strategic alliances are they for you? brent johnson vice president supply chain intermountain...
TRANSCRIPT
Strategic Alliances Are they for you?
Brent JohnsonVice President Supply ChainIntermountain Healthcare
ISM Utah – January 14, 2010
Topics of discussion
1. Intermountain Healthcare 2. Healthcare Reform3. Healthcare Supply Chain 4. Supply Chain Best Practices – Where does
Alliances fit? 5. Definition 6. When To Use & Benefits7. AMR Research findings 8. Performance Measurement9. Summary
Intermountain Healthcare
More and more U.S. leaders and national media see Intermountain
as a role model of high-quality, low-cost care
“We need to build on the examples of outstanding medicine at places like…Intermountain Healthcare in Salt Lake City, where high-quality care is being provide at a cost well below average. These are islands of excellence that we need to make the standard in our healthcare system”
President Barack Obama
June 15, 2009, Chicago Illinois
Being nationally recognized really matters when life and health are on the
line EXAMPLES of using evidence based medicine
• Better managing glucose levels during heart surgery, we’ve decreased morality rates eight fold for patients with levels over 300mg/dl
• We’ve pioneered a heart medication discharge process, reducing readmission rates
• We’ve reduced the average heart attack treatment time to 67 minutes beating the national goal by 23 minutes
• We’re working on hundreds of clinical processes in the areas of cancer, intensive medicine, women and newborns, pediatrics and other specialties.
Healthcare Reform
77
Environment – Healthcare Reform
Key Elements• Increase Access• Individual Mandate
• Insurance Mandates
• Healthcare Exchange
• Employer pay or play
• Public Plan / Co-ops
• Encourage Efficient Care
• Encourage Efficient Care• Bundled payments
• At risk quality payments
• Penalize readmissions
• Episode based payments
• IT incentives
• Comparative effectiveness research
• Straight rate cuts
• Reduce Demand• Accountable care
organizations
• Medical homes
• Disease management
• Capitation
Healthcare Supply Chain
Med/Surg Dist.
Lab Mfg.
Pharma Mfg.
Dietary Dist.
Film Mfg.
Lab Dist.
Radiology Dist.
Pharma Dist.
Med/Surg Mfg.
Member Hospital
Member Clinics
Other Hospitals
Other Clinics
Retail Pharmacy
Home Health
Retail
Mass Merc.
Linen Service
Dietary Mfg.
Linen Mfg.
Other???
Traditional Healthcare Supply Chain Model
Direct
Manufacturers
Major Supply Chain Organization (SCO)
developments in past four years
• Created a new SCO organization
• Hired 25 new people
• Developed rigorous but sourcing strategies
• Centralized the buyers
• Centralized the reporting relationships of the warehouses
• Added Couriers, Travel Services and Central Laundry – we are now over 600 employees
• Developed relationships & trust with key stakeholders
• Delivered on savings - $130 million so far
Lab Mfg.
Pharma Mfg.
Film Mfg.
Med/Surg Mfg. HospitalHospital
HospitalHospital
HospitalHospital
HospitalHospital
HospitalHospital
HospitalHospital
Medical GroupMedical Group
Home CareHome Care
Dietary Mfg.
Linen Mfg.
Other???Other???
IMAT
Mfg. Direct
Ancillary Services
Pharmacy
Packs &Kitting
3PL Services
Simplicity is Better:The Future IMAT Product Flow
SCO in Three Years - Vision
• Continue to build a world class Supply Chain Organization – focused on (1) reducing costs, (2) enabling increased care & charity, (3) improving patient care and (4) having a passion to find best practices
• Simplify the Supply Chain by Taking out the complexity and cost Leveraging technology Eliminating variation from products and processes Heavy use of self-contracting and self-distribution
• Embrace and adopt industry data synchronization• Increase influence on “total” non-labor spend• Have more control over more supply chains than med-surg - IT, clinical, nutrition, etc. • Assist Intermountain in consolidating, standardizing and centralizing redundant ancillary
services • Increased skills and results in linking high quality patient care to supply chain activities• Do “joint contracting” with other hospital organizations• Dedicate continuous emphasis applying TCO (Total Cost of Ownership) to long-term
decisions• Develop highly engaged employees with the right skill set, drive and known career paths• Become a better community citizen
Supply Chain Best Practices &
Strategic Alliances
12 Fundamental Best Practices of Supply Chain
Management
1. Develop the strategy
2. Align the supply chain
organization
3. Recruit supply chain
professionals
4. Be dedicated to
performance management
5. Establish strategic
sourcing strategy
6. Manage total cost of
ownership (TCO)
7. Establish key supplier
alliances
8. Develop supplier
management processes
9. Streamline the order-to-
payment process
10. Manage inventory
11. Manage distribution &
logistics
12. Establish & monitor controls
Supply Chain Management How it is different from past procurement
practices?
• Focuses on reducing Total Cost rather than just reducing the supplier’s margin
• Looks at procurement as a corporate-wide activity • Concentrates the company’s purchases with fewer suppliers• Negotiates purchases instead of using just the “lowest bid”
approach• Creates relationships with key suppliers to work joint cost
reductions• Holds suppliers responsible for TCO factors including metrics • Creates greater standardization within the company • Develops the most efficient process from procure-to-pay
Delivering Value via Strategic Sourcing
Step 1
Opportunity Assessment
Step 2
Category Analysis
Step 3
Market Analysis
Step 4
Strategy Development
Step 5
Supplier Selection
Step 6
Implemen-tation
Spend analysis
Category profiling
Finalize decision rights committee
Launch cross-functional sourcing team
Team charters
Project planning
Category analysis
ID demand drivers
“As-is" specs
“As-is" service levels
“As-is” processes
Current TCO
Benchmark TCO
Define specs
Define service levels
Define processes
ID suppliers
Supplier communication
RFI (optional)
Supplier interviews
Industry analysis
Market analysis
Benchmark best practices
Initial supplier assessment
Leverage analysis
Reconfirm scope
Reconfirm objectives
ID desired outcomes
Brainstorm processes
Finalize business requirements
Supplier selection criteria
Determine sourcing strategy
Finalize long list of suppliers
Executive approval
Supplier communication
Supplier calls
Supplier evaluation model
RFP/RFQ/Auction
Score proposals
Supplier presentations
Site visits
Other due diligence
Contract negotiations
Executive approval
Award business
Supplier communication
Goals and objectives
Launch implementation team
Implementation project planning
Communications planning
Supplier performance management planning
Implementation execution
Comprehensive, systematic business process whereby the optimal supply sources and/or solutions are selected, contracted and implemented at the lowest total cost of ownership.
Strategic Sourcing Definition:
AnalyzeSpend
Analyze Category
AnalyzeMarket
ImplementStrategy
ManageNegotiations
Award & Contract
DevelopStrategy
Traditional Contracting
Strategic Sourcing
Definition:
Comprehensive, systematic business process whereby the optimal supply sources and/or solutions are selected, contracted and implemented at the lowest total cost of ownership.
Contracting is a Subset of Strategic Sourcing
Defineneeds &opportunities
Select supplier and contract
Requisition and buy
Create goods or services (supplier)
Freight,receive, store, and distribute goods
Pay
Use and maintain
Dispose (goods)
Each Category Has Unique Supply Chain – Similar to a Business Unit
What if We Each Thought And Planned as the “CEO” of our Category?
Sourcing has Delivered Tremendous Value…What if Each Category Was Run as a Business Unit?
ContractingStrategic Sourcing
Category Management
Procurement Competence Over Time
Va
lue
-Ad
d“World-Class” Will Require Progression to Category Management
Price FocusPrice Focus TCO FocusTCO Focus Value Chain FocusValue Chain Focus
20
Purchase costs •How much do I pay at time of transaction?
Internal business costs•How much do my usage patterns and processes add to cost?
Joint supplier/ customer costs •How much does the way I work with my vendor affect my cost?
The total cost of ownership includes all these costs
Physician preference/ specifications
Damaged product
Freight
SCO administration
Inventory carrying costs
Expired product
Non-compliant utilization
Purchase price
Expediting/ special delivery
Payment terms
Easier To See
Early access to new technology
Alliances focus on total cost of ownership (TCO)
Harder To See
Transaction Costs
Strategic Alliances Definition
Partnership – DefinitionPartnership & Alliance are
synonymousA partnership is a tailored business relationship based on four key factors:
• mutual trust • openness • shared risk, and • shared rewards
A successful partnership results in business performance greater than would be achieved by two firms working together in the absence of partnership.
© The Global Supply Chain Forum, 2000
22
What type of alliance-type relationships do you have?
Strategic partnership example
Partners: Electric utility and transformer manufacturer
Relationship: Exclusive supplier ( $30M annual volume)
Key Components
a. Jointly designed the best transformer for the varied climates within the utility service territory (wet, cold, dry, etc.)
b. Eliminated quality control at utility end due to trust in manufacturer quality control
c. Utility shared complete visibility of inventory and utilization information to manufacturer who managed pipeline of supply chain completely and independently
d. Spent resources identifying redundant activities that could be eliminated within both companies
e. Customer paid off of monthly invoices – no purchase orders, no receiving…complete trust of supplier
1. Starbucks & Pepsico (USA)
a. Jointly created the popular coffee-flavored drink, Frappacino
b. The alliance moved Starbucks into the bottled-beverage market
c. Pepsico gained an innovative product with a well-branded partner
2. Eli Lilly & Takeda Chemical Industries (Japan)
a. Joined together to develop a drug for the treatment of type-2 diabietes
3. GlaxoSmithKline & Elbion (Germany)
a. Jointly developed products for sinus even though they are competitors
4. Kraft (Maxwell House) & Starbucks
a. Direct competitors but developed an alliance for Starbucks to place its coffee into supermarkets
b. Starbucks benefited from Maxwell House’s extensive network of shelf space in major chains
c. Starbucks benefited from customer desire for Starbucks-branded coffee
Other strategic partnership examples
Supplier quotes
• Outstanding suppliers are rarely discovered ready to be good partners, but rather are developed by their customers into what they need to be
• We must view and manage our suppliers as extensions of our own business
• If you don’t manage our suppliers, they will manage us!
Strategic AlliancesWhen to use?
Types of Relationships
Arm’s Length Type I
Partnerships
Joint Ventures
VerticalIntegration
Type IIIType II
MANAGEDBUSINESS
RELATIONSHIPS
STRATEGICRELATIONSHIPS
GENERALPROCUREMENT
BULKPRODUCTSOURCING
Impact Potential
Common Values
Aligned Goals
Proper Environment
What categories are best suited for
alliance-type relationships?
VALUE / COST / CRITICALITY/ RISK
CO
MP
LEX
ITY
/IM
PA
CT
/DES
IGN
/ L
OG
ISTIC
S
29
Imp
ort
an
ce
Supply Market Complexity
BottleneckSeller Power
Strategic
Shared Power
CommodityDiluted Shared Power
LeverageBuyer Power
H
L H
Each supplier relationship varies with the dynamics of the category.
30
ANALYSIS 2 OVERVIEW – HOW MIGHT YOU COME ACROSS
TCO IN YOUR OWN LIFE?
• How much does your minivan cost you on a
monthly basis?
• You probably thought about . . .
• Your monthly car loan payment
• Your monthly insurance payment
• . . . but your total cost of ownership would also include
• The monthly gas payment• Repairs and spare parts• The mounted CD player you had to
purchase• Your minivan “racing gloves” and scarf• The extra $20,000 you spent on your
other car to offset the image of driving a minivan
Factoring in total cost may change your purchase decision
Alliances are not for every trading relationship
• It is too expensive to invest alliance resources into every relationship
• An alliance relationship requires resources from both sides to develop and maintain the alliance
• Alliances are generally reserved for the most critical, complex, high dollar and large scope categories
• Key factors:• What is the type of account and relationship?• What are the influencing factors?• Once an alliance is achieved, how is it best
managed and measured?
32
33
Benefits of alliance behavior
• Substantially improved communication channels• Greater honesty in our conversations • Increased understanding of the supplier/account’s operations• Clearer expectations of each party• Deeper understanding of the contracts • Jointly developed action plans• Mutually agreed upon performance metrics• Surfacing best practices• Both parties focused on seeking value for both sides
Objective: to work together to reduce costs and share in the benefits
• Reduction of supplier/accounts is a natural outcome of supply chain management
• Cut administrative costs by managing fewer supplier/accounts
• Find your best accounts and grow them
33
Strategic AlliancesAMR Research Findings
Is there a lack of trust with your trading partners?
21. The different industry segments in the healthcare value chain often do not trust each other. This has been a hindrance to information sharing and collaboration which could drive significant
cost or efficiency benefits in the healthcare value chain. Do you agree with this statement?n=All industries, n=240
80% 74%93%
20% 26%7%
2007 2008 2009
No
Yes
How can we collaborate to reduce costs without some level of trust?
Lack of Trust = Lack of Collaboration = Increased Costs & Inefficiencies
Linking Strategy to Value in the Healthcare Value Chain
Value in HealthcareHigh Quality Patient Care at Optimal Economic Cost
Shared Vision and Goals
Transparency
Aligned Metrics
Extension of Supply Chain Services
Business Process Governance
Understanding Demand
Inventory Management
Compliance
Communication
Timely and Accurate Data
Knowledge and Info Sharing
Sustainable Collaborative Relationships
Joint Value Creation
Demand-Driven Value-Network StrategySupporting the Business Strategy with Demand-Driven Capabilities
Consciously Executing Value-Based Trade-OffsOutside-In Focus Coupled with Inside-Out Excellence
Demand-Driven Value-Network StrategySupporting the Business Strategy with Demand-Driven Capabilities
Consciously Executing Value-Based Trade-OffsOutside-In Focus Coupled with Inside-Out Excellence
Three habits of highly collaborative value chains
• Invest in the Value Chain o Incentives to drive collaboration o Deep understanding of up- and down-stream partners o Educate and train trading partners
• Leverage Contento Share information with trading partnerso Leverage value internally, across functionso Allow content to support continuous improvement
• Build Trust o Relationships based on common goalso Drive performance with bi-directional scorecardso Focus on value, not just costs
Strategic AlliancesPerformance Measurement
Measuring Success
Developing a system for establishing metrics, monitoring performance, and taking appropriate action is the single most critical factor to ensure a successful alliance
39DRAFT - For SMI Team discussion only
Alliance relationship potential weaknesses
40DRAFT - For SMI Team discussion only
Establishing metrics and measurements
• Why was the supplier/account chosen in the first place…price, quality, service, other?
• How will we know when the supplier/account is failing to perform?
• What measurements does the supplier/account already accept and measures?
• Examples:• Savings – price, freight, packaging, labor efficiencies• Performance – surveys, delivery time, invoice errors, payment
terms• Technical support – training, on-site support, resolution time• Quality – rejected orders, damaged orders, backorders, recalls• Continuous improvement - # of new ideas & solutions
41
Establishing metrics and measurements
“Just as a race care driver cannot win a race by solely focusing on the speed of his car, a “supplier team” can never truly be successful without keeping their eye on a number of key performance measures and indicators.”
A dual approach:
Balanced measures•keep the dynamic tension of cost, service and quality performance measures.
Intangible measures:•focus on the intangible performance indicators of success, like customer satisfaction and changing technology.
42
Without performance measurement …
• Supplier is selected on total cost…pricing and much more• Not knowing how to measure total cost services, little, if anything is measured or reported• No one knows, for sure, if the existing alliance relationship is really what they intended• Suppliers’ competition doesn’t go away. They still hang around, waiting to talk to someone• Someone mentions “better deals” and the momentum shifts back to looking at others…with
better pricing• The preferred supplier becomes upset at lack of loyalty• The preferred supplier tries one last effort to hang on…reducing pricing or whatever• Company re-bids anyway• Cycle repeats itself
43
SCO’s Climb to Category Management
Camp 1 - Contracting
Camp 2 – Strategic Sourcing
Base Camp We left a long time ago!
Summit – Category Management
How far up the mountain are you?
Thank YouQ&A