The IDN engaged in a collaborative project with its GPO called "30 in 2" to reduce its $700M annual supply spend by $30M within 2 years. Through centralizing processes, aligning physicians, analyzing spend, and optimizing contracts and vendor relationships, they achieved $45M in savings within 11 months, with $30M already implemented. Key was creating a customer-centric centralized supply chain through cross-organizational collaboration and communication. This reduced supply expenses as a percentage of net operating revenue to the lowest levels in the past decade.

1. 2011 IDN SUMMIT SUPPLY CHAIN OF EXCELLENCE AWARDS
Executive Summary (v.3)
Supply Chain Management – Innovation and Creativity
Overview of Innovative Project:
The impact of new health care reform provisions have pressured hospitals to seek innovative and creative
ways to meet the challenges of providing high quality care, yet remain solvent amidst a future of decreasing
revenue. An 11 hospital IDN in a large metropolitan area determined that to meet these challenges, it would
have to re-write an innovative approach to supply spend and closely partner with its GPO.
The system’s Supply Chain Management (SCM) team consisted of 140+ employees which are responsible
for the following decentralized processes:
• 11 hospital IDN with $700M in spend management, of which $170M is physician preference items
• Oversight of 1,200 contracts for 2,000 managed vendors, of which 700 vendors receiving e-payments
• $50M in projects being managed
• 900+ different order locations with a 99% on-time delivery, with 600,000 annual customer interactions
• 20 + socially responsible “green initiatives”
The system engaged with VHA to take a cross collaborative approach to reducing supply expenses.
Dubbed the “30 in 2” project, the project targeted a $30 million identified savings guarantee to be achieved
within a 24 month period, placing both parties at risk if the savings goal was not achieved. Within only 11
months, the team met their desired goal and pushed the successes much further. Currently, the team has
already achieved identified savings of over $45 million, of which $30 million has already been implemented.
Driving Rationale for the Initiative:
Healthcare reform is forcing health systems—especially large, complex organizations to look at operations
from a totally new perspective. The list of challenges is extensive: mandated changes in recent healthcare
legislation, trends among private payers to reduce reimbursement, more focus on transparency and patient
satisfaction, potential increases volumes, and the likelihood that all payers will sink to rates on par with
current Medicare rates.
Like many other healthcare organizations, the system is facing additional financial challenges that are
negatively impacting operating income. To achieve this work, the Supply Chain Management (SCM)
department needed to become even more instrumental to creating more accountable and sustainable
processes regarding supply spend in the organization.
Quantifiable and Qualitative Benefits:
The desired state was achieved by creating a centralized sourcing protocol coupled with collaboration with
key stakeholders (i.e. physicians, clinicians, executives, payers and vendors and VHA) which allowed SCM
to provide quality products while reducing cost with increased volumes. This objective was achieved by
creating an equitable balance with quality and cost while moving forward with revenue enhancement and
cost reduction initiatives to remain competitive in the healthcare market and be positioned for healthcare
reform. SCM personnel enable sustainable processes through working capital optimization (funding),
technology integration (process) and change management (people).
The team addressed opportunities regarding supply spend in the following areas: practice care variation,
physician alignment, supply expense reduction, contract maximization, purchased services optimization,
and product/service value analysis to drive the supply expense as a percentage of net operating revenue
to more sustainable levels, in relation to the future impacts of reimbursements.
Working within a highly matrixed organization SCM became more integrated with the local campus to reduce
cost using the SCM process of:

2. 1) Clinical Consultation
2) Stakeholder Collaboration
3) Vendor Assessment
4) Communication Protocols
5) Technology Integration
6) Working Capital Optimization
Moreover, to be proactive with quality products and expense
management Supply Chain Management collaborated with
Clinicians through our physician organizations and various
functional committees (OR Council, Cath Lab Council, etc) to
poll all members to understand the voice of the customer and
to construct initiatives that provide an effective and efficient
quality solution with concurrent cost reduction. The strategic process is seen in Figure 1- Supply Chain
Collaboration above.
Collaboration within the system coupled with the clinical and contracting resources of VHA allowed
SCM to drive Supply Expense as a percentage of net operating revenue to the lowest levels within
the last decade, which is currently less than 13.5%. Additionally, Supply expense and supply expense
per adjusted admits beat prior year performance. External comparison has shown that The system is
leading the country within the Supply Chain arena as seen with consultations with Barnes Jewish
Healthcare from St. Louis, MO and Ochsner Healthcare from New Orleans, LA and winning the SURE
award from Healthcare Purchasing News.
While much of these initiatives were decentralized and fragmented SCM used project management and
financial review to streamline the above process as they all create operational cost reduction. SCM
continues to drive down cost amidst $45 million of the supplies used on uncompensated
patients.
19.0%
Current Description Prior 17.8% Supplies/NOR Bad Debt/NOR
17.2%
$517,826,000 Supply Expense $525,015,000 15.9%
15.6%
15.2% 15.2%
15.0% 14.4%
$2,085 Supplies per Adj. Admit $2,167
$385 Supplies per Adj. Patient Day $394
12.18%
$1439 Supplies per Adj. Admit (CMI Weighted) $1454.36 11.0% 11.09%
10.64% 10.45%
10.23% 10.37%
9.84%
$260 Supplies per Adj. Patient Day (CMI Weighted) $264
13.4% Supply Expense % NOR 15.2%
7.0%
2005 2006 2007 2008 2009 2010 2011
Key Lessons Learned:
Work with and listen to various stakeholders across the system to understand their needs and construct
a creative solution and drive to execution with collaborative partnership.
Ensure stakeholder alignment for all parties involved (Physicians, C-Suite, Department Directors, VHA and
Suppliers) with a consistent and easy to understand goal.
A centralized adaptable supply chain must be customer centric coupled with collaboration and sourcing
expertise can drive substantial financial results.
Dynamic communication methods and means must be used to reach all levels in the organization.
Organization must be culturally ready and the initiative must be supported at all levels throughout the
organization.