healthcare. It also addresses concrete strategies for risk management, partnerships, logistics, performance assessment, information technology, and beyond. Readers will gain a comprehensive understanding of the issues facing the healthcare supply chain and the opportunities that present themselves as we look toward the future. Written by a team of authors with both research expertise and practical experience in healthcare supply chain, this broad and impactful book teases out the complexities within the supply chain field and the healthcare ecosystem. The healthcare industry is evolving rapidly, and the role of the supply chain is shifting in response. Institutions and practitioners are collaborating more closely than ever with supply chain leaders. This shift introduces new opportunities and challenges at the level of healthcare delivery. Additionally, the role of supply chain in safeguarding the social determinants of health--food, transportation, critical health-related products--is rapidly expanding, especially in historically underserved populations. This revised edition takes a holistic approach to the needs of people and organizations, yielding strategies that will improve both economic and health outcomes. * Gain the understanding you need to work toward building a mature supply chain organization * Develop perspective on how the needs of the healthcare supply chain are shifting in the modern era * Holistically assess supply chain performance and improve clinical, financial, and operational outcomes * Identify opportunities to generate value, improve alliances, and cut costs This book will be of interest to graduate students in the health sector and supply chain programs, as well as working clinicians, health sector managers, and supply chain leaders. Policymakers looking to create a more resilient healthcare supply chain in the wake of COVID-19 will also find valuable insight inside.

Leseprobe

Table of Contents

Cover

Title Page

Copyright

Acknowledgments

About the Authors

Remembering

About the Companion Website

List of Exhibits

List of Acronyms

Preface

1 Addressing the Needs of an Evolving Healthcare Industry

2 A New Framework: The Fully Integrated Supply Chain Organization (FISCO)

3 The Audience: Who Will Benefit from the Revised Edition

4 Persisting Questions

5 Organization of the Book

Notes

1 The Healthcare Supply Chain Environment—

Here's the Big Picture

1.1 The Healthcare Supply Chain: Evolving Recognition and Importance

1.2 Healthcare System Challenges and Strategies

1.3 Supply Chain as a System of Systems within Healthcare as a System

1.4 What Is (Healthcare) Supply Chain Management?

1.5 Supply Chain Processes and Functions

1.6 The Supply Chain Stakeholders

1.7 FISCO Functions and Supply Chain Maturity

1.8 From Cost Center to Strategic Asset

1.9 Chapter Summary

Notes

2 Building a Strategy for Healthcare Supply Chain Management—

Creating the Vision

2.1 Introduction

2.2 Vision Statements

2.3 Mission Statements

2.4 Corporate Objectives

2.5 Business Process Strategies

2.6 Technology Framework Strategies

2.7 Distribution Network Strategy

2.8 Action Initiatives/Strategies

2.9 Chapter Summary

Notes

3 Risk Management Strategies—

Healthcare Is Risky, So Is Supply Chain Management

3.1 Introduction

3.2 The Nature of Supply Risk

3.3 Risk Categories

3.4 Response and Resilience to Risks

3.5 Chapter Summary

Notes

4 Product Preference, Standardization, Value, and Clinical Integration—

You Can't Just Buy Anything

4.1 Introduction

4.2 From Cost Analysis to Value Analysis

4.3 The Physician's Role in Value Analysis

4.4 Total Cost of Ownership

4.5 The Vendor's Role in Value

4.6 The Clinically Integrated Supply Chain

4.7 The Future of Value Analysis

Notes

5 Purchasing Strategies and Alliances—

Success Requires Good Partnerships

5.1 Introduction

5.2 Strategic Sourcing and Contracting

5.3 Strategic Outsourcing to Purchasing Alliances

5.4 Supply Chain Diversity, Equity, and Inclusion

5.5 Chapter Summary

Notes

6 Logistics Strategies and Alliances—

The Devil Is in the Details

6.1 Introduction

6.2 Inventory Management Process

6.3 Order Management Process

6.4 Returns Management Process

6.5 Make versus Buy Decisions for Logistics Services

6.6 Successful Logistics Strategies

6.7 Chapter Summary

Notes

7 Performance Measurements and Maturity Models—

You Only Get What You Measure

7.1 Introduction

7.2 Metrics and Measurements

7.3 Metric Sets in Health Sector Supply Chain Management

7.4 Toward a Performance Measurement System

7.5 FISCO Framework as a Maturity Model for the Healthcare Supply Chain

7.6 Chapter Summary

Notes

8 Organization Design for Managing the Supply Chain—

A Well-designed Organization Makes It Easier to Succeed

8.1 Introduction

8.2 The Role of Organization Design

8.3 Supply Chain Design for a Boundary Organization

8.4 Roles, Authority, and Responsibility

8.5 Hybrid Organization Design

8.6 Chapter Summary

Notes

9 Information Technology (IT) Strategies—

Information Is the Glue that Binds

9.1 The Value of Supply Chain Technology

9.2 Technology Framework and Systems for Supply Chain Management

9.3 IT as a Strategy for High Performance

9.4 Chapter Summary

Notes

10 The Fully Integrated Supply Chain Organization (FISCO)—

Tying It Together and Looking Forward

10.1 Introduction

10.2 Overarching Themes

10.3 Leadership and Organizational Challenges in a Complex Network

10.4 Summary

Notes

Appendix 1: Best Practices within the Context of Non-Governmental Fully Integrated Supply Chain Organization (FISCO)

I. ENTERPRISE SYSTEMS

II. CONCLUSIONS

III. ATTACHMENTS

Notes

Appendix 2: Clinician, Supplier, and Buyer Working as One to Improve Patient Outcomes

Executive Summary

1 Background

2 The Perennial Challenge

3 Purchasing Strategy

4 Market Analysis and Segmentation

5 The Procurement Process

6 Lessons Learned

7 The Future

8 Conclusion

Note

Index

End User License Agreement

Guide

Cover

Title Page

Copyright

Acknowledgments

About the Authors

Remembering

About the Companion Website

List of Exhibits

List of Acronyms

Preface

Table of Contents

Begin Reading

Appendix 1: Best Practices within the Context of Non-Governmental Fully Integrated Supply Chain Organization (FISCO)

Appendix 2: Clinician, Supplier, and Buyer Working as One to Improve Patient Outcomes

Index

End User License Agreement

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Strategic Management of the Healthcare Supply Chain

Second Edition

Eugene Schneller

W. P. Carey School of Business, Arizona State University, Tempe, Arizona, USA

Yousef Abdulsalam

College of Business Administration, Kuwait University, Kuwait City, Kuwait

Karen Conway

Global Healthcare Exchange (GHX), Louisville, Colorado, USA

Jim Eckler

W. P. Carey School of Business, Arizona State University, Tempe, Arizona, USA

Copyright © 2023 by John Wiley & Sons Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

Edition History: John Wiley & Sons, Inc. (1e, 2006)

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Comment on Strategic Management of the Healthcare Supply Chain

By Eugene Schneller, Yousef Abdulsalam, Karen Conway, Jim Eckler

Supply chain in healthcare is fundamental. And until the pandemic it was taken for granted. The pandemic raised supply chain skills to the level of a national security issue. Supply chain in its broadest sense is a fundamental strategic tool for all aspects of emergency preparedness and healthcare delivery in times of crisis. Objectives are to have ready materials, supplies, PPE, medications, warehouse management, and backup workforce reserves are all required to assure readiness, the ability to sustain a prolonged response, maintain core business activities, and manage surges.

—Denis A. Cortese, MD

Emeritus Professor, President/CEO Mayo Clinic

Professor and director of Arizona State University Center for Healthcare Delivery and Policy

This book goes beyond the lessons of the pandemic for emergency preparedness. It also makes clear the role of the CQO, cost-quality-outcomes. The value engineering triad, of which 2 out of the 3 won’t do.

As healthcare gets serious about value-based care this book clarifies the importance of the role supply chain managers and supply chain thinking brings to key strategic and tactical discussions, planning and implementation.

As the authors wisely say, “Integration between supply chain practice and clinical practice is the hallmark of a high performing health care supply chain organization.” I would rephrase this to say it is the hallmark of a high performing and resilient organization. This book is a fundamental guide for success.

—Doug Bowen

Senior Vice President

Banner Health

I am confident this updated edition of Strategic Management of the Healthcare Supply Chain, will prove valuable to all audiences. It is an orienting read for new entrants and practitioners to the field of supply chain. It is also an excellent core text for graduate courses, and a must-read for seasoned supply chain leaders.

Pay special attention to the information shared on product standardization, value analysis, and clinical integration—this is the gift that keeps on giving as it will pay dividends now and in the future. Also, I am especially excited about the Fully Integrated Supply Chain Organization (FISCO) model, which has the potential to transform and elevate healthcare supply chain practice.

As a leading healthcare supply chain practitioner and life-long supply chain student, I can attest that this dream team of collaborators—Dr. Schneller, Yousef, Jim, and Karen—have included all the required topics and insights needed to create and operate a more successful healthcare supply chain!

—Lawton Robert Burns, PhD, MBA,

James Joo-Jin Kim Professor, a Professor of Health Care Management

Professor of Management

Wharton School at the University of Pennsylvania.

Director of the Wharton Center for Health Management & Economics

Supply chain management is, at once, the most important source of potential cost savings and the least understood area in healthcare. Maybe that is why we, as a country, have failed to make a dent in lowering healthcare costs. Schneller and colleagues have come to the rescue, offering a comprehensive framework and holistic approach. Their book should be required reading for healthcare academics (and their students), executives, and clinicians. It is time for everyone to step up to the plate.

—Robert Handfield Bank of America University Distinguished Professor of Supply Chain Management Executive Director, Supply Chain Resource Cooperative North Carolina State University

An important update to this leading textbook on healthcare supply chains. The new book provides important insights into how hospitals and organizations in their supply chains will need to develop more resilient and agile approaches to managing the many disruptions and challenges that exist in a globally outsourced healthcare environment. These approaches are based on firsthand experience by the authors as well as ongoing discussions and interviews with healthcare executives. They are not theoretical, but rather provide important practical insights for any student of healthcare to understand and adopt. I have no doubt this book will have an enormous impact on the practice of healthcare supply chain management.

Strategic Management of the Healthcare Supply Chain is an eye-opener on how to make an effective, efficient supply chain happen in the health sector.

We do not know how many of the million-plus COVID-19 deaths were associated with the lack of protective and therapeutic supplies, but ironically, many of the products were available. They were not visible, however, in our fragmented supply chain system with its woesome transparency.

COVID-19 was not a Black Swan event. Supply chain preparedness explicated in Strategic Management of the Healthcare Supply Chain is critical for our future.

This is no ho-hum, hortative manual—but a terrific, easy-to-read, pragmatic book that:

Demonstrates how to implement a fully integrated supply chain organization—a turn-of-mind program for health sector supply chain management—through an impressive team composed of an industry strategic leader, a seasoned supply chain practitioner and two highly regarded scholars.

Provides academics, students, and practitioners guidance for the management of the supply chain not only in “normal times,” but also incorporates key lessons from COVID-19 to help bullet-proof us against future disruptions.

Strategic Management of the Healthcare Supply Chain shows how to create the supply chain management that is so essential to an efficient and resilient healthcare system.

—Regina E. Herzlinger

Nancy R. McPherson Professor of Business Administration

Harvard Business School

Acknowledgments

The authors are grateful:

For the support (okay, tolerance) by their spouses for the time away from family activities.

To the W.P. Carey School of Business at ASU for its solid and unwavering commitment to education in healthcare supply chain management.

To the W.P. Carey School of Business at ASU for supporting the fall 2022 sabbatical for Gene, which allowed for extensive time to be devoted to the text.

To the ASU College of Health Solutions, which tolerated Karen Conway relating the importance of the supply chain to nearly every aspect of her graduate studies in the Science of Healthcare Delivery.

To GHX and the many supply chain professionals at both healthcare delivery and supplier organizations for reinventing how they conduct business together.

To Kuwait University for allowing Yousef the autonomy and flexibility to pursue an interdisciplinary research agenda in healthcare supply chains.

To the thousands of healthcare professionals we have influenced in the past 15 years since the first edition of this book was published (and those who have influenced us in this rewrite). May our messages and advice on modern supply chain management practices continue to guide you through your careers and help you to improve the performance of global healthcare supply chains.

To Zoom for providing the technology that allowed for a team located in the United States, Canada, and Kuwait to meet frequently to discuss the key factors constituting and influencing supply chain management in the health sector.

To the many healthcare clinicians and administrators who responded to the COVID-19 pandemic and brought the term s

upply chain management

(SCM) to the forefront of the public mind and for the recognition and respect that SCM has gained.

About the Authors

Eugene Schneller, PhDProfessor and Dean's Council of 100 Distinguished ScholarDepartment of Supply Chain ManagementArizona State University

Eugene Schneller earned his PhD at New York University (Sociology). He was awarded an honorary Physician Associate (PA) degree from Duke University and an honorary Doctor of Humane Letters from the A.T. Still University. He has held faculty and research scholar positions at Duke University, Union College (New York), and Columbia University. His consulting and research focus on healthcare policy, best practice adoption, supply chain purchasing strategy design and governance, human resource development, and supply chain integration. He is a former director at Vomaris and the Barrow Neurological Institute, and has served on advisory boards for both device manufacturers and information technology companies. He was on the Expert Advisory Council for SCAN health and serves in an advisory capacity to W. L. Gore Associates. He was Principal Investigator for the U.S. Department of Defense efforts to integrate the medical supply chains for the three services. He is the former Chair of the Board of the Association of University Programs in Health Administration and the former Western Network for Health Care Management. He is co-founder of Healthcare Supply Chain Excellence and Principal at Health Care Sector Advances. In 2022, he was appointed as Co-Director for the design and management of the Resilience Initiative at the W.P. Carey School of Business. He is a frequent speaker at academic and corporate conferences, and has facilitated strategic planning retreats, focus groups, and scenario planning exercises for medical device companies, group purchasing organizations, and universities.

Yousef Abdulsalam, PhDAssociate Professor of Operations and Supply Chain ManagementCollege of Business AdministrationKuwait University

Yousef Abdulsalam is an Assistant Professor of Operations & Supply Chain Management at Kuwait University's College of Business Administration. He earned his PhD in Supply Chain Management from the W.P. Carey School of Business at Arizona State University under the supervision of Professor Gene Schneller. His academic research relates to supply management in the health sector, including supply chain integration, purchasing alliances, and the physicians' influence on supplier selection. The research has been published in both supply chain management journals (Journal of Business Logistics, Journal of Operations Management) and healthcare management journals (Health Care Management Review, Medical Care Research & Review). He teaches undergraduate courses in supply chain management, business analytics, and operations research. Prior to his academic career, Yousef was a certified Project Management Professional (PMP) working at Ernst & Young's Advisory Services division in the Information Technology, Project Management, and Business Process Reengineering domains.

Karen Conway, MSc, CMRP, CLSSGBHealthcare Delivery Scientist/Supply Chain EvangelistVice President, Healthcare Value; Head of ESGGlobal Healthcare Exchange (GHX)

Trained as a healthcare delivery scientist, Karen Conway applies extensive knowledge of supply chain operations and systems thinking to align processes and data across the healthcare ecosystem to generate evidence on what improves the health of people and populations, and the performance of organizations upon which an effective healthcare system depends In 2017, she completed a Capstone research project for the U.S. FDA, exploring the importance of trading partner collaboration in successful implementation of the agency's unique device identification (UDI) rule. She has also consulted internationally on the value of data standardization in the healthcare supply chain. During the Covid-19 pandemic, she led the supply chain curricula for national summits on health system recovery and health equity and delivered closing remarks on leadership to support sustainability in the health sector at a G20 Summit pre-event. She has served as elected national chair of AHRMM, the supply chain association for the American Hospital Association, as board secretary for Strategic Marketplace Initiative (SMI) and as a member of the GS1 Global Healthcare Leadership Team, the healthcare advisory board for CAPS Research, and the expert advisory council for SCAN Health. She co-wrote a best-selling book on global leadership, Leading from the Edge, and was a contributing author to the Springer publication, eBusiness in Healthcare. Her monthly column on the supply chain and value-based healthcare has been one of the most well read in Healthcare Purchasing News for more than a decade. She holds a masters in the Science of Healthcare Delivery from Arizona State University and a bachelor's degree from The Colorado College.

Jim Eckler, B. Math, MS, CMC, ICD.DClinical Faculty, Department of Supply Chain ManagementW.P. Carey School of BusinessArizona State University

Jim Eckler is a graduate in Mathematics from the University of Waterloo and in Management Science from the Wharton School of the University of Pennsylvania. He is a past chair of the Supply Chain and Logistics Association of Canada. As well, he is a Certified Management Consultant (CMC). Over the past 45 years, he has authored numerous articles and regularly speaks on a broad range of supply chain topics. Professionally, Jim provides advisory services in the supply chain management field delivering practical strategic and operational advice to his clients. He focuses exclusively on supply chain management, outsourcing, business strategy, corporate governance, and operations. He has a particular specialty in the healthcare field, advising hospital systems and other healthcare organizations toward the achievement of supply chain excellence.

To support this focus, Jim co-founded Healthcare Supply Chain Excellence (www.hscxi.com), a consulting firm focused on strategy, cost management, improved patient outcomes, and quality improvement, all driven to improve supply chain management performance. He is also the cofounder of Physicians for Supply Chain Excellence, an organization to help physician leaders gain clinical alignment on supply chain matters, particularly toward rationalizing high-cost physician preference items. For 18 years, Jim held senior executive roles in operating companies, including Health Shared Services BC, a provider of shared services for the healthcare system across British Columbia, and as President and CEO of SCI Group Inc., a leading supply chain management outsourcing services company, providing logistics services for major technology, healthcare, and retail companies such as Xerox, Bell Canada, Amazon, Wal-Mart, Siemens, and Lowes.

In addition to operational roles, Jim has served on six boards with roles including chair, executive committees, finance, and pensions. He also holds the ICD.D designation from the Institute of Corporate Directors. Prior to his senior executive positions, Jim was a supply chain management consultant for 18 years with Booz Allen and KPMG.

Remembering

Larry R. Smeltzer

The first edition of this book was based on work I carried out with Larry Smeltzer, beginning in 2002. Larry passed away in 2004, at the young age of 57, after co-writing but just prior to the publication of the first edition of this book. He was my dear friend and collaborator, and is greatly missed.

Larry was a pioneer in the field of supply chain management. He was significantly shocked by the extent to which healthcare supply chain practice lagged so significantly behind supply chain practice in other industries. He was equally shocked by the absence of supply chain education for senior healthcare organization leaders, and perhaps, most shocked by my ignorance and the ignorance of most health services researchers about the supply chain's centrality for operations and patient care. How could we train future health sector CEOs without ever hearing about the healthcare supply chain?

Larry started me on a supply chain journey. While I think he failed to convince me that inventory was interesting—he did convince me that it was (and still is) important. If one needs any confirmation of this, just consider the value of inventory during the COVID-19 pandemic's early days. In our travels to healthcare systems across the nation, Larry dared to ask tough and challenging questions—especially around the failure of supply chain managers to see themselves and be seen as both the agent of a healthcare organization's important assets, materials, and processes, and as influencers to improve value to healthcare business professionals, clinicians, and ultimately, patients. He was appropriately puzzled by the strong influence of physicians and the gaps in incentives between buyers and sellers in the health sector. He said, “Gene, we need to write about this!” While the influence of the first edition has been considerable for both undergraduate and graduate students, it has also been, curiously, influential in helping to shape managers from nonhealth sectors transitioning into health and physicians who have grown into roles that interface with supply chain. Hopefully, this new edition will continue to provide that influence. Healthcare needs talent that will improve the practice of supply chain management, and in turn, the delivery of healthcare.

If Larry is looking down from a heavenly perch, he is surely smiling. Terms in this new edition would excite him—value-based purchasing, clinician integration, and evidence-based practice,”….

Perhaps, most importantly, Larry was a great mentor. He changed the focus of so many undergraduate and graduate students, and unknowingly, sent me on a trajectory I had never even known existed. We thus dedicate this recasting of Strategic Management of the Healthcare Sector to Larry Smeltzer.

—Gene Schneller, PhD

Dean's Council of 100 Distinguished Scholar

Arizona State University

About the Companion Website

This book is accompanied by a companion website:

www.wiley.com/go/schneller/health_care_supply_chain2e

To assist students and other readers to fully benefit from this textbook, we have prepared supplemental material in the form of web-based references, discussion questions for groups, and short answer questions which are interactive in design. These resources will help to extend the learning from the text and, resulting from the web-based capability, it will be updated frequently to keep the students and other readers current on this topic.

The website includes:

Listing of Key Associations, Trade Organizations, Trade Magazines & Journals, Peer-Reviewed Journals, and Websites

Associations and Research Centers for advancing supply chain

Trade Organizations

Key Concepts

Discussion Questions

Short Answer Questions

Selected Readings

Case studies and Supplemental Materials

List of Exhibits

1.1

Value-based healthcare benefits

1.2

The formula for value in healthcare

1.3

The healthcare ecosystem

1.4

Key FISCO functions

2.1

Outsourcing decision-making considerations

2.2

Common organizational strategies and their tactics

3.1

The primary components of a risk management strategy

3.2

Changes in risk management practices stemming from the COVID-19 pandemic

3.3

Event probability and its consequences

3.4

Types of risk: Causes and consequences

3.5

Historical development of coronary heart stents

3.6

Coronary stent types

4.1

The professional service triad in healthcare purchasing

4.2

Cost saving of 25% from integrating cost of ownership

4.3

A maturity model for clinical integration

4.4

Clinically integrated supply chain value flow chart

4.5

Value analysis—A more strategic approach

5.1

Procurement Activities

5.2

Categories of hospital supplies with examples

5.3

A framework for category management and analysis

5.4

Contingencies for different relationship strategies

5.5

Supplier relationship management for continuous improvement

5.6

The Sourcing Continuum

5.7

The flow of physical goods and information among procurement stakeholders

5.8

The flow of cash among procurement stakeholders

5.9

Process of negotiating contracts with manufacturers

5.10

Typical hospital supply spend

6.1

The major processes and subprocesses of the logistics function

6.2

The bullwhip effect

6.3

The inventory control process inputs and outputs

6.4

The “sawtooth” inventory replenishment diagram

6.5

The order management subprocesses

6.6

Order processing workflow

6.7

Types of service provision deals

6.8

The continuum of shared services solutions

6.9

Notable healthcare supply chain management partnerships in North America

6.10

Impact on supply chain performance of three healthcare collaboratives

6.11

Accountability and responsibility changes

7.1

The supply chain operating reference model

7.2

The FISCO framework

7.3

Current Industry Best Practices (IBP)

7.4

Example FISCO Maturity Scale: Product selection and standardization

8.1

Supply chain services segment alignment

8.2

Elements of strategic fit

8.3

Characteristics of the largest health systems (by number of hospitals, 2022)

8.4

Industry complexity versus uncertainty matrix

8.5

Centralization/decentralization summary

8.6

Division of work/authority and responsibility

8.7

Lenses in health care supply chain

9.1

The P2P cycle

9.2

Business versus clinical systems

9.3

The main modules of an ERP system

9.4

The cloud service ecosystem

9.5

The ERP’s role in the P2P cycle

10.1

Healthcare value equation

10.2

Supply chain management transformation over three-plus decades

A.1.1

Enterprise architecture positioned within an organization’s context

A.1.2

Enterprise architecture analytics

A.1.3

Key FISCO functions

A.1.4

Gartner levels of maturity for technology

A.1.5

Assessment summary

A.2.1

Budget Expenditure, And Patient Activity, Cardiothoracic Center (In Pounds Sterling)

A.2.2

Analysis of the Trust’s supplier portfolio

A.2.3

Influence of Strategic Focus on Patient Outcomes

A.2.4

Product lifecycle

A.2.5

Angioplasty Devices – Rate of Change

A.2.6

Contract vs. actual procedure volumes for stents—March 2002

A.2.7

Plymouth Hospitals NHS Trust contract schedule

A.2.8

Product use comparison

A.2.9

Price Comparator for Cardiothoracic Core Products

A.2.10

Risk transfer—pacemaker systems

A.2.11

Supplier performance monitoring

A.2.12

Unit of Purchase Price Invoice Rate Versus Variance Report

A.2.13

Purchasing cycle

A.2.14

The changing role of purchasing and supply

A.2.15

Potential Resource Shifts

List of Acronyms

3PL

Third-party Logistics

ACA

Patient Protection and Affordable Care Act

AHC

Academic Health Center

AHRMM

Association for Healthcare Resources & Materials Management

AHRQ

Agency for Healthcare Research and Quality

AI

Artificial Intelligence

AP

Accounts Payable

ASC

Ambulatory Surgery Center

ASU

Arizona State University

ASU/CHMR

A 2004 research study carried out by Larry Smeltzer and Gene Schneller

AVAP

Association of Value Analysis Professionals

B2B

Business-to-Business

BATNA

Best Alternative to a Negotiated Agreement

C2SHIP

Center to Stream Healthcare in Place

CAM

Complementary and Alternative Medicine

CAPS Research

Center for Advanced Purchasing Studies

CATH Lab

Interventional Cardiology Laboratory

CHMR

Center for Health Management Research

CIPS

Cloud Infrastructure and Platform Services

CMS

U.S. Centers for Medicare and Medicaid Services

COE

Center of Excellence

COVID-19

Coronavirus Disease Pandemic

CQO

Cost, Quality, and Outcomes

CRM

Customer Relationship Management

CSC

Consolidated Service Center

DOD

U.S. Department of Defense

DHA

Defense Health Agency

DRG

Diagnostic-related Group

DRP

Distribution Requirements Plan

DES

Drug-eluting Stent

EDI

Electronic Data Interchange

EHCR

Efficient Healthcare Consumer Response

EHR

Electronic Health Record

EMA

European Medicines Agency

EMR

Electronic Medical Record

EOQ

Economic Order Quantity

ERP

Enterprise Resource Planning

FDA/U.S. FDA

U.S. Food and Drug Administration

FFS

Fee-for-Service

FISCO

Fully Integrated Supply Chain Organization

FTC

Federal Trade Commission

FTE

Full-time Equivalent

HIGPII

Healthcare Group Purchasing Industry Initiative

GPO

Group Purchasing Organization

HCSA

Healthcare Supply Chain Association

IBP

Industry Best Practice

IDC

International Data Corporation

HMO

Health Maintenance Organization

HMPI

Health Management, Policy & Innovation

ICU

Intensive Care Unit

IDN

Integrated Delivery Network

IoT

Internet of Things

ISM

Internal Supply Management

IT

Information Technology

JIT

Just-in-Time

KPI

Key Performance Indicator

LGBTQ

Lesbian, Gay, Bisexual, and Transgender

ML

Machine Learning

MRI

Magnetic Resonance Imaging

NEST

National Evaluation System for Health Technology

NLP

Natural Language Processing

NHS

National Health Service

NPI

New Product Introduction

NSF

National Science Foundation

ONC

Office of the National Coordinator

OR

Operating Room

PBM

Pharmacy Benefit Manager

PO

Purchase Order

RFI

Request for Information

RFP

Request for Proposal

RFQ

Request for Quote

P2P

Procure-to-Pay

PCORI

Patient-centered Outcomes Research Institute

PO

Purchase Order

PPE

Personal Protective Equipment

PPI

Physician Preference Item

PPM

Purchasing Partner Management

PPO

Preferred Provider Organization

PSO

Point of Service Organization

ROA

Return on Assets

RPA

Robotic Process Automation

RWE

Real World Evidence

SaaS

Software-as-a-Service

SCM

Supply Chain Management

SCOR

Supply Chain Operations Reference

SCRM

Supply Chain Risk Management

SDOH

Social Determinants of Health

SKU

Stock Keeping Unit

SMART

Specific, Measurable, Achievable, Relevant and Time-based

SMI

Strategic Marketplace Initiative

SNS

Strategic National Stockpile

SOW

Statement of Work

SRM

Supplier Relationship Management

TCO

Total Cost of Ownership

TKA

Total Knee Arthroplasty

TQM

Total Quality Management

TQO

Total Cost of Ownership

UDI

Unique Device Identification

U.K.

United Kingdom

VA

Veterans Administration

VAT

Value Analysis Team

VMI

Vendor Managed Inventory

VMO

Vendor Management Office

VOI

Vendor Owned Inventory

WCC

Weighted Cost of Capital

WMS

Warehouse Management System

Preface

1 Addressing the Needs of an Evolving Healthcare Industry

This edition of the book was substantially revised in consideration of the evolution of health sector supply chain research and practice over the past decade and a half. This includes the critical learnings that arose out of the COVID-19 pandemic, especially as it relates to a heightened appreciation of the need for preparedness and resiliency. Most importantly, the book incorporates the substantive changes in the supply chain necessitated by the fundamental shift to a value-based healthcare system. Foremost, as hospitals, healthcare systems, and clinicians are increasingly compensated based on their ability to create value in relation to money spent and resources consumed, healthcare institutions have greater dependencies on the ability of the supply chain to source, secure and deliver products and services that support the delivery of high-quality care at an affordable cost. The centrality of the physician as the predominant decision-maker as to what is needed and what is prescribed remains intact, but changing value-based payment methodologies and incentives are increasing interest in the cost of care and fostering more collaboration with supply chain leaders.

Supply chain management teams are also important contributors to broader initiatives that seek to integrate the delivery of both clinical and social resources. For example, food, transportation, and housing are products and services necessary to optimize the health and well-being of entire communities and populations of patients. An expanding role for supply chain is to manage the sourcing, procurement and delivery of products and services associated with the so-called social determinants of health (SDOH).1 This is driven in large part by the increasing number of value-based reimbursement programs that are tied to improving the health of entire populations, especially among the poor and communities of color that have historically lacked access to these resources, which have been proven to enhance health status and longevity.

Governments, commercial payors, and health systems are also using reimbursement policies to shift some of the care that has traditionally or frequently been delivered in the acute care hospital setting to community locations, such as ambulatory surgery centers and the home, where the same quality of care can be delivered at a lower cost.2,3 The U.S. Centers for Medicare and Medicaid Services (CMS) have also expanded the list of procedures that can be performed in the non-acute setting, while commercial insurers have begun to deny coverage for certain services, for example, imaging, unless handled outside the hospital.4

The first edition of this book had been based on research conducted from 2001 to 2004 by its authors, Eugene Schneller and Larry Smeltzer.5 At that time, there was relatively little written about supply chain management in the health sector from a strategic perspective. Gene and Larry each brought a unique perspective to the evolving field — one through a lens grounded in health management, policy research, and education, and the other substantiated by a practitioner's knowledge of the fundamentals of supply chain management and how the field had developed in other industries. Gene's teaching had been principally to students, including physicians, in health management programs, where supply chain was infrequently mentioned. Larry, on the other hand, spent his career teaching supply chain management students and consulting with multinational companies, such as Motorola and John Deere. Thus, he brought to the project an in-depth understanding of how the non-health sector had utilized the supply chain for competitive advantage. Larry, who passed away in 2004, was also a pioneer in the area of supply chain management research and education at Arizona State University and served as a chair of the Department of Supply Chain Management. From his perspective from multiple roles in supply chain, Larry observed that hospitals and healthcare systems failed to recognize both supplies and the supply chain itself as strategic assets. In the first edition, the authors challenged supply chain researchers and practitioners to foster a vision for the field that would drive benefits similar to what other industries had achieved, noting at the time that a few progressive organizations had begun to do so.

For the second edition, Gene is joined by three new authors to support this broader and more impactful role for supply chain. Yousef Abdulsalam brings an additional academic perspective steeped in healthcare supply chain research, while both Karen Conway and Jim Eckler offer decades of practical experience in the practice of healthcare delivery, technology, and supply chain. All four authors also have substantial knowledge of healthcare supply chain operations and performance across global markets.

This breadth of experience and perspectives also supports the revised volume's approach to the supply chain as a system of systems, operating in the larger context of the overarching healthcare ecosystem. A systems-based approach takes into consideration how overall performance of the supply chain is closely linked to the interdependencies among myriad stakeholders, including manufacturers, distributors, healthcare delivery organizations, clinicians, group purchasing organizations, technology partners, and regulators, among others. Together with a foundational understanding of the shifts in both the market and regulatory environment, applying systems thinking uniquely positions the revised edition to support the needs of a broad array of learners.

2 A New Framework: The Fully Integrated Supply Chain Organization (FISCO)

This volume incorporates a new framework, elaborated upon within the text and Appendix 1, for a Fully Integrated Supply Chain Organization (FISCO) as the desired destination for those seeking to develop a mature supply chain. The FISCO concept, developed at Arizona State University, takes emphasis off any one supply chain function, allowing for a more holistic assessment of current status and realization of a vision that supports improved clinical, financial, and operational performance.

3 The Audience: Who Will Benefit from the Revised Edition

While supply chain management has occupied a pivotal position for change in other industry sectors, leading to a proliferation of interest in this topic in both undergraduate and graduate-level business management education in the United States, supply chain management strategy remains almost non-existent in comparable graduate-level programs in healthcare. For this reason, a primary audience for the revised edition are graduate students in health sector and/or supply chain management programs. Those exploring and advancing their careers as practitioners in the healthcare field will benefit from a better understanding of supply chain's potential to not only manage the spiraling increases in the costs of the supply chain and healthcare delivery, but also to improve the ability to meet the evolving demands of value-based healthcare. Those in supply chain programs, in turn, will appreciate the unique and broad-reaching opportunities in healthcare that can have significant implications for individuals, organizations and society as a whole. Identifying progressive practices will assist managers to meet the challenges posed in designing, managing, and monitoring an effective supply strategy, understanding the roles and inter-relationships between multiple business, clinical and technical partners, hiring competent supply managers, and assuring accountability, all which are critical competencies for the modern healthcare supply chain professional.

Similarly, the book will serve programs in executive education for clinicians, with much of the research and framing “tested” across cohorts of students at Arizona State University and the University of Colorado's executive program in health sector management, as well as in physician-specific MBA and business in medicine programs. Both clinicians and practicing supply chain leaders will learn the importance of collaborating in the redesign of care for specific patient cohorts based on evidence as to the impact of products and services on the quality and cost of care. In this regard, supply chain leaders can support the clinician's need for evidence on product performance, while clinicians can gain a new understanding of the factors that drive costs, affordability and value for health systems and most importantly patients.

The book can also assist senior hospital and health system executives, given heightened recognition of the critical importance of supply chain made evident during the global pandemic and their need to adapt systems and processes in the move to value-based healthcare. It supports the transition of managerial understanding of the supply function beyond what many have seen as an organizationally bound and narrow “purchasing” or “procurement” function to what is quickly evolving into a mission-critical, multi-enterprise business network operation.

Chief supply chain officers, along with their vice presidents, directors, and managers, will value the lessons to be learned from progressive supply chain organizations both in healthcare and other industries. By focusing on the fundamentals, but with thoughtful consideration of critical issues in healthcare, the revised edition provides guidance to those seeking to transform the supply chain function to support both a wider and higher-level range of strategic organizational goals. The aforementioned FISCO model has been utilized to assess and improve supply chain performance for organizations in the process of undergoing change. It has also been applied to the evolution of the Defense Health Agency, which brought together the healthcare systems operated independently by the U.S. Army, Navy and Air Force, and represented a merger of entities with very different needs, cultures, and mission.

This book will also benefit those organizations that serve healthcare delivery organizations. The move to value is creating fundamental disruption in the marketplace, and companies seeking to survive, if not thrive, during this transition will require a deep understanding of their customers' journeys, including those of the myriad new players entering the market, and what they need from their business, clinical and technology partners. Those who fully understand the business, clinical, market and regulatory needs of the healthcare client will be best positioned to bring value to their respective organizations and customers.

Finally, the revised edition provides critical insights for public policy makers as they seek to create a more resilient healthcare supply chain that can support the health and well-being of the population, as well as both national security and global competitiveness. By understanding how the system operates and its critical interdependencies, legislators and regulators can target their actions to achieve the intended results while avoiding taking well-intentioned steps that too often result in unintended consequences and system suboptimization.

4 Persisting Questions

The first edition of this book was supported by the National Science Foundation (NSF) and the Center for Health Management Research (CHMR), an industry-university cooperative research center supported and governed by health systems from across the United States. Focus group sessions and interviews with provider organizations revealed an overwhelming consensus that, at the time, (a) the supply chain was one of the more ignored aspects of management, (b) clinician preference was a major barrier to supply chain progress, (c) supplier “power” was an overwhelming obstacle and (d) the costs of operating the supply chain were expected to continue to increase. When the authors for this volume revisited the original research, it became obvious that although there has been great progress, the principal questions for concern, derived from focus groups with leading U.S. hospitals during the earlier study, remain relevant for driving an analysis of the strategies being employed (Sidebar P1). See these persistent questions in the sidebar.

This volume addresses these key issues by a team with extensive experience in research, education, consulting, strategy, and design for supply chains in the health sector. It is also a team that has experience in assessing supply chains from other industries — and thus able to assess health sector supply chain strategies and processes within the context of supply chain practices that have progressed, for all sectors, over the last decade and a half.

5 Organization of the Book

The book is organized to reflect the three hospital and health system supply chain macro processes that Chopra and Meindl, authors of one of the most influential texts in the area of supply chain management, identified as (a) customer relationship management (CRM), (b) internal supply management (ISM), and (c) supplier relationship management (SRM),6 as well as a key issue that we believe is critical to understanding and managing the health sector supply chain—purchasing partner management (PPM). Finally, the book is systematically attentive to the principal aspects of the FISCO functions—supply chain management processes, technology tools, and organization support. This disciplined approach is packaged into each of the following chapters.

Sidebar P1

Persistent Healthcare Supply Chain Management Questions for Concern Across 2+ Decades

What are the characteristics of the more progressive hospital and hospital systems in managing supply chain?

How do the business strategy, organizational structure, personnel capabilities, and environmental/competitive forces of the organizations with more progressive supply chain practices differ from the organizations with less progressive supply chain practices?

What is the role of leadership by clinicians and non-clinicians in organizations characterized by progressive supply chains?

What conditions predisposed these organizations to have leading-edge supply chain structures and practices?

What are the enablers and barriers to progressive supply chain management practices in hospitals and hospital systems?

What guidelines will lead to progressive supply chain practices?

What progressive supply chain practices can hospital and system managers best adopt from leading practices in manufacturing and retail supply chains?

Chapter 1

Healthcare’s Supply Chain Environment—Here’s the Big Picture

.

Chapter 2

Building a Strategy for Healthcare Supply Chain Management—Creating the Vision

Chapter 3

Risk Management Strategies—Healthcare Is Risky, So Is Supply Chain Management

Chapter 4

Product Preference, Standardization, Value, and Clinical Integration—You Can’t Just Buy Anything

Chapter 5

Purchasing Strategies and Alliances—Success Requires Good Partnerships

Chapter 6

Logistics Strategies and Alliances—The Devil Is in the Details

Chapter 7

Performance and Maturity—You Only Get What You Measure

.

Chapter 8

Organization Design for Managing the Supply Chain—A Well-designed Organization Makes It Easier to Succeed

Chapter 9

Information Technology (IT) Strategies—Information is the Glue that Binds

Chapter 10

The Fully Integrated Supply Chain Organization (FISCO)—Tying It Together and Looking Forward

Notes

1

.  Healthy People 2030. U.S. Department of Health and Human Services, Office of Disease Prevention and Health Promotion. Retrieved [date graphic was accessed] from

https://health.gov/healthypeople/objectives-and-data/social-determinants-health

2

.  Hospital for Special Surgery. (2019, March 14). No increased risk of complications for joint replacement in ambulatory surgery setting. Hospital for Special Surgery, News Release.

https://www.eurekalert.org/news-releases/517261

3

.  Levine, D. M., Ouchi, K., Blanchfield, B., Diamond, K., Licurse, A., Pu, C. T., & Schnipper, J. L. (2018). Hospital-level care at home for acutely ill adults: a pilot randomized controlled trial.

Journal of General Internal Medicine

,

33

(5), 729-736.

https://www.acpjournals.org/doi/10.7326/M19-0600

4

.  Butcher, L. (2018). (2018, Jan. 31). What anthem's imaging policy means for hospitals. Healthcare Financial Management Association.

https://www.hfma.org/topics/article/59296.html

5

.  Schneller, E. S., & Smeltzer, L. R. (2006). Strategic management of the health care supply chain. Jossey-Bass.

6

.  Chopra, S., & Meindl, P. (2021).

Supply chain management strategy, planning, & operations

, 7. Pearson.

1The Healthcare Supply Chain Environment—Here's the Big Picture

1.1

The Healthcare Supply Chain: Evolving Recognition and Importance

1.2

Healthcare System Challenges and Strategies

1.3

Supply Chain as a System of Systems within Healthcare as a System

1.4

What Is (Healthcare) Supply Chain Management?

1.5

Supply Chain Processes and Functions

1.6

The Supply Chain Stakeholders

1.6.1

Primary Actors: Buying and Selling Organizations

1.6.2

Supporting Actors

1.6.3

Influencers

1.6.4

Fusion Organizations

1.7

FISCO Functions and Supply Chain Maturity

1.8

From Cost Center to Strategic Asset

1.8.1

Clinician Centrality and the Customer

1.8.2

Who Is the Customer?

1.8.3

Advancing Capabilities

1.8.4

Lessons from Other Industries

1.8.5

Clockspeed

1.9

Chapter Summary

1.1 The Healthcare Supply Chain: Evolving Recognition and Importance

After years of being ignored by the general public and even by many in the healthcare sector, the supply chain became a regular news item during the early days of the COVID-19 pandemic as hospitals in the United States and around the world faced critical shortages of personal protective equipment (PPE) and ventilators. This marked a pivotal moment for supply chain practitioners, who had heretofore been recognized as performing a core supporting function, but not one generally considered to have strategic influence beyond the ability to support expense reduction. As the pandemic exposed the frailties and fragmentation of a highly resource-dependent system that had been designed for efficiency over resilience, many began to question longstanding cost containment initiatives such as just-in-time (JIT) inventory management and reliance on offshore production to secure the lowest possible per unit price. The experience of the pandemic demands a broader set of competencies among supply chain professionals who must simultaneously be able to achieve daily performance metrics while preparing for future disruptions and creating the capacity to quickly recover from such circumstances. Despite this, as healthcare spending and the costs to deliver care continue to escalate without commensurate increases in revenue, financial executives will likely persist with their view of supply chain as a source of expense reduction.

A more fundamental shift impacting healthcare, and in turn the strategic role of the supply chain, is the overarching march to create a value-based healthcare system (Exhibit 1.1).1

The move to value is in response to the fundamental deficiencies in a fee-for-service (FFS) reimbursement environment, in which hospitals and physicians are paid based on the volume of services provided, as opposed to the value of their services. When multiple providers caring for the same patients are paid under a FFS arrangement, as has been the case in the United States for more than 50 years, care is often not well coordinated, resulting in overutilization and duplication of services, less than satisfactory patient outcomes, and higher overall expenditures, which in turn, leave less money available to reimburse providers.2 The move to a value-based healthcare system requires excellence in management and innovation to achieve an accountable care healthcare system.3

In the healthcare context, value is defined as the “health outcomes achieved that matter to patients relative to the cost of achieving those outcomes.”4 In the broadest sense, the value equation (Exhibit 1.2) itself takes into account multiple factors: the quality of care delivered, the outcomes achieved, and the patient experience of care, divided by all of the resources (fixed and variable) used in the delivery of care, including the physical and technological infrastructure as well as all personnel, products, and services involved in support of care delivery.5,6

Exhibit 1.1: Value-based healthcare benefits.

Adopted from NEJM Catalyst.

Exhibit 1.2: The formula for value in healthcare.

A variety of terms have been used to describe the move to value as well as the mechanisms (mostly financial) being developed to drive the transition. See Sidebar 1.1 for clarification of how those terms are used throughout this book.

In the United States, the cornerstone of the value-based healthcare movement is the Affordable Care Act (ACA), which included numerous mechanisms to tie reimbursement to the value delivered as opposed to the volume of services performed. Increasing patient value requires greater coordination among members of care teams, and ultimately, between supply chain and clinicians. To support many of these new payment models, along with the fundamental need to deliver quality care at an optimum price, supply chain has become a more strategic partner to clinicians as they seek to acquire the products and services that will deliver the most value to patients, a topic discussed further in Chapter 5.

Shortly after the passage of the ACA in 2010, the Association for Health Care Resource & Materials Management (AHRMM), the professional supply chain association for the American Hospital Association (AHA), launched the Cost, Quality, Outcomes Movement (CQO) to increase awareness of the “critical role supply chain professionals play in driving high-quality care, at a more affordable cost, to deliver greater value to patients.”7 At its foundation, the CQO Movement taught that any consequential exploration of healthcare supply chain management from a strategic perspective must begin with an understanding of its role in supporting the evolving objectives of the healthcare ecosystem as a whole.8Chapter 4 provides a further discussion of CQO and its larger implications on value and what is referred to as the clinically integrated supply chain.

Clearly, through the efforts of the CQO Movement, the ACA, and experiences drawn from the COVID-19 pandemic, the management of the supply chain has become much more critical and more substantial within healthcare organizations. The driver of this growth is the fundamental value proposition brought by the practices of professional supply chain management, which encompasses both the parties and processes needed to fulfill a customer request, and when performed successfully, enhances customer satisfaction.9

Side Bar 1.1Making Valuable Sense

A concept related to utility, productivity, effectiveness, efficiency, and many others, value is often used in terms that describe business paradigms and operating models focusing on value. Sidebar 1.1 provides some clarification and distinctions around common and inter-related concepts associated with value, some used exclusively in the healthcare context, while others recognized more generally in supply chain management.

More Healthcare Specific

Value-based healthcare

—“a healthcare delivery model in which providers, including hospitals and physicians, are paid based on patient health outcomes” (

https://catalyst.nejm.org/doi/full/10.1056/CAT.17.0558

).

Value-based purchasing

—“linking provider payments to improved performance by health care providers. This form of payment holds health care providers accountable for both the cost and quality of care they provide. It attempts to reduce inappropriate care and to identify and reward the best-performing providers.” (

https://www.healthcare.gov/glossary/value-based-purchasing-vbp

).

Healthcare value analysis

—“contributes to optimal patient outcomes through an evidenced-based systematic approach to review healthcare products, equipment, technology, and services. Using recognized practices, organizational resources collaborate to evaluate clinical efficacy, appropriate use and safety for the greatest financial value” (

https://www.ahvap.org/overview

).

More Generic

The value chain

—“the process in which businesses receive raw materials, add value to them through production, manufacturing, and other processes to create a finished product, and then sell the finished product…and to create a competitive advantage” (What's the Difference Between Value Chain vs. Supply Chain? [

http://investopedia.com

]).

Value engineering

—“a systematic, organized approach to providing necessary functions in a project at the lowest cost [that]…promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality…also called value analysis” (What's the Difference Between Value Chain vs. Supply Chain? [

http://investopedia.com

])

1.2 Healthcare System Challenges and Strategies

The healthcare system faces a multitude of challenges, including the increasing needs of an aging population, the expectations of more discerning healthcare consumers, and disparities in health status and outcomes among poor and marginalized populations due to lack of access to both health and social services, all of which put pressure on the system.

The fundamental challenge for supply chain managers is to assure that on a day-to-day basis their organizations are prepared to provide patients and customers with the most appropriate products, at the best price, in the right location, at the right time, and in the right condition in order to achieve the best outcomes. Given the critical role physicians play in the delivery of healthcare services, this requires supply chain professionals to collaborate with clinicians in the redesign of care (including what kind of care is delivered, with which resources, where, at what cost, and for which kinds of patients). Supply chain plays an important role in meeting clinicians' needs for evidence on product performance, as well as their growing interest in the costs of the care they prescribe for their patients.10,11

In an attempt to lower the total cost of healthcare and to meet consumer demands for greater convenience, many hospitals and healthcare systems are moving healthcare delivery to less expensive locations than the acute care hospital, including ambulatory surgery centers (ASCs) and patients' homes. Studies have found that procedures performed in ASCs are more than 40% less expensive than the acute care hospital,12 while treating acute level patients in their own homes can save nearly as much,13 without reducing quality in either scenario. Insurers, too, are driving the move to non-acute locations as a result of their coverage decisions.14 As the geographic footprint and locations of care broaden, so, too, does the complexity of the supply chain.

Technology advancements are supporting both the move to non-acute settings as well as the overall performance and maturation of the supply chain. For example, the ability to deliver hospital-level care in the home is significantly improved through use of remote patient monitoring technology that enables clinicians to observe and direct patient care virtually. Healthcare supply chain professionals are also investing in technologies that have been proven to be transformational in other industry sectors. The Center to Stream Healthcare In Place (C2SHIP), a National Science Foundation (NSF) Industry/University Cooperative Research Center, is an example of the robust investment and commitment to this transformation.15