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What supply chain techniques and best practices can the healthcare industry glean from other industries? Tim Wood (TW): When it comes to supply chain strategies, healthcare is behind other industries, such as retail. And that’s understandable. Unlike retail, which is very much about bottom-line costs, healthcare is focused on so much more than costs, most notably on patient care. In retail, technology and data have played major roles in supporting marketing and launching products. While healthcare has made great strides in this area, technology alone is not the answer. What’s needed is technology combined with processes and skills. It’s about getting the proper insights from the data – analyzing, learning, and using it for predictive capabilities and, in healthcare, to benefit care delivery. With the advent of advanced technology, information can replace the inventory. We’re integrating customer orders with inventory management and then “making what we sell” rather than “selling what we make.” Karen Parrish (KP): Supply chain is as much a data problem as a business problem. I liken it to what we saw in retail 15 years ago, when supply chain was a hot item of discussion. One predominant train of thought was that data was a competitive advantage not to be shared. But companies like Wal-Mart realized that sharing data and opening up the supply chain to vendors could help them better manage inventory and overcome silos, and it did just that. On the other hand, some of Wal-Mart’s competitors kept their data to themselves, and that ended up hurting their market share. In some cases, Wal-Mart does not even take ownership of the inventory until it is sold. I believe this technique could be used for high-price implants in hospitals. This is a hurdle healthcare is trying to overcome outside of the realm of the supply chain and in particular with payers and providers. We’re seeing that both parties realize there’s something greater out there than an EMR. As Tim suggested, it’s about making the data actionable. Every industry needs a leader out front taking risks to make great strides and enhance supply chain efficiency. Wal-Mart is a
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perfect example. And so is Premier, with its aggressive data aggregation and sharing strategies.
Discuss the role of the supply chain in IBM’s resurgence in the early 1990s. TW: Up until the early 1990s, IBM did not use the strength of its size to align the supply chain. Purchasing was largely decentralized, with little coordination across 100 or so business units. So our first step was to scale our contracts. For example, we were using multiple companies for air travel across all 100 business units. We were able to save a substantial amount by choosing a select set of airlines for the entire company. Our next area of focus was around process improvements. We wanted to remove costs, beyond just negotiating with suppliers for lower prices. We introduced processes, such as automated supplier invoicing, to take expenses out of the supply chain. In one example, we examined the cost of packaging among different locations. We found that sometimes a great deal of cost was tied up in packaging at one site, with no value-add to the receiving customer. By standardizing packaging, we achieved additional savings without compromising quality. Similar to the Wal-Mart example, we also enhanced supplier communications and transparency. We’re working closely with our key supplier partners to ensure we are properly aligned and headed in the right direction. KP: Outsourcing of non-core competencies played a key role in our resurgence. All companies with large supply chains have had to make decisions on outsourcing, based on what’s best for them. For instance, years ago many retailers owned freight trains that were used to transport their goods. But retailers aren’t transportation experts. IBM assessed what was core to its business and what non-differentiating functions could be outsourced.
IBM assessed what was core to its business and what non-differentiating functions could be outsourced.