Supply chain and hospital leadership worked closely together to analyze net prices and identify savings opportunities.
Luis Soto, vice president of supply chain at MaineHealth in Portland, Maine, recently shared how his supply chain team worked with member hospitals across the health system to implement efficiencies and reduce costs without increasing his department’s operating budget.
MaineHealth is a not-for-profit integrated health system consisting of nine local hospital systems, a comprehensive behavioral healthcare network, diagnostic services, home health agencies, and more than 18,000 employees.
What were your goals for improving MaineHealth’s supply chain management, and how did you achieve those goals?
Soto: When I started in September 2014 as vice president of supply chain at MaineHealth, I performed an assessment of our anchor hospital, Maine Medical Center, looking at operational improvements and working with staff to correct process flow and system issues as they related to our ERP [enterprise resource planning] system.
My goal was to mobilize the team and get everyone motivated and on board. We identified key process flow and system issues that needed to be corrected, such as how we got our supplies from the off-site central warehouse back to Maine Medical Center, how much time that was taking, the logistics involved, and the flow of goods. For example, because of the way the inventories had been set up, many of our electronic orders were being canceled because of insufficient quantity on hand associated with our clean LUOMR [low unit of measure room]. This inefficiency created staff rework and customer frustration. Product had to be transferred several times throughout the day from our bulk inventory to our LUOMR. We were able to correct this issue by combining the bulk inventory with the low unit of measure inventory. This way, our ERP [enterprise resource planning] system identified a much larger quantity on hand. We also created a Kanban system—an inventory method to control the supply chain—to move product from bulk continuously without having to create transfer requisitions. This change improved our productivity by 50 percent.
We also developed a fast track to get medical supplies from the warehouse to nursing units. Originally, carts would be delivered and parked in a back hall. It took material handlers a good portion of the day to complete deliveries. Today, handlers are paged and meet the truck at the dock. All carts are removed and broken down. Medical supplies are delivered immediately. These changes dramatically improved our customer service.
This work has been the foundation for the development of our ERP systemwide implementation plan. We are implementing our ERP system at every member hospital, on a very aggressive timeline We have already completed go-lives at six hospitals, with two left to go by the end of 2017. This will help our central procurement, VAC [value analysis committees] and analytics team monitor and track spend, including mining for opportunities to reduce cost, increase efficiency, and remove waste from our value stream. We also have a dedicated inventory manager who works closely with our on-site supply chain resources to monitor inventory across the health system.
We have set some goals based on KPIs [key performance indicators] for our team members. For example, we track fill rates, which are 98 percent or higher and inventory turns which on average are 10-12 for our warehouse. We also track buyer performance based on number of lines, purchase orders placed, and dollar value.
What savings resulted from the supply management strategy and what factors contributed to those savings?
Soto: In 2015, the savings and dollar value accomplished were approximately $16 million, in 2016, $27 million, and by the end of fiscal 2017, more than $34 million. We have continued to grow the savings and value year after year. I credit this to empowering our contract managers by giving them the tools, support, and training to make them key informed decision makers. Our strategy also included working with not-for-profit institutes and vendor partners. These partnerships have allowed us to implement an electronic bid platform that has improved our vendor communication and negotiation processes. We can close a live bid in a few hours as opposed to a few weeks or months.
In addition, we recently implemented news software to improve value-analysis committee workflows and communication and improve evidence-based decision-making. The software helps us track savings closely and monitor our spend. As a result, we can target certain types of supply spend and costs and effectively evaluate where we can add value or realize savings.
I also attribute much of our success to working closely with MaineHealth’s senior management teams and to the leadership of our supply chain management team, which includes a senior director of sourcing and procurement, director of value analysis, director of business analytics, and the directors and managers of materials management for MaineHealth’s nine hospital systems.
By collaborating with members across MaineHealth, we were able to gain support for the new supply chain strategy. Because MaineHealth’s supply chain is an integrated service, we charge back overhead to our member hospitals, so getting buy-in, including having each hospital approve additional costs, is imperative to our success.
To gain support among member hospitals, we diversified our business partners, worked more closely with our supply chain steering committee, analyzed pricing to identify opportunities for savings, and motivated our staff by empowering them and training them for success.
How do you collaborate with various stakeholders to achieve this kind of success?
Soto: We have face-to-face meetings whenever possible. We also conduct a lot of meetings, conference calls, and virtual meetings where folks present and share information from all the member hospitals.
Our infrastructure allows for good communication among various stakeholders. We have five nurses and a director who manage the supply chain value analysis process in conjunction with additional support members from the supply chain management team. There is also a central value-analysis committee. Each of the nurses and the director attend and support the various hospital value-analysis committees, along with the director of materials management and another champion from individual hospitals who co-chairs the committees.
Contract managers are responsible for individual product categories, and they also support and are involved in the committee process.
Did you hire additional staff or make other organizational changes to accommodate the new sourcing and supply chain strategy?
Soto: We’ve grown our savings year after year and have added very few resources. And over the past two years, we’ve met our operating budget. For example, in 2016, we were $300,000 under budget, and the year before that, we were $600,000 under budget in terms of operating cost.
We did that by reorganizing our existing staff over time. Through attrition and rewriting open positions, we’ve made a marked improvement in staff effectiveness. For example, in our capital-sourcing program, we beefed up our team by filling open positions with new hires that have capital sourcing experience.
What additional plans do you have for supply chain management at MaineHealth?
Soto: We plan to revolutionize how we deliver all our goods and services by creating and building a consolidated service center designed to reduce redundant cost and eliminate waste.
For example, we’ll be distributing from one central warehouse our medical/surgical supplies to all our member hospitals. We plan to have a hub for biomedical equipment repair, cook chill food preparation equipment, pharmacy, custom packs, mail, and print services. We also plan to have a central location for all record storage.
All of this effort is intended to eliminate redundant costs among hospitals, leverage resources, and maximize efficiencies. By doing so, we can reduce costs and increase the value that supply chain provides to our member hospitals. Our future focus will include not only negotiating for best prices, but also considering the logistics involved in the delivery of all goods and services.
Interviewed for this article:
Luis Soto, is vice president, supply chain, MaineHealth, Portland, Maine.