MARKET RESEARCH REPORT. The Evolving Supply Chain Relationship
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1 Sept 22-24, 2014 Arizona Biltmore Phoenix, AZ MARKET RESEARCH REPORT IDN SUMMIT AD The Evolving Supply Chain MARKET RESEARCH #IDNSUMMIT REPORT 85
2 SOURCE GUIDE The IDN Summit Research Series is an on-going research project aimed at providing better understanding of the links in healthcare supply chain. This research will provide key insights to foster an improved healthcare supply chain and identify key trends impacting the industry. To inquire about future research, please contact Robert Chafin by at or by phone at (859) Introduction The demand for efficiency and the importance of managing costs, without sacrificing patient safety or quality of patient care, has risen to new heights in recent years 1. This idea, based on the IHI Triple Aim, is a framework developed by the Institute for Healthcare Improvement that describes an approach for optimizing health system performance 2. With these needs identified, what impact has there been on the way IDN Supply Chain executives conduct business with healthcare suppliers? This survey of over 200 senior, healthcare supply chain executives was created to gain a better understanding of the evolving business relationships commonly found within supply chain management. More specifically, we hope to gaugett what impact the last few years of the Affordable Care Act has had on these relationships. We asked questions pertaining to the relational foundation between IDNs and suppliers, how these partnerships are structured, the obstacles that exist in achieving optimum supply chain success, and the evolving responsibility of increased pharmacy spend management. Results indicate that the lack of data standards is still an unmistakable issue among the supply chain executives. This survey revealed that getting greater amounts of higher quality data is a sticking point between providers and suppliers. Respondents also indicated that a lack of trust is another large barrier for suppliers to overcome to achieve greater collaboration with IDNs. This is further evidenced by only 15 percent of respondents believing that suppliers are the best supply chain partner with whom to collaborate to improve supply chain performance. That number is down nearly 10 percent from a similar IDN Summit question asked on a survey conducted in Nearly one out of every five healthcare executives indicated that they are now responsible for Pharmacy Department management, a trend that continues to accelerate. Supply chain leaders responsible for Pharmacy Department management specified that drug shortages and availability, contract management, building cooperative relationships, and gaining trusts are the biggest challenges they face. Laying the Foundation for a Successful Supply Chain Business Relationship Trust and understanding of the organization are just two of the attributes that are important to healthcare executives in order to build strong business relationships. The first grouping of questions asked were aimed to learn more about the current state of the business relationships involved with supply chain management. The first question sought to understand whether supply chain executives believe suppliers are making an effort to both understand their supply chain challenges and offer meaningful ideas to address those challenges. A slight majority of respondents, 56 percent, said they either slightly or strongly agreed that suppliers have a working knowledge of the challenges they face and make a genuine effort to work toward mutually agreed upon goals. On the other hand, slightly greater than a third of respondents did not agree with the statement. This indicates that there is still progress to be made. However, the overall perception is that suppliers are making an effort to understand and address the concerns of healthcare supply chains. Q1. Suppliers fully understand the challenges of my organization and work to attain mutually agreed upon goals? 1 Interview with Dr. Lee Sacks, Modern Healthcare, (March 15, 2014) 2 Steifel, M Nolan K. A Guide to Measuring the Triple Aim: Population Health, Experience, of Care, and Per Capita Cost. IHI Innovation Series white paper. Cambridge, Massachusetts: Institute for Healthcare Improvement; (2012) FALL IDN SUMMIT & REVERSE EXPO
3 MARKET RESEARCH REPORT Nearly all respondents felt that there is a trust and a willingness to collaborate between healthcare providers and suppliers at least some of the time. Referring back to the first question, a slight majority of respondents said that suppliers understand the challenges their supply chains face. However, question two seems to indicate that providers are gaining satisfactory benefits from that collaboration on an infrequent basis. Nearly 70 percent of healthcare executives surveyed indicated that there was a willingness to collaborate some, but not all, of the time. While suppliers may understand the challenges of supply chain, providers do not feel a genuine willingness to collaborate in order to address those challenges in each instance. Only six percent of respondents believe that there was neither trust nor a willingness to collaborate with their supplier partners. IT S DIFFICULT TO SAY ALL OF THE TIME BECAUSE IT REALLY DEPENDS ON THE SUPPLIER. SOME OF THE SUPPLIERS WE CONTRACT WITH ARE GREAT AND I CAN SAY YES WITHOUT A DOUBT. OTHERS, IT S JUST A HIT AND MISS. Q2. Do you believe there is a trust and willingness to collaborate between healthcare Providers and Suppliers? While the answers submitted did not identify a clear winner among supplier attributes that are most desirable from a supply chain executive s perspective, the list of answers offered the qualities that are most advantageous when healthcare executives are considering supply chain partners. When asked which attribute was most important, the impact of the partner s product or service on clinical outcomes was the attribute that IDN executives consider extremely important, followed by the impact of a partner s product or services on patient satisfaction scores and a partner s physician/clinician support. The relationship s impact on HCAHPS scores, whether a partner used the Electronic Data Interchange (EDI) process to exchange business documents, and a partner s willingness to offer flexible contract terms all polled above 40 percent. Q3. In choosing a Supply Chain Partner, price not withstanding, how important to your organization are each of the following MARKET RESEARCH #IDNSUMMIT REPORT 87
4 SOURCE GUIDE Describing Partnership between the IDN and its Suppliers REDUCE PAPERWORK AND LEAD TIME FOR PRODUCTS. ABLE TO SAVE MONEY AND GET BEST PRODUCTS FOR OUR PATIENTS. PARTNERSHIP DEVELOPED MORE THAN JUST SALES TRAINING AND SUPPORT TOO. BETTER COMMUNICATION AND RESPONSIVENESS IN REPRESENTATIVES. SUBSTANTIALLY INCREASE COSTS. A partnership may be described as a tailored business relationship based on mutual trust, openness, shared risk, and shared rewards that yields a competitive advantage, resulting in business performance greater than would be achieved by the firms working together in the absence of partnership 3. Undoubtedly, partnerships will vary, in some instances substantially, from organization to organization. No matter the shape, or structure, of such a relationship, the respondents felt that collaboration and strategic alliances offer ways to reduce costs and create efficiencies. Respondents indicated a broad spectrum of positive outcomes when stronger alliances with suppliers had been formed. The highest selected outcome was greater cost efficiencies being realized, which 78 percent of those surveyed said had been the case. Many revealed that stronger alliances formed led to improved negotiations with those suppliers and in most cases, streamlined the purchasing process. While most respondents had positive experiences due to stronger alliances with suppliers, one respondent admitted a feeling that suppliers still think they are in the driver s seat and show no willingness to partner with Providers. They are all, still, just interested in profit. Q4. If your organization has formed stronger alliances with Suppliers, what were the outcomes? When asked to assess the effectiveness of current supply chain partnerships, GPOs were selected most often as the partner that IDNs best collaborate with to improve performance, almost equaling the total of the two next closest combined. In a very similar question we asked in 2012, 22 percent of participants said Suppliers were the best supply chain partner to collaborate with to improve performance. In that same 2012 question, 16 percent felt that Distributors were best to work with to achieve optimal supply chain performance. However, in 2014, those numbers have nearly reversed, with 16 percent indicating they believe Suppliers are best to collaborate with to improve supply chain performance and 24 percent now believing that Distributors give them the best opportunity for improvement. Another item of note, only four percent of participants believe that Other Healthcare Providers are best partners for collaboration to yield supply chain performance. That represents neither an increase nor a decrease from the 2012 question referenced above. This can of course be attributed to competitive markets, but is something that may be of interest. Q5. Which Supply Chain Partner does your organization best collaborate with to improve your supply chain performance? 3 Establishing Supply Chain Partnerships, Global Environmental Management Initiative, (2004) FALL IDN SUMMIT & REVERSE EXPO
5 MARKET RESEARCH REPORT Overcoming Snags with Suppliers to Improve the Supply Chain There is no question from the survey responses that healthcare executives have a vested interest in forming optimal relationships with various supply chain business partners. The question is, what prevents such relationships from being formed? There are several barriers that are preventing these desired supply chain business relationships from being achieved. The quality of information shared by suppliers and a lack of trust were given as the biggest barriers to overcome, with nearly three out of every four respondents indicating they either slightly agreed or strongly agreed that each places the greatest limitation on improved collaboration with their supply chain suppliers. Q6. The biggest barrier for my organization to achieve greater collaboration with Suppliers is? The barriers mentioned above do prevent some necessary external collaboration and require IDNs to give greater focus to internal practices, or even form new relationships to replace those that are not currently beneficial, to improve their supply chain. When asked what type(s) of initiatives their organizations had undergone to improve the supply chain, engaging with physicians and improving the value analysis processes were at the top of efforts made to achieve progress. Respondents could also add other initiatives their supply chain had undertaken to improve performance. Among other initiatives included were a standardization across the IDN in all continuums of care, an implementation of compliance goals within their IDN, introduction of a new cost accounting system, and participation in clinical consulting. Some noteworthy items, again referencing the 2012 IDN Summit survey: in 2012, only 45 percent of respondents indicated that they had begun sharing data across departments. In 2014, however, that number has jumped nearly 30 percent, as 74 percent of supply chain executives presently share data with other departments. In 2014, we also included Consolidate with Pharmacy as a possible initiative to be selected. Over 25 percent said that their supply chain has now consolidated with Pharmacy, a number that is likely to rise in the future and a topic that this report will discuss further below. Q7. What type of initiative(s) has your organization undergone in an attempt to improve its supply chain? Involvement of Pharmacy Department within Supply Chain Management There has been a shift by some IDNs to move the management of pharmacy department operations under the supply chain blanket, as both areas perform many of the same operational processes, such as sourcing, requisitioning, ordering, receiving, picking and shipping. Such consolidation makes financial sense by cutting the cost of two departments that oversee a same area of supply spend. Of the 219 respondents, 20 percent of the supply chain leaders are presently responsible for Pharmacy Department management. 4 Interview with Mary Beth Lang, When Clinical, Operational Twain Meets, Healthcare Purchasing News (February, MARKET RESEARCH #IDNSUMMIT REPORT 89
6 SOURCE GUIDE Q8. As a Supply Chain Leader, do you have responsibility for Pharmacy Department management? From those respondents who are responsible for Pharmacy Department Management, we sought to learn of the challenges they face with their oversight of Pharmacy. Of the 42 responses, the most common answers included: The availability of drugs, supplies, and/or products Contract management and compliance Gaining trust and dealing with the perception of a supply chain leader managing the Pharmacy Department Prescription Drug cost The overall newness to Pharmacy and the difficulty of trying to gain an understanding of this business and the governmental regulations. Conclusion By surveying healthcare executives, our objective was to measure the impacts of industry changes as they relate to the evolution of business relationships most commonly found within supply chain management. In 2012, we asked whether the changes in healthcare would reduce or increase the collaboration between provider and supplier. The overwhelming response then was that collaboration would increase in future years. Two years later, the answers provided to this survey do not support that projection. GPOs remain the partner with which supply chain leaders believe they are able to best collaborate. As a matter of fact, Distributors have moved ahead of Suppliers due to a decrease in the percentage of respondents who feel that Suppliers are best to work with in order to improve supply chain performance. The answers provided point to an interest among providers to advance existing partnerships and form new relationships in order to reduce costs while maintaining patient safety and quality of care. This survey has identified a number of issues, both real and perceived, that stand in the way of fully capitalizing on optimal supply chain business relationships. These findings signal a need for further dialogue on the advantages of collaboration to achieve superior supply chain performance going forward. Suppliers now have direct responses from healthcare executives as to what attributes are most attractive and what practices can ultimately terminate the business relationships. Providers now have evidence that relying on other providers is also an available tool that, perhaps, has yet to be fully realized. For both sides, the results underscore the need to come together in addressing issues that stand in the way of supply chain efficiency and the ability to develop stronger business relationships to achieve further cost savings amidst uncertainties and change brought about by healthcare reform FALL IDN SUMMIT & REVERSE EXPO
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