Interview with Joseph M. Dudas > What role does a purchasing and logistics department play in the strategic and operative decision-making processes of MAYO clinic? Mayo Clinic views supply chain as a function that flows from the manufacturer, through the caregiver to the patient. Said simply, we are facilitators not decision makers when it comes to the products and services that flow through our supply chain. As a shared service organization, our goal is to be an indispensable partner to our clinicians and suppliers (and ultimately our patients). Our strategies are based on the needs of our patients and we strive first to have the best outcomes possible. We also recognize that we need to operate within a cost structure that is affordable. As a result we are we are highly skilled at ensuring we receive the best possible value in the markets from which we purchase. > MAYO has completely consolidated all SCM functions. What are the specific characteristics of the MAYO SCM approach? All traditional functions of Supply Chain have been consolidated at Mayo Clinic. Following are the organizational functions and their role: Category Management Sourcing and Contracting, Supplier Management, Product Evaluation and Formulary Development, Contract Administration, Price Management and Informatics. Operations Purchasing, Accounts Payable, Logistics, Inventory Management, Distribution and Customer Service. Performance Consulting Facilitate, Communicate, and Coordinate between all Supply Chain Management operations to offer a consolidated solution for customers. Risk Management Oversight and testing of all critical operational and financial control points. Business Development Commercialization of Supply Chain activities and Intellectual Property (IP). > How do you measure and control the SCM activities? Are there specific ratios and figures that help you to identify areas needed to be improved? Within the Supply Chain we track a few key metrics that are directly tied to our strategic objectives surrounding people, process and outcomes. Our scorecard is updated regularly and made available to all associates and customers. The scorecard reflects the following: People Employee Satisfaction, Promotions and Turnover. Process Days at risk (recalls), Span of Control (contract coverage) and Supplier Consolidation (spend per supplier). Prof. Dr. Dr. Wilfried von Eiff Center for Health Care Management and Regulation 1
Outcomes Price Leadership, Out of Stocks, Cost Savings, Net Contributor (SCM ROI) and Supplies and Service Ratio (as compared to net income, gross revenue and overall expense). > Is benchmarking a proper instrument to generate new ideas for improving clinical and administrative processes and do you even use best practice information from other industries in order to achieve higher quality? Can you give us an example? Quality and continuous improvement is expected at Mayo Clinic and Supply Chain is no different. The Mayo brother s created a culture of collaboration and information sharing and benchmarking is almost always used. In the Supply Chain we benchmark continuously within healthcare as well as outside of healthcare. Generally we have from 10-15 improvement activities active at any one time. While we have many good examples of success, one idea that came from outside of healthcare is our Freight Management program. When we benchmarked with manufacturing we were enlightened as to how freight programs work and are used to generate revenue/profit. We used this knowledge to develop our own program and have since taken $5MM/annually out of our supply chain as a result. Recognizing there was a gap in the healthcare industry we have since turned our program into a Commercial Product called Supply Chain Solutions. We don t just look to other industries for ideas but we also hire a lot of great talent from other industries such as banking, transportation, retail, IT, life sciences, manufacturing, publishing and telecommunications just to name a few. The various perspectives as to how other industries solve problems are invaluable. > What is the role of e-procurement systems for process optimization? Our back-office supply chain is greater than 97% automated and electronic. The system provides greater efficiency (reduced operating costs by 20%), dependability (contract compliance) and information (analytics). When we sign a contract we program the systems as opposed to working with manual processes so compliance is extremely high and our suppliers award us with value as a result. > Is there an ethical conduct for your purchasing and logistic professionals that supposed them to buy medical products (e.g. trocars, staplers, ablation catheters) based on the handling advantages for the medical doctors or oriented to capability to avoid harm to the patient? In other words: What role does the price of a medical product play in comparison to robustness and quality of a medical product? The needs of the patient always come first. We have walked away from significant value where the product was not right. That said, affordability of care is also some- Prof. Dr. Dr. Wilfried von Eiff Center for Health Care Management and Regulation 2
thing our patients demand. For this reason, we use vast amounts of internal subject matter expertise, third party research, supplier proposals, structured product trials and other providers (references) in our sourcing process. The Supply Chain Management procurement process follows industry standards and regulations as established by the American Bar Association (ABA) and the Uniform Commercial Code (UCC). We believe competition is in the best interest of all stakeholders and in addition to traditional industry leaders, we strive to include small and historically disadvantage businesses in our bids. Mayo Clinic operates under the highest degree of ethics and has strict competitive bid and conflict of interest policies and management protocol to ensure compliance. > In the US some powerful GPOs influence the market place. What is the role of GPOs, what services do they typically offer and what is the benefit for hospitals? GPO s traditionally played the role of a large buyer in the US however that has changed over the past 3-5 years to that of a service provider. We have a partnership with our GPO where we jointly contract, develop technology and offer services. A good example is our regional purchasing group (RPG) where Mayo Clinic has teamed up with 40 other hospital systems to standardize product decisions and contract based on committed purchasing. Mayo Clinic provides sourcing and contracting services while our GPO provides analytics, customer support and legal services. > Are knowledge management tools systematically used in your organization in order to enhance decision-making processes pertaining purchasing and logistics? Knowledge Management tools are highly utilized to drive clinical standardization and care paths but are relatively new for Supply Chain. In 2014, capturing and diffusing supply chain knowledge is a key initiative for us. > Which job functions comprise a typical decision-making-unit (DMU) for a re-buy, modified re-buy and a new buy, and what are the respective decision-forming factors for each of those buy classes? For small dollar tactical buying various departments make decisions based on basic policy. For larger dollar, strategic purchasing we use a five step methodology which we refer to as our category management process. The five steps are as follows: 1) Initiation, where we scope and plan the initiative. 2) Insights, where we gather business intelligence. 3) Innovate, where we develop the sourcing strategy. 4) Implement, where we negotiate and contract. 5) Improve, where we manage conversion and compliance. The DMU (as you have defined it) is formulated in the Initiation Phase and we call that Stakeholder Analysis. Here we define who the stakeholders are and what their Prof. Dr. Dr. Wilfried von Eiff Center for Health Care Management and Regulation 3
role will be in decision making as well as ongoing purchasing decisions. Selection and strategic management of the stakeholders is critical in subsequent phases of the project and success. For the sourcing and contracting event a core team is established which is authorized to act on behalf of the institution (usually the clinical department chair and administrator from each site). > Which members of the DMU do salesmen typically see/contact? Once again this varies depending on the size and complexity of the initiative but generally speaking we like to separate product and price discussions. Pricing discussions/negotiations are usually limited to SCM/Category Management staff. Decision making is made by the Initiative core team and based on pre-defined critical success criteria. Salespeople love to detail and counter detail and for this reason we invoke a standard quiet period that highly restricts any discussions pertaining to the initiative to the Initiative Team. Any violation of the quiet period by suppliers hurts their potential to win the business including the possibility of elimination from the bid process altogether. > What overt methods for contacting other members of the DMU are made by suppliers without creating antagonism? Suppliers are free to contact end users as needed to support their business but any discussions pertaining to the initiative must be as instructed by the Initiative Team. Detailing/Counter Detailing is strictly prohibited per our Quiet Period and Supplier Management policies. Our intention is not to overtly restrict suppliers but instead create a level playing field where the best solution wins. This is what is in the best interest of our patients and we constantly remind both staff and suppliers of our core values and mission. > At what point in the buying continuum is each member of the DMU involved? It really depends on each stakeholder s role on the team (see above). > Which factors do each member of the DMU consider at each point of involvement in the purchasing process? We have control points built into each phase of the process. It can be tempting to jump right to negotiations but that generally plays in favor of the supplier. It is critical to have a solid team, scope, requirements, strategy and negotiations plan prior. At times we do bring the physicians into a negotiations but it is generally to condition the suppliers and ensure they understand the commitment of the team to make decisions that are in the best interest of the patients. Prof. Dr. Dr. Wilfried von Eiff Center for Health Care Management and Regulation 4
We have great relationships with our suppliers. They respect us and we respect them. We have a high degree of integrity for all parties built into the process and for that reason we meet our commitments and have very high contract compliance levels. Prof. Dr. Dr. Wilfried von Eiff Center for Health Care Management and Regulation 5