by John Cunningham

Healthcare is one of the very few industries where there is a high dependence on the performance and effectiveness of the supply chain, and low level of engagement within senior management. Although hospitals have begun to elevate the supply chain leader to a seat within mid-level management, very few have brought them into the c-suite. Why?

[More:]

Being that there is only so much the CEO can focus on and remain effective, supply chain has fallen off the list when competing with quality, safety, performance improvement, human resources, payers, information technology, patient satisfaction, markets and marketing. However, what is being missed is that there is an element of supply chain that runs throughout each of the above "strategic imperatives," and more so than any other one of them alone. Because of the lack of formal supply chain knowledge a hospital c-level executive might have, there tends to be an assumption that unless there is a fire, the supply chain is performing as well as can be expected.

With supply expense representing the second largest expense line on the hospital's balance sheet and most hospitals' supply chain leaders being buried within the portfolio of a c-suite executive (rather than being one), it stands to reason that hospitals have yet to tap the deep value of a high performing supply chain. For example, in other industries managing supply expense to volume is an expectation of management; we in hospitals often dismiss our higher than expected supply costs with volume without digging too much further. When we do take the time or expect others to do so, we often find that volume does not always equal greater cost. On the flip side, volume can veil REAL supply cost opportunities.

Hospitals have not looked to supply chain to be a differentiator in their business model. In other industries, supply chain innovation is touted for the quality, satisfaction and financial results it delivers. Companies like Wal-Mart, IBM and FedEx are known as much for their innovated supply chains as they are for their products and services. In tough times, these companies have delivered shareholder returns from the effectiveness of their supply chains when income from operations could not.

Supply chain focused hospital CEOs are out there. What they think--from their experience--know--from learning from other industries--and can prove--from measurement--is that when they embark on the transformation of supply chain from a transactional function to strategic imperative, the foundational elements of supply chain:

(1) can be the right product, resulting in a selection/utilization process that is based on performance improvement principles and affects quality/safety;
(2) at the right place/time brings an inventory management focus that ultimately drives employee/patient/physician satisfaction, productivity and efficiency, and cash on hand; and
(3) for the right price, equals profitability. Hospital CEOs who do not want to be the "weakest link," focus on supply chain as a strategic initiative!

John Cunningham is vice president, Acute Division, supply chain operations with Universal Health Services, Inc. He has extensive experience turning around and leading hospital supply chain operations in some of the nation's leading academic medical centers and large integrated delivery networks. In addition to his current position with UHS, John is a member of the adjunct faculty in the Drexel University School of Nursing and Health Professions and served in the United States Navy.