Supply Chain Education – The Moving Target

This writer began his career in healthcare supply chain in 1971. Actually, I didn’t realize I was starting a career: I thought I was doing something to earn money while completing my formal education in chemistry. Fast forward and my undergrad degree in is information systems with a minor in accounting. Obviously along the way my butterfly instincts got the best of me. Working in supply chain I was hooked. Here was a field that let me touch everything and interact with everyone. For a people oriented person, with almost equally strong tendencies towards the analytical, this was the round peg meeting the round hole.

In 1971 there were no degrees in supply chain: at least not in Pittsburgh’s otherwise diverse college community. No one working in the field had direct credentials. Job skills and competencies were strictly learned via experience and mentoring – and good mentors were far and few between. There were also no professional societies focusing on healthcare. The National Association of Purchasing Managers (NAPM), now the Institute for Supply Management, was the organization providing structure and standards, and it was then strictly a group of procurement managers.

A group of pioneering hospital materials managers formed the now defunct Hospital Materials Management Society. The founders were all Chicago based hospital materials managers. This writer got his first certification from this organization in the early 1980’s. I remember having to memorize the formulas supporting economic order quantity theory. Eerily, I still know them.

Today we have myriad societies and certifications, but we also have formal supply chain education programs, up to and including terminal degrees (Ph.D and DBA). Along the way many of us were awarded life status on certifications. My life status is in the C.P.M. from ISM. But, when a field awards doctorates does a life status certification have any value? I would contend the answer is a clear no. Obviously ISM came to the same conclusion when they halted the C.P.M. program and replaced it with the CPSM: which has no life status. Supply chain has come too far and has become so dynamic that we can no longer afford practitioners who fail to keep current with practices and theory. When we retire we can wallow in life achievement, but not under the pretense that we know the field because we were once current.

Hiring practices need to reflect the reality of widely available undergraduate degrees in supply chain. General business degrees were once adequate, but they are quickly losing relevance in a field that has been transformed from tactical to strategic. Failure to keep up now could be disastrous in the not too distant future.

Resources and Power

– are we giving it away?

A year ago most folks in the medical supply chain business had never heard of the Chalk River nuclear reactor. As it turns out, this little site in Canada essentially provides North America with 100% of the materials used to produce isotopes for nuclear medicine applications. When it went down, for desperately needed repairs, supply chain managers and clinicians alike learned the ugly truth: our entire supply of isotopes depended on the good will of the Canadian people and its government. When Canada deliberated on closing the plant, rather than investing in expensive repairs, the result was near panic for those of us responsible for obtaining sources of supply. Alternatives sources were found in Europe and Russia, but they weren’t able to fill the U.S. demand for product. Life-saving patient treatments were delayed, rescheduled and in some cases substituted with less effective alternative modalities. It would be easy to dismiss this as one arcane product used in one line of medicine. Unfortunately this writer, and others, believe it is symptomatic of a much larger issue: the U.S. has lost its resolve to do whatever is needed to be a world leader. We love the perks of being a leader, but are we willing to do what is necessary to maintain this position?

I, of course, speak from a supply chain perspective. Let me present some recent evidence to support this position. First, Chalk River became an issue only because the U.S. has totally turned its back on nuclear energy. This is why we don’t have a reactor of our own to produce the isotopes that as consumers of medicine we demand. We are consumers, but not producers. Given how we beat our breast while crying about reducing the need for oil (code for foreign dependence) why have we ignored nuclear as an option? Second, the BP oil spill in the Gulf of Mexico became a large disaster partially because of where it happened: in deep water. Had it been in shallow water – closer to the shore – dealing with it would have been a much simplier task. Oil companies prefer shallow water. Everything is easier in shallow water. It was in deep water because we (Dept. of Interior) no longer allows drilling close to shore. Hence the environmental impact was actually been made worse due to controls and regulations that were supposedly intended to protect the environment. We seem to have good intentions, but bad results - because our rules-making process reflects feelings and not facts. Drilling in the Artic National Wildlife Refuge (ANWR) would have had minimal, if any, effect on the environment. Yet through some Alice-In-Wonderland logic we continue to place ANWR off limits. Meanwhile we continue to be consumers, but not producers. Last, the recent “revelation” in the NY Times that Afghanistan contains vast mineral deposits is typical of popular press news. The vast mineral deposits in this region have been known for several years. In 2007 China took over operation of a copper mine in Afghanistan (as my dear wife Joyce pointed out, on George W’s watch - this is a party neutral problem). If anyone has been paying attention to this commodity, its price on the London Metals Market is always going up. Among the many obvious questions here is how many Chinese soldiers have died in the war to free Afghanistan from Taliban rule? (Hint: it’s starts with a Z). How did China even get a chance to run this mine? Why aren’t U.S. companies being moved in to harvest these materials in partnership with the Afghan people? Sure, we should pay for them, but no one else should control them or make the incremental profits from them. The scary thought here is that the U.S., through its tremendous financial debt to China, has become a de facto foreign legion for a communist regime. Our boys die, their boys mine the spoils. Are we now warriors without victories? The current administration continues to spend money that we do not have. Who do you think is financing our debt? Yes, China. They like that we consume their products, without selling them anything in return. Now we fight wars for their economic benefit. We have to ask if we wish to continue being an economic power or not. We are rapidly running out of time to make this decision. Are we committing our grandchildren to a new 21st century form of slavery simply so we may continue to consume, but not produce?

World Recession?

With the US employment rate hovering around 10% and the captains of American industry publicly working to out-maneuver one another in obtaining federal funds, coupled with a projected fall in the 2009 US GDP by 0.5% (SSRN-the 2009 recession in the U.S. by M. Keil, J. Symons ) the average American has to be thinking the world is in recession. After all, the US is the bulwark of the world economy – right? In 2009 China GDP grew by 8.3 % and in 2010 it is projected to grow by 9.5% (Price index for raw materials collapsed in 2009 - 2009-12-30 16:40:12 ).

While China drives world commodity prices, the US is having trouble even producing commodities. US Steel production fell over 37% in 2009 from 2008 levels (U.S. steel production down 37% in 2009 - 2009-12-30 16:38:30 ). How long can we continue to be a nation that generates no wealth while consuming cheap goods from other nations? Eventually even the credit cards tap out.

Meanwhile the US Congress contemplates Cap and Trade legislation that guarantees higher prices for US manufactured goods, while passing healthcare “reform” legislation that guarantees higher government spending at a time when tax revenues are declining, thus further removing from the economy badly needed capital. Whose side are these guys on, anyway? If we re-elect any senator or representative who played any part in passing, or even trying to pass, either of these two monstrosities we will truly be getting what we deserve. Unfortunately, our children and grandchildren, and maybe their grandchildren, will also pay the price.

References

Price index for raw materials collapsed in 2009 - 2009-12-30 16:40:12 purchasing Retrieved 12/30/2009, 2009, from http://www.purchasing.com/article/442006-Price_index_for_raw_materials_collapsed_in_2009.php?nid=2863&source=link&rid=14978431

SSRN-the 2009 recession in the U.S. by M. Keil, J. Symons Retrieved 12/30/2009, 2009, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1403003

U.S. steel production down 37% in 2009 - 2009-12-30 16:38:30 purchasing Retrieved 12/30/2009, 2009, from http://www.purchasing.com/article/442005-U_S_steel_production_down_37_in_2009.php?nid=2863&source=link&rid=14978431

An open letter to President Obama

An open letter to President Obama, Congress, Secretary Sebelius and my fellow citizens:

As the CEO of a consulting firm that specializes in assisting hospitals gain control of their supply chains I write this with mixed feelings. I am taking a risk that you may follow my advice. If you do, you will eliminate the need of many of my company’s services for the vast majority of our clients.

During the current debate on healthcare there has been much talk about private vs. public. The obvious connotation with the word “private” is that organizations act in accordance with the rules of a free market. But, what does that really mean?

In at least one very vital aspect hospitals’ behavior is quite bizarre. Government interference could restore sanity. Hospitals have little control over their own cost structure. The most expensive supply items and equipment they purchase are often dictated by independent physicians, without regard to cost. Hospitals are told what to buy and from whom to buy. They follow the physicians’ buying directives or else - they take their patients to another hospital. The patient is not the customer, but rather the currency in this free market. High technology products are selected, not by competitive offerings as in other industries, but by claims made by physicians and sales people: claims that are often unsubstantiated by independent processes such as peer review. More often than not the physicians themselves are misled by salespeople regarding performance, cost and reimbursement.

Hospitals, desperately needing the patient volume to survive, are unable to curb this behavior on their own. They are stuck in this cycle as sure as any addict is stuck in a cycle.

To reduce the cost of delivering healthcare in America, true reform should include the following requirements:

Require all hospitals to bid their high tech supply products, including implants. The FDA already determines acceptable quality of these devices. By requiring every hospital to do this, no hospital would be at a disadvantage as the threat of physicians moving their patients would be moot.

Establish national standards for bidding by Group Purchasing Organizations (GPO) and other organized cooperative efforts. GPOs should entertain all qualified bidders, but they should be limited to bidding on behalf of hospitals that pre-commit to using the winning bidder. This gives sellers’ the reassurance they need to submit realistic and competitive bids.

Numerous firms reprocess items once labeled as single use to original specifications. They do so under FDA oversight. The original move away from reusable products to disposables only occurred because of Medicare’s initial reimbursement procedures. We can no longer afford this wasteful behavior. Require hospitals to utilize safe and effective reprocessed products when available. This not only saves money, but reduces waste.

Require all hospitals to form teams that represent their physician staff and administration to review and control the introduction of all new products, including drugs. New technology, in particular, needs scrutiny. These teams cannot be monopolized by either side, but must have equal representation. Once new technology is adopted by competitors, it too should be subject to the bidding process.


These simple steps will cut tens, if not hundreds, of billions of dollars from America’s hospitals without affecting a single person’s current access, insurance, quality of care, etc. But, it will force hospitals to do that which many cannot do alone under the current market structure. A lower cost base will make all other healthcare decisions much simpler and easier.

The SSCM5 Team and I are available to consult with anyone from the White House or Congress who wishes to explore this subject further. While much our evidence is anecdotal, we have a lot of it.

Let 'em eat cake?

This past Sunday, yesterday, my church had a visiting priest who has served the last 16 years as a missionary in Haiti. While having a visiting missionary is usual for us, what was not usual was the plain and graphic description he gave of his area and its people. Most visiting missionaries want to alarm us, while not making us too uncomfortable. This guy was different. He even admitted he didn't like Haiti, but that was where he was called to do His work. When he finished everyone was whipping out the checkbooks for the second collection (our donation to his mission). The irony being that he came right out and said that if we gave him $1,000,000 it wouldn't help. He suggested that we pray - real hard - to support his mission.

I had no idea that children in Haiti only have a 50% chance of making it past the age of 5. And that some mothers mix mud with sugar to make a "cake" to feed their children - not knowing that the mud contains the very parasites that later kill the child. Their bloated stomachs being bloated by worms. Gives a whole new meaning to let 'em eat cake.

There are people who try to do something about this, and one of those is Dan Sweigert, a contracts administrator for the Pinnacle Health System in Harrisburg, PA. Dan, and some associates, volunteer their time and efforts to provide medical equipment for a medical mission in Haiti.

God bless you Dan and anybody helping you. You are all doing the good work. I'm proud to have people like you in our profession. You're in our prayers, but let's see what else we can do to fill the needs.

If anyone can help, or wants to obtain a copy of current needs, Dan can be contacted at dsweigert@pinnaclehealth.org . A little time may save a life.

Greetings from Charlotte – Part II

OK, the sky is falling. What’s next? Or excuse me, but I already knew the sky was falling.

For the past two days I have listened to a series of panelists and speakers talk about how their firm is stepping up to the plate and dedicating resources to supply chain in these tough times because their management knows that their supply chain is crucial to long term success; how they are working with suppliers to cut costs and bring the savings home. There is only one problem: all of the speakers are from large firms with resource depth that makes the average supply chain practitioner drool with envy.

2004 US Census data reports that there were 5,885,784 firms actually employing someone other than the owner (there were something like 19,000,000 plus sole proprietorships). Of this total, 5,782,199 firms, or 98% of the total, employed 499 or less employees. These firms employed 51% of the total workforce. It would be safe to assume that 51% of America’s supply chain personnel also work for these firms.

So far in Charlotte I have yet to hear the voice of 98% of businesses. Nor am I hearing solutions that will assist the supply chain person in contributing to their small to medium size business - and maybe actually help that business survive the downturn. It’s great to know that someone else’s management sees the big picture and intends to fund for the coming upturn, but that’s just rubbing salt in the wound for the guy or gal who is not so fortunate. And don’t say they should move on to a more progressive company, because the sky really is falling and there aren’t that many alternatives available. Unfortunately ISM appears to have been hijacked by big business for its exclusive use leaving nowhere to turn for over half of America’s supply chain personnel.

In good years it was nice to hear from so-in-so who held many high and mighty positions in academia and business and their individual view of the world, but right now we need practical solutions to real problems. Examples: how do I select which buyer to lay off as business continues to dwindle? What business practices should I maintain, and which should I scrap when I don’t have the resources to do it all? How do I make my operations scalable to meet variable demand? Etc., etc.

I need to work on my professional association. Complaining is cathartic, but does little to solve the problem.

Greetings from Charlotte

The 94th annual International Supply Management Conference officially kicks off tomorrow, Sunday, May 3 at 9:00 a.m. Some of us have already been here for over 2 days. Why? To finally attend the official ISM CPSM T3 course (Train-The-Trainer). This is a course that I have tried to attend ever since last year’s gathering in St. Louis, where I registered too late and the course was full. Since then it seemed that celestial powers were keeping me from attending another. Client needs and really poor air service (from a carrier to remain un-named) were all too coincidental to be called coincidental. At last perseverance won out. But at what price now? Missing my grandson’s Bris for one. Malcolm forgive me, please. I am with you in spirit. And, if you ever want to earn a CPSM gramps can help. Fairly soon SSCM5 Inc. will be offering CPSM review courses. I’m in the T3 Network. (Footnote: there is a lot more than meets the eye in preparing a CPSM review course).

Some of the other participants were intimidating. Only a few of us actually have the CPSM credential. But most of these guys (and gals) are top class educators who plan to take this coursework out to America’s colleges and industrial training centers. While they lacked the full technical knowledge of the CPSM credential they taught me more about teaching in 2 days than I thought there was to know in total. For that I am grateful. And, oh yeah, they were comfortable with discussions on Porter's Five Forces and Supplier Risk Matrices. So they aren't that far off the technical side.

The best part of being early, besides having no lines at registration, is hitting the ISM Bookstore first, i.e. all titles are in stock. Every year at this conference I manage to drop $200 or so on some of the best new titles in supply chain and/or negotiations theory. This year is no exception. I obtained a copy of the CPSM Diagnostic Kit ($79). I intend to review this to determine if I’ll recommend it to my students. The second title is an autographed copy of “Straight to The Bottom Line – An Executive Roadmap to World Class Supply Management” ($35). The title, and a skim of the contents, gives the appearance that this may help provide rationale to hesitant members of the C suite. Last I got one of those pickups entitled “101 Winning Tactics. Everyone Negotiates” ($25). This last one is because I’m a sucker for negotiation books. I think I’m closing in on having the world’s largest collection of books and CDs on negotiations and marketing. Pretty soon I intend to read/listen to them all.

Charlotte is a pleasant city with the requisite number of chain restaurants and more than it’s share of one of a kinds. If you’re coming to Charlotte you should try Mert’s Heart and Soul. Located at 214 N. College St. this small casual cafe has the kind of fare that truly can be described as soul food. The menu includes fried catfish, chicken, and ribs, not to mention a host of other comfort foods. I had beef ribs, greens, mac and cheese with hot corn bread and a soft drink. The tab came to $12.95 before tip. The waiter scolded me for not saving room for the peach cobbler. I tipped him well, and advised him I will be back. Some days supply chain ain’t so tough.

Deliverables

Recently another consulting firm contacted me via a mutual acquaintance and inquired if SSCM5 would be willing to work with their firm on some engagements. The man who contacted me stated that while they have supply chain consultants for healthcare they were occasionally too busy to fill all of their assignments.

While I know this happens in consulting all of the time I immediately sensed that something was amiss. You see, this firm is currently attempting to woo one of our existing clients and was told, by the client, that they were interested in expense reduction consulting services, but supply chain was off the table. It seems that this client knows that under SSCM5’s direction they have achieved the best results of any large health system in their state, and they are highly satisfied. On the other hand, the competitor’s firm has several nearby clients who pay hundreds of dollars more in supply costs per discharge. In a large system this translates into many millions of dollars.

Being polite on the telephone I just said something like, “Sure, we’ll have to see what we can do.” All along thinking, “That will be the day”. Then they dropped their trap line. They asked if we would send them a sample of our deliverable, meaning a report.

Aside from the fact that our reports are proprietary and will never be shown to another consulting firm (at least not by us), the shocking fact is that this firm considers a report to be the deliverable. This got me thinking. It hit me – hard - that SSCM5 has achieved, at least within our own culture, what we set out to achieve. We view results as the deliverable and the report as simply an interim stage outlining what results we intend to achieve. This simple difference is huge.

I am so happy to be in consulting and to be making a difference to the bottom line of my clients. I just wish everyone in my profession was capable of doing this.

I Am Jealous

I am jealous of Michael G. Haynes, CPSM, C.P.M. Why? Because he was recently recognized by ISM to be the first person on the planet to achieve the credential of Certified Professional in Supply Management (CPSM). He did so by testing at the 93rd Annual International Supply Management Conference and Educational Exhibit held this last May in St. Louis.

Along with Michael, many others, including myself, tested at the same conference. While I don’t know what percentage of those testing got passing scores, I do know that I did pass (having received my official score) and submitted my application along with proof of my undergraduate degree (as a Life C.P.M. I did not need to resubmit work verifications) and a check. To date I haven’t received my certificate or even notification that everything is moving smoothly. I hoped to be the first in healthcare to receive this credential. I think I did it. I wonder if ISM is going to recognize a “First Batch”?

Congratulations to Michael. He, like myself and many others who tested, has sufficient experience to maintain Life Status of his C.P.M. credential without ever tracking or filing another CEU. The CPSM has no Life Status provision, meaning having it will require a lifetime of learning.

It’s good, no make that great, to know that our profession is stacking up with pro’s like Michael who aren’t afraid of the challenge of a lifetime commitment to learning. And kudos to ISM for generating a credential that frankly, not everyone can achieve. While the C.P.M. was always the gold standard of credentials, the CPSM is truly a testament to new levels of knowledge and expertise.

I just wish ISM would have told us there was a race to file the application.

Are your suppliers doing you favors?

Are your suppliers doing you favors?

Really big favors?

Often suppliers tell their customers what a big favor they are doing for them by holding a price even though a contract expired while they were negotiating a renewal. Nice guys, huh? I mean here you were dragging your feet and they held the price anyway. They didn’t take you to list.

Then there are times during negotiations that the supplier may say, “Hey, the contract expires in a week and you’ll revert to list price. I don’t want that to happen. You don’t want that to happen. Let’s wrap this up ASAP”! Under this sense of urgency you sign without fully examining the fine print. Big mistake.

As supply chain professionals we need to know that this is akin to someone telling you they're doing you a favor by not driving 50 mph on your street which has a speed limit of 25 mph. All they are doing is following the law. Telling you otherwise is plan old sales puffery. The Uniform Commercial Code (U.C.C.) establishes an implied contract under the “course of dealing” and/or “Usage of Trade” sections whenever the buyer continues to purchase goods when the parties have intended to make a contract and such contract is entered into within a reasonable time (code 2-205 states three months). Thus, the buyer is entitled to pay no more than the higher of the two contract prices during contract interims.

The point here is that buyers may (and should) refuse to pay an increase during a contract negotiation with an incumbent supplier that exceeds the offer for new pricing. During gaps in contract periods (not to exceed 3 months) the obligation is to pay the higher of the two contract prices, but no more. Buyers should never let an artificial deadline (technically known as “Fire Drills”) force them to make decisions without all appropriate due diligence being performed.

If a supplier has taken you to list during the 3 month period you are entitled to a refund. Demand it and you’ll get it. Organizations can usually go back 3 years and get refunds.

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The excerpts from the U.C.C., taken from www.law.cornell.edu/ucc, supporting this position follow:

U.C.C. - ARTICLE 2 – SALES PART 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT

§ 2-204. Formation in General.
(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

§ 2-205. Firm Offers.
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

§ 2-206. Offer and Acceptance in Formation of Contract.
(1) Unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
(2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

§ 2-207. Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

Certification – Why and Which One?

The website for the Council of Supply Chain Management Professionals lists 12 professional supply chain organizations with a credentialing program. It does not include AHRMM, meaning there are at least 13. I suspect there are numerous other industry specific programs resulting in far more than 13 certifications. While this appears to be a Tower of Babel when you understand the process it actually makes sense. First, it shows that certification is becoming a standard requirement among supply chain practitioners, and second, it indicates that not all certifications test the same body of knowledge. Which one, or more appropriately which ones, should an individual pursue?

The largest and oldest society of supply chain professionals in the world, the Institute for Supply Management (ISM – 40,000 members worldwide), provides an instant verification of credentials of its membership online. Punch in a name and viola! you can see if a person actually has the certification they claim to have. Why is this important? Certification by this body actually carries weight in the real world. ISM’s credentials are used by leading companies to differentiate job applicants and internal candidates seeking promotions. They document a body of knowledge that is considered to be the equivalent of 12 – 15 college credits of specialized supply chain knowledge that cuts across all industries. The bearers of the C.P.M. credential have passed 4 test modules with a combined testing time of something like 10 hours. They have been tested on standardized procurement processes from needs assessment through contract management. Further, they have demonstrated a detailed understanding of management in areas such as business law, quality programs, supplier relations, interactions with other management members, personnel, diversity management, green initiatives, etc.

ISM’s website provides a “See who has been certified or accredited in the last 30 days!” feature. At any given point there will be between 250 and 350 names and their locations are worldwide: everywhere from the USA to Europe and the entire Pacific Rim including China, Korea, Japan, etc. As example as to the importance of this feature, Toyota, a perennial Top 5 supply chain company, requires the C.P.M. for advancement in its management ranks and is actively involved with ISM at many levels. Clearly ISM’s C.P.M. is the gold standard of certifications. It is the equivalent of a CPA for supply chain pro. In 2008 ISM is raising the bar by launching a new credential, CPSM, that will require knowledge of even more such as world trade, etc. in addition to all of the other existing requirements. The old inch thick study guide has been replaced by a three volume set. Starting in 2012 no new C.P.M.s will be issued, only CPSMs. The CPSM will have minimum requirements of 5 years of experience, a 4 year degree and passing 3 test modules. No life status will be possible. I estimate that fewer than 10% of supply chain’s full time practitioners will achieve this elite level of certification. The gold standard will give way to the platinum.

However, many other organizations provide industry specialized certifications that document knowledge that is necessary and vital to that industry. A platinum standard is not always required. AHRMM’s CMRP is one such process. Supply Chain professionals with the CMRP credential have shown they have an understanding of the nuances of healthcare’s unique needs and practices. In doing so, is it not reasonable to argue that any buyer or higher position in hospital supply chain should require a CMRP either as a condition of employment or to be achieved within 12 months of employment – regardless of other certifications? Let’s be honest, healthcare is woefully behind many industries in supply chain practices and a lack of a credentials requirement is at least partially to blame. If we were like other industries we would require the CMRP for all of our mid level staff. In large health systems where specialization of duties is possible certifications such as APICS’ CPIM can be helpful and should be recognized and rewarded. For those aspiring to be the chief supply chain officer (director, vice president, etc.) a C.P.M. should also be required.

The bottom line for certification is this: Demonstrating mastery of the technical aspects of your profession should hardly be an obstacle to anyone claiming to be competent to manage a supply chain measured in 10’s of millions and often hundreds of millions of dollars. And we owe it to ourselves to demonstrate that we actually have this knowledge – it’s one thing to claim it and another to document it. If your employer does not see the need to support this process via funding and time (shame on them if this is their position) do it yourself. The next big job opportunity may require it, and if they do they will most likely be that enlightened employer you’d really rather work for.

Autumn Leaves

Every once in a while I'm really happy that I live in the Northeast, that I get to experience the 4 seasons and that many of my clients are within driving distance of my home. Today was one of those days.

The leaves in the central Pennsylvania mountains are in full splendor. That coupled with a nice clear sunny day having indian summer type temperatures made for an unusually pleasant drive. And to think I get to do this for a living.

It's Alive!!

After much adieu http://www.sscm5.com/ is finally a live site. When we announced the new firm in April I promised a killer website to follow. I will admit that it took a lot more to make this happen than first anticipated. Be careful what you promise… However, I believe we have delivered on that promise. And I believe anyone who visits the site will agree.

Though, the “we” is a true editorial “we”.

I cannot overstate my appreciation to the team at Webpage FX (http://www.webpagefx.com/): the firm responsible for logo and web page development. It was a pleasant surprise to find such a qualified team so close to home. William Craig, President and Karie Shearer, Creative Consultant were (and are) easy to work with while providing all of the support the firm required (and will require).

Last, but not least, I have to thank the many members of the industry who served as members of our various focus groups that assisted in selecting colors, logo schemes, web layouts, etc. You are all a major part of the “we”.

It’s Alive!!

2007 Institute for Supply Management International Conference

Having just got back from Las Vegas and the 2007 conference my head is spinning. Overwhelming – there is simply no other word for it. 2100 of some of the world’s best supply chain management practitioners in one place – whew! And without doubt the best subject experts in the world as workshop presenters. Talk about a testosterone overload. And no, I’m not referring to a primitive male bonding experience, particularly since at least half, if not more, of the participants were female. Anyone who understands the assertive nature of supply chain folks (described by the less informed as aggressive) knows what I mean. One of the more “fun” workshops was a presentation on Mars vs. Venus negotiation styles and techniques. The next time I have to negotiate with a group of nurses I’m ready. No more pounding my fist on the table and screaming “If it’s good enough for the Navy, it’s good enough for you!” Nope – I’m now in touch with my Venus side.

When viewing our large numbers I’m humbled in the realization that this was only 5% of our membership. What would happen if we all showed up? Could Las Vegas accommodate us?

Coming from the healthcare side I find it so refreshing to hear my peers in myriad other industries voicing the same problems, concerns and frustrations that I so often hear in healthcare. Even more refreshing is hearing the many innovative ways industry has responded to these matters. I learn something new every time I attend one of these conferences. If fact I learn too much for one brain to remember more than 50% of it all. Candidly, if someone only attended to study a single track such as contracting or negotiations the entire trip was worth it. The educational offerings were so numerous that attendees were forced to pick a relative few and regrettably miss many others with equally attractive descriptions. I actually found myself flipping a coin at one point. In an ideal world an organization would send at least 5-6 participants, who all attend different sessions and then share the information among themselves upon their return home. I suspect some more enlightened (aka successful) firms did just that.

As usual, this year’s attendees included supply chain professionals from most of healthcare’s key suppliers: Zimmer, W. L. Gore, and Pfizer, just to name a few. But these were the few I personally met. More interesting was noticing how they were concerned with meeting supply chain professionals from their suppliers, and so on up the chain. The reality is you can learn so much more about an industry with this network than you can by only speaking with marketing professionals where a controlled message and image are conveyed. (The workshop dealing with this was entitled “Buying Under the Influence”). Knowing the upstream concerns of my suppliers is powerful information in managing my part of the chain. Market intelligence: yes, but so much more than that. Knowing the key supplier issues they face and which products are critical to them and what they are doing to mitigate risk gives me a much better handle on managing my supplier risk while predicting fair prices and availability. This is why we call it a supply “chain”. It is only at ISM that I can actually see the upstream links in the chain. I only wish more frontline healthcare practitioners were there. While some of the larger, more progressive, health systems and teaching medical centers had representation few, if any, small hospitals had anyone present. For the most part our industry continues to gravitate towards a myopic and parochial view – seeing no further than the sales rep in the lobby. Not on the part of the supply chain management personnel, but their superiors who don't see the ROI on sending staff to high level conferences. That’s a pity and it is one of the key reasons sellers tend to hold more influence over healthcare supply chains than the buyers.

For one of the speaker luncheons I have the good fortune to sit next to and make the acquaintance of James Schulze, the Director of Operations for the Council of Supply Chain Management Professionals (CSCMP), another of supply chain’s professional organizations. They will be holding their annual conference in Philadelphia in October. I wasn’t originally planning to attend, but after meeting James and hearing his description I’m reconsidering and leaning towards attending.

Speaker Malcolm Gladwell, author of “The Tipping Point” and more recently “blink”, was top rate and one of the best I have ever heard. His extemporaneous speaking style while staying on point - with great substance - is worth his fee. So much so I have obtained a copy of “blink” and it is now 3rd on my to-read list. I’ll get this done by the end of summer. On the other hand, speaker Gil Schwartz, who is billed as a “business humorist” and appears under his nom-de-plume Stanley Bing, is without question one of the worst speakers I have ever heard at a conference. He may have been having a bad day, but he had a really bad day. If a nonstop series of sophomoric “jokes” concerning poor management, drunkenness and other debaucheries, and a series of cheap shots spoken in a monotone with his head down while reading from papers on the podium is your idea of humor then you’ll love Stanley Bing. On the other hand, if your choice of entertainment has matured beyond “Animal House” I don’t recommend him. And I am not inspired to obtain any of his writings.

2008 – St. Louis here we come! Be there.

Thank You Vinny

Over the years consulting has given me the opportunity to meet many people. Some of them are quickly forgotten when you leave an engagement, but some of them will stay with you forever. Occasionally you bond so well during the engagement that the client staff throws you a going away party and even a gift.

I recently had the pleasure and honor to work with a group in a small community hospital in Northern New Jersey. I do believe we bonded well, though any thoughts of gathering prior to my departure were dashed by the suddenness the engagement ended (we hired the right permanent guy).

At the end of the new permanent Director’s first week I came in for one day to go over my report and tie up any loose ends. That’s when I had one of the proudest moments of my career.

Mr. Vincent Walker, Vinny, is a retired NYC police officer and pistol instructor at the NYC Police Academy. He is also the Storeroom / Receiving Coordinator for the client. While I worked there he and I had several good discussions about New York, small arms, retirement, etc. I knew Vinny and I liked each other, but what he did on this last day surprised a man who thought he could no longer be surprised. Vinny presented me with arm patches for the NYC Police and a Small Arms Instructor patch as a parting gift. Words cannot describe how this made me feel. After leaving the client I literally pulled over a couple of miles down the road and got choked up – the eyes were a little misty.

I know what these patches mean to Vinny and I recognize the enormity of the gift.

Vinny, all I can say is thank you and God bless you – and of the men and women who have ever worn these patches. They are being placed in a glass covered shadowbox in my home office where they will be treasured forever.

SSCM5

To my friends, colleagues and readers:

I am pleased to announce the launch of a new supply chain consulting firm: SSCM5.

For the past several years I have hung my shingle with American Healthcare Solutions, LLC in Pittsburgh. As one of the founding members of AHS I always have and continue to take great pride in the success of this organization: though clearly Jan Jennings is the driving force that made AHS what it is today. It was while working with Jan and the other members of AHS that I honed the high standard of ethics and extraordinary concern for the interest of a client that a good consultant must carry with them 24/7 - far more than the casual observer outside the profession could ever realize. For this I will be forever grateful. However, sometimes even with the best of organizations, with good, no make that great leadership, there comes an intersection where one must decide which direction to take. This is particularly true with smaller or mid-sized firms that simply cannot be all things to all people. With mixed feelings I came to that point with AHS and we will now head on slightly different courses.

Many shared the opinion that Supply Chain Management was never as fully developed within the AHS fold as it could and should be, needing more attention and resources - to be a core focus. By early May my associates and I will complete the launch of the new firm, to be headquartered in suburban Philadelphia, which will target the special needs of the healthcare supply chain market. Moving the business physically closer to home will allow me more time to focus on and expand a product line that will cover all of the needs an organization may have vis-a-vis supply chain management and related processes.

I hope you will all wish us luck with this new endeavor. With the obstacles faced by any new business, prayers are also appreciated.

PS - Killer website to follow.

Donate those old laptops. Our soldiers need them.

Do you or your organization have old laptops that you no longer use, or will be replacing soon? Here is the chance of a lifetime: donate them to Walter Reed Army Medical Center for injured soldiers to access the internet.

Laura Brown, the mother of a soldier who fought in Iraq has organized "Laptops for the Wounded". Read about her in the Houston Chronicle or visit her organization at her website.

Congress says NO to Drug Price Negotiations

Last week, the new Democratic Congress passed House Bill H.R.4 by a vote of 255-170. H.R.4 requires the Secretary of Health and Human Services to negotiate Medicare prescription drug prices. It changes the Medicare Part D drug benefit (PL108-173) - and bars the government from setting up a formulary, or restricting access to drugs as a way of leveraging lower prices. The new Congress deserves a c for chutzpah.

This is the most deceiving piece of doublespeak passed by the Congress in the past 20 years. It is also a blatant lie to the folks who elected them. Unfortunately, most of them will never know it. All they will hear is hype about how the Democrats fixed the Republican, i.e. Bush’s, drug bill by requiring price negotiations, thus “leveraging the bigness of Medicare”. Anyone who believes that the Secretary of Health and Human Services has a snowball’s chance of negotiating anything with this turkey is smoking something other than tobacco. This bill makes things worse, not better. Here’s why.

The art of negotiating – and I do mean art – is performed well by very few, because very few take the time to understand the underlying dynamics. In the 35 plus years that I’ve been in healthcare supply chain, I have been frustrated by the exploitation of this simple fact by those with hidden agendas. The most blatant example was by hospital group purchasing organization (GPO) executives who convinced the CEO’s of their member hospitals that bigger was always better, and that through sheer volume hospitals could drive a better price in the market. The hidden agenda here was expansive administrative fees controlled by the GPO executive and a larger membership where each individual voice was diluted, thus made ineffective, in affecting the bigger scheme. In essence, the hospitals gave away their control of the GPO and any market advantage they may have actually possessed to the benefit of the GPO executive staff.

A classic example of this is the Premier group. In the early 1990’s it had 50 or so members. This small group controlled something like 13-15% of the teaching residencies in the United States. Their leverage at the table was huge. High tech (aka high price) manufacturers wanted to place products in the hands of the members’ residents who would then, when they moved on to practice as physicians at community hospitals, demand those same products. Companies could (and did) give the Premier hospitals the products for next to nothing while charging high margins at the community hospitals. The prices were so low it was worth the while of hospital executives to convince their physicians to standardize on these products. It was a way of buying future market share at relatively low cost. Much to the glee and economic benefit of the then Premier membership, this is the contract strategy that was largely used by Johnson & Johnson to take over market dominance in endosurgicals from prior market leader US Surgical.

The CEO’s never saw it coming. They were convinced that bigger meant better. The rest is history. Premier went on a growth spurt through recruitment and mergers. Today Premier obtains me-too prices for all of its huge membership on a take-it-or-leave-it basis. Small to medium size health systems, with a savvy supply chain staff that are able to make and keep market share commitments, now routinely negotiate better deals than most GPOs. The largest individual health system still represents a small percentage of any average market. The supplier community translates extreme volume customers into being a large part of their average market - which is where profits reside. Since the goal here is making a profit they never give the average market any true long term advantage.

Without the threat of keeping drugs off a federal formulary, and thus limiting access to a firm’s products, what leverage does the Secretary have? This is the only economic clout available. What does the Secretary have to exchange for better pricing? In the world of government, if the leverage is not economic then it must be political. Does the average American really want the pharmaceutical manufacturers having more leverage in our political processes? I think not. But, this will be the result of House Bill H.R.4. And anyone who is looking for pricing equivalent to the Canadian experience is in for a rude shock.

The existing insurers and hospital GPO’s already have discounted prices with the drug firms. Any discounts given to the government will need to be extended to every other contractor. The drug companies know this. Some symbolic price concessions will be made to make the Secretary and the Congress look good – in exchange for something. Actual prices paid may be reduced by a few dollars to the individual while being reported in the press as tens of millions of dollars in aggregate.

In November, 2006 I wrote about my own displeasure in having the government negotiate prices (“$1.2 Billion”). Naturally, as a negotiator, I assumed a federal formulary that would limit choice with the well-intended, though misguided, goal to bring short term economic benefits to the consumers, i.e. voters. It was the impact of a huge restriction on markets that would limit long term R&D that I feared. As a negotiator I should know to never assume. Who envisioned a bill that would further engage deep pocket pharmaceutical firms in the political process (make that money to politicians and/or their pet causes) while offering no real economic impact to the voters? I never saw it coming.

Economic Boom, Boom, Boom (Post Script)

Last week’s article (Economic Boom, Boom, Boom) dealt with China’s burgeoning trade surplus, created in no small part by its central bank’s artificial suppression of the yuan’s exchange rate.
Bloomberg News reported today that China’s central bank governor, Zhou Xiaochuan, has stated that China may increase the flexibility of the yuan should the country’s trade surplus continue to expand this year.
Here the operative word is “may”.

The United States, specifically Treasury Secretary Henry Paulson, Jr., needs to continue pressure on the Chinese and accept no conditional control of the yuan. The price for using the West’s free markets must be a free Chinese economy.

Economic Boom, Boom, Boom

Throughout the 1980’s China emerged as a player: largely through the strength of its huge population and low wages. This was entirely acceptable to the West, and in many circles seen as highly desirable. The thought being that China could be engaged in basic trade first and then values second. With their primitive infrastructure they posed no threat to the “real” economic powers. However, while the Chinese Communist Party artificially controlled foreign exchange rates, they reinvested foreign currency reserves in industrial modernization and technology acquisitions through the 1990’s, leading to more modernization, and more technology, better efficiency, and bigger trade surpluses. In the process they created a Communist State unlike anything envisioned by Marx, Lenin or Mao: one having huge trade surpluses that has in turn created a middle class, and as recently reported, even a large number of billionaires. Milton Friedman is no doubt smiling from on high (and yes, if there is a heaven, Milton is there) saying “I told you so.”

All of this has not been without a price to the West. While China has been a keen producer of finished products, and a proven marketer of those goods, it has not been as efficient when it comes to producing raw materials. Basic energy reserves have eluded the Big Red Machine. Recent rises in oil prices were partially attributed to the new industrial powers vying with the old guard. Yes, demand exceeding supply continues to drive up prices.

All of this may change. Recently China announced plans to take advantage of its huge foreign exchange reserves to expand its stock of natural resources. The vice prime minister, Zeng Peiyan told leaders of the national legislature that the government planned to step up exploration for crucial resources like oil, gas and coal. Wow! (Boom!) China with its own stock of energy would be a competitor extraordinaire. A bigger Wow! (Boom! Boom!) - China expanding the world’s reserves could lower overall energy costs for everyone by reducing pressure on the supply side. But an even bigger Wow! (Here's the Boom! Boom! Boom!) – Communist China with a savvy knowledge of how free markets work, a population advantage (call that potentially the world's largest consumer market), coupled with a predisposition to central control now having the ability to strongly influence world energy prices while keeping its own domestic prices, and hence manufacturing advantage, artificially low. This could be the West’s worst nightmare coming true: economic warfare with the communists.

Nikita Krushev said “We will bury you economically.” By “we” he no doubt meant the Russian Communist Party. Little did he know that when the realizations of such prophesy at least had the potential to occur that the Soviet Union would no longer exist and that its former poor cousin, The Peoples Republic of China, would be The World Communist Party.

The time has come for the West to make some simple demands - that the playing field be leveled. We can no longer compete, nor should we, against controlled markets. The time has come for the yuan to float on world currency markets and that China's domestic markets become truly free. No central control. It makes great political rhetoric to talk about bringing China to the table through trade, but these guys have learned too well without paying the price of entry. Exxon, Toyota, Wal-Mart and GM together are no match for a fortress China.

$1.2 Billion

In the November 13, 2006 edition of TheDeal.com Alex Lash reports on a study released the previous Thursday by the Tufts Center for the Study of Drug Development in Boston. Lash reports that the study finds that it takes more than $1 billion to develop a successful biotech drug; $1.2 billion to be exact. This includes the cost of drugs that ultimately fail. But ultimately, $1.2 billion is the number to reach the plateau of success. Even when stripped of all capital costs the figure is still in excess of $550 million.

Whew! I don’t know about the rest of you, but that’s more than I make in a year!.............. (The statement is true – very true).

When the price of success is this large a true barrier to entry has been established. Only the mega drug firms can afford the R&D necessary to invent the cures for our many ailments. This begs the question, “What happens to R&D and our modern cures when and if Medicare adopts a policy of competitively bidding or otherwise fixing the price of drugs?”

In the season just past there was a great deal of political posturing concerning Medicare’s current prohibition from engaging in activities to reduce the price of drugs to consumers. “We should be like Canada” the critics cry. “The Feds were wrong. We need to fix Medicare.” But, if we do behave like Canada will consumers really be served? Lower retail prices are one possible way to serve consumers, but is it the only need that should be addressed?

It is in recent memory that many drug classes, like HMG-CoA reductase inhibitors (statins) for example, appeared that have the promise of extending the lives of an entire generation. Are consumers better served by having low prices for that which has already been invented, or by benefiting from never-ending waves of new technology, each better than the previous, that change and extend our lives? America’s drug industry is second to none in the development of products that truly benefit mankind. It is not by accident that drug firms do not call Canada home, nor do they heavily promote their latest and greatest in that bastion of social engineering. It is also not by accident that these firms do call the US home.

Before we tamper with Medicare and the retail price structure of drugs we need to ask ourselves, “Are we willing to grant our current seniors lower prices at the expense of a brighter future for our grandchildren?” Because that is ultimately the likely result of any action that makes the US like Canada. It must be pointed out that countries like Canada – those that do not pay their fair share of R&D - are technology parasites living off those that do: the US and other free market nations.

I am not a fan of the entitlement program referred to as the Medicare Prescription Drug Benefit. In 2000, when I heard both Al Gore and George Bush trying to out promise each other relative to a new senior drug benefit program, I knew that they had both been bought by the pharmaceutical PACS and that they were both selling a bill of goods to the American public (who usually self centered seniors bought it hook, line and sinker). However, despite my personal distain for this transfer of wealth from the public coffers to the drug companies I do not believe we should further compound the disaster by structuring it in such a manner as to destroy the world’s largest source of funding for technology development.

If we don’t like the Medicare structure, repeal it. But don’t, I repeat, don’t throw out the baby with the bathwater by reducing the margin on all drugs to the point where R&D is no longer possible. I like my statins; I like my anti-allergy drugs; and I even like my now over-the-counter Rogaine. The illnesses that plagued my father to death, literally, are still bothersome, but less so. I hope to live longer than my father. My hope is that my children and grandchildren benefit even more. I’m willing to pay the right price to see that this continues to happen. While I would like a bargain, I don’t want one at the expense of my children’s bright future. $1.2 Billion is a lot of money in any industry. Particularly when that is your investment before you make the first sale.

Strategic Asset?

So much has been written and spoken about the Toyota model of supply chain (aka Toyota Production System) that when using the term in circles outside of other supply chain professionals you learn to be careful. Terms such as “Lean” and the “7 wastes” have become dangerous in the hands of amateurs. For example, I have witnessed “Lean” used as an excuse for staff reductions, and the “7 wastes” distorted to justify working with some dangerously low levels of inventory. When this occurs I like to point out that besides having a word meaning change for the better, Kaizen, the Japanese also have a word for change for the worse, Kaiaku. Staff layoffs for short term gains and ill conceived inventory reductions are usually referred to as Kaiaku.

The current preferred description of cutting edge supply chain, Strategic Supply Chain Management (SSCM), is described by Shoshanah Cohen and Joseph Roussel in their 2005 text “Strategic Supply Chain Management: The Five Disciplines For Top Performance”. This book documents the collective thinking of many serious students of supply chain, including participants from the prestigious Institute for Supply Management, Penn State University, MIT and others.

The first discipline is to view supply chain as a strategic asset - not an overhead function to be endured and operated with the minimum of resources, involvement and information. This brings to mind many questions in the current hospital environment.

• Is senior leadership involved in supply chain
• Is supply chain represented on the senior leadership team
• Is the supply chain executive viewed as a thought leader in their area
• Is supply chain a department or management function or both
• Is supply chain defined as all non-labor expense
• Are all supply chain functions governed by an organization-wide set of policies and procedures
• Does supply chain focus beyond obtaining low prices
• Does supply chain integrate process improvement and standards adherence
• Have key suppliers been identified for collaboration and development
• Are all stakeholders required to participate in collaborative models
• Are there periodic and routinely scheduled supply chain planning meetings involving senior leadership
• Is the supply chain expected to drive strategic results in areas such as marketing and new product line introductions

The questions could go on for another 2 columns, but the message should be clear: Supply Chain as a Strategic Asset is not Purchasing in the basement. Neither is supply chain like any other area. Only supply chain can bring value from outside the organization to meet its primary needs in myriad ways. If your organization has not permitted or encouraged this development then supply chain is an overhead expense – not a strategic asset. This is a pity – and a key reason why many hospitals find themselves unable to turn the bottom line from red to black.

The Comfort Zone

Anyone who has ever raised an infant child will have had this experience: You spot your darling baby sitting with a big contented smile on their face. You reach out to them. Their smile gets even bigger. As you pick them up you suddenly catch the smell – whew!! Only a parent will continue – and clean them up. The kid was sitting there happy as all get out sitting in a pile of you-know-what for heaven knows how long. So much for the baby cries when their diaper’s dirty theory.

There is a lesson here. As we get older we may grow bigger, become smarter, wiser, more mature, etc. - become toilet trained - but our fundamental nature does not change. As human beings we have the ability to get comfortable anywhere: even in stinky piles.

What is comfort? It is always something familiar, something known. Classic symbols of comfort include the worn EZ chair, washed out blue jeans, old sneakers – familiar and known. Ah, the comfort zone – safe and secure. The unfamiliar and the unknown are almost always uncomfortable: new shoes, new job, and breaking old habits. Sitting in old chairs and wearing old clothes will never be viewed as detrimental. But, when the metaphor translates to other aspects of our lives we often have to rethink the concept of a safe comfort zone.

Most people would agree in conversation with the premise that change is good. However, this usually means that actual change is good for other people. Personally I have never met anyone who really wants to live in a state of constant change. In fact most people demonstrate behaviors that could be only interpreted as a fear of change. Think about it: constant strangeness, nothing’s familiar. We strive to be expert in our fields, but we cannot even be competent in what we do not know. No, the land of change is not a place for R&R. But what is continuous process improvement if not constant change?

Maybe this is why we tend to embrace and endorse change that is really more of the same – repackaged old ideas that avoid conflict at all costs – places where our competence can be comfortably demonstrated. Maybe this explains the inertia encountered when attempting to initiate new behavior patterns capable of generating radically different results. Maybe this explains why, despite decades of publicly endorsing process improvement, American healthcare organizations remain woefully deficient in so many basic categories. A prime example is patient safety, but it is only one of many – of which myriad articles may and should be written.

Am I comfortable? Am I comfortable while sitting in a malodorous pile?

Election Results: ISM - AHRMM

INSTITUTE for SUPPLY MANAGEMENT Election Results

Congratulations to the new elected officers that will help lead ISM's Medical Industry Group beginning October 1, 2006. Those elected are as follows:

Chair: Ron Feldman, CMRP

First Vice Chair: Mike Nelson, C.P.M.

Second Vice Chair: Ray Bossung

Secretary/Treasurer: Ann Dioquino, C.P.M.

Director/Committee Chair: Stephen Tambolas

Chair Emeritus: John A Efthemis, C.P.M.



AHRMM Election Results

Congratulations to the new President-Elect and Board Representatives who were recently elected by the AHRMM membership. The following new officers will begin their terms on January 1, 2007.

President-Elect: Mary Ann Michalski, CMRP, FAHRMM

Region 2 Representative (NJ, NY, PA): James Smoker, CMRP

Region 7 Representative (AK, LA, OK, TX): Becky Daniel

Region 8 Representative: Liz Veazey RN, MBA, CMRP

WORLD CLASS SERVICE

Did you know......?

Each year the staff of the Materials Management Departments at our nation’s healthcare facilities handles many billions of pieces - some of them 2-3 times! While the average hospital logistics center handles a huge dollar volume of stock supplies the average cost per piece is actually somewhat, make that very, low. It is the incredible piece count that primarily accounts for the high dollar values. A piece is anything that has to be handled one at a time: an each, a box, a case, etc. Some pieces weight grams; some weight 100's of pounds.

Every weekday millions of overnight-rush-gotta-have-it-right-now-most-important-in-the-world packages arrive requiring special processing and delivering. Talk about rapid response techniques! Today many, if not most, suppliers of high unit cost medical devices have placed warehouses as close as possible to FedEx's main hub in Tennessee. Use of overnight delivery, once a novelty, is now routine, resulting in massive reductions in supply chain inventory investments. This increases freight expense, but reduces total overall costs in the supply chain. As more freight carriers develop dependable overnight services prices continue to decline, and the practice more common. Proximity to good highways, once the key factor in locating a warehouse, is giving way to proximity to good airports: preferably an overnight carrier’s main hub.

World-class logistics is a generic term applied to companies that fill 97% or more of their customers’ requests the first time. Few suppliers to the medical industry meet this test (regardless of claims to the contrary). Yet many healthcare organizations have achieved consistent fill rates to their internal customers that exceed 98%: very world class and better than their best supplier! Many organizations generate daily status reports that communicate to their users any problems or unusual occurences with products. This innovation saves users many thousands of telephone calls while documenting service levels in an every day report card.

Today we should salutes the staff and vendor personnel who routinely count, order, track and handle the many tons of supplies, one piece at a time, which we use to treat our patients each and every day. They're not only good; they're real busy and good! Let's never forget that each and every life ever saved at our hospitals involved the sweat of someone in logistics. Be proud of that. Together we really do make a difference.

Tomorrow: “Give Thanks”

WORLD CLASS TECHNOLOGY

Did you know......?

The Supply Chain Department at many hospitals are evolving into some of the most efficient and innovative users of computers in any industry.

Remote user entry into the MM information system is now being used by many if not most major hospitals by almost every clinical and support department. Users, with access to electronic catalogs and requisitions, are able to directly enter purchase and storeroom requisitions that are approved and validated to budgets, contracts and product standards using software algorithms and transmitted to vendors’ computers; or a Logistics Distribution Center; or an advanced e-portal - such as GHX; often within minutes. The transaction is tracked through electronic confirmations, advance ship notices, online instant feedback, received electronically and automatically matched to an electronic invoice in Accounts Payable.

End users are able to inquire online to look up prices, dates items were ordered, received, the PO number assigned to a requisition, etc. Errors and problems are corrected before they actually affect the business cycle. Each year millions of lines of data entry as well as millions of telephone calls have been eliminated, while same day processing rates of supply requisitions for many organizations exceeds 99%.

Catalogs and contracts reside on websites that can be downloaded, validated, and loaded into resident systems with zero errors in seconds - a process that used to take weeks of man-hours with far more than zero errors.

Advanced architectures move beyond traditional ordering cycles and instead alert suppliers and others of the need for product prior to actual use. Often through means as simple as transmitting surgery schedules in advance, or mirroring requisitions to pre-selected suppliers. Trusted collaborative partners have access to data such as preference cards and are alerted to product needs prior to actual consumption. This facilitates minimizing inventory levels through the entire supply chain by drastically reducing lead times from usage to receipt of replacement stock, while minimizing errors in reorders. Maintaining good information in preference cards (front end) assures higher end results in a cascade of processes.This, coupled with hand held terminals, use of internet ordering for items like office supplies and forms, and clinical staffs that are not afraid of the technology, is helping America’s healthcare supply chains gain status as true world class users of information systems: building the modern end-to-end architecture.

Today we should salute our many internal and external customers who have embraced these new technologies and are making this quiet revolution possible.

Unfortunately, we still have to handle the actual stuff manually - haven't figured out how to automate that part, yet. PS - You ain't seen nothing yet. Many minds are busy behind the scene raising the bar.

Tomorrow: “World Class Service”

THE FATHER OF MODERN MATERIALS MANAGEMENT

Did you know......?

Henry Ford, the father of the production line, is also the father of modern Materials Management in a non-military setting. Henry saw the need for reliable sources of supplies to keep his production lines humming. And he saw how a supply chain originated at the level of raw materials and continued in an end-to-end architecture to the finished product. Through his innovations in supply chain management he vastly improved the quality of an automobile while reducing the price to consumers by over 75%. Starting with Ford the American auto industry had long been the world’s laboratory for inventory management and logistics concepts.

The now defunct Healthcare Materials Management Society (HCMMS) was the first healthcare supply chain professional society (and where I got my first professional credentials - CPHM). It started as a specialty subgroup of the International Materials Management Society: a group then dominated by auto industry executives. HCMMS eventually spun off in the mid-1980's due to the perceived differences between the needs of heavy industry and healthcare. Seems the industry officials were appalled by the inability of healthcare MM's to plan production. I guess we should figure out a better way for society to get specific ailments on a scheduled basis. Also, by the early 1980's the average hospital used and tracked more than 75 times the number of items used by the average auto manufacturer! It has only gotten more complex. And we don’t know what the ED will use this afternoon.

It is now broadly recognized that the same concepts that work in one industry will work in another: good supply chain is based upon a few good management principles tailored and applied to our particular circumstances. Uniqueness is a terminal concept.

Today we should salute all the members of the supply chain from manufacturers through distributors, and all of the many healthcare based supply chain professionals who collectively make our uncertain industry capable of performing at high confidence levels through rapid response techniques and ever evolving end-to-end architectures.

Tomorrow: “World Class Technology”

OUR ORIGINS

Did you know......?

Two of healthcare's key professions have a common root: military campaigns. Nursing and Materials Management (Logistics in military parlance) both grew up in response to the needs of war.

Stories of brave nurses in the battlefields over history abound. But, did you know that military historians credit good logistics management as the key to the success of Hannibal, Alexander the Great, Genghis Khan and many others? Clearly the Roman Empire was built via logistics (being part of Rome made trade possible for any conquered nation). They also attribute logistics ignorance to some well-known military debacles. Ancient armies were most dependent on food sources; so good logistics usually meant having something for the soldiers to eat (not to mention having an adequate supply of arrows).

Every serious student of history learns of Napoleon freezing his you-know-what off in Russia without food and other basic needs. The Russian strategy was to cut off the French supply chain – which they did - and thus won the war without winning a single battle! Modern armies still require supplies, but the subject matter changes. General Patton's tank crews fighting hand-to-hand combat because the “brilliant” general outran his gasoline supply line is the classic modern example. In MM circles the General is known as aggressive, but .........

Reruns of MASH continue to remind us of the role of caregivers and supplies in the battlefield. Our brave soldiers fighting in Afghanistan and Iraq bring home many stories of saved limbs and lives due to high quality and high technology medical care now being available in war zones.

Thankfully, most of us commonly ply our trade in a more peaceful setting.

While today's message communicates how MM evolved from a military discipline MM has much to do with why modern industry is... well, modern. It's just kind of hard to sell the rest of the world on "Logistics makes the world go round". They all think it is money, or love, or something else. We need a catchy phrase - or at least a better PR agent.

For this first day of National Materials Management Week all MM professionals in healthcare should salute our fellow military descendants: the Nurses with whom we work.

Pass this on to any nurse who makes you proud of being in our industry!

Tomorrow: “The Father of Modern MM”

Writers Wanted

Do you have some thoughts on healthcare supply chain? Have you ever wanted to write and publish your ideas but didn’t want the hassle of shopping an article to publishers - and don’t feel like spending the time to set up your own blog? Is a current topic in the industry sticking in your craw to the point where you’re thinking it will make your frontal lobe explode if you don’t say something? Have you done something right or made some observations that you’d just love to share with your peers? If you answered yes to any of these questions you’re reading the right piece.

In 2007 The Travels wants to publish some select guest articles. We’re hoping to catch those 4 or 5 other folks in North America who find the topic to be good dinner conversation material for a first date or the folks who named their first daughter Kaizen and an unplanned mongrel puppy Kaiaku – or at least the 2 of them who can clearly communicate their thoughts on paper.

While most articles are written from a hospital point-of-view a supplier’s perspective would be especially welcome. Any supplier with the honesty to tell hospitals what our relationships look like from their position would be a breath of fresh air.

Some other suggested topics of special interest would be:

1. Examples of end-to-end architecture in distribution
2. Demonstrated use of metrics to drive decision making
3. Examples of supplier – buyer relationships that work
4. How Supply Chain’s position has changed within an organization
5. Threats over the horizon
6. All of the other stuff I can’t think of

Gentlemen (and ladies) start your word processors!

Technical and Legalese

Articles for guest submission should be in Word or Text format, no more than 1200 words in length (approximate) and be proofed for spelling, grammar, etc. “Travels” reserves the right to edit content, but all edits will be submitted to and discussed with the author for final copy approval prior to publishing. Under certain circumstances a nom de plume will be permitted. However, the author’s true identity must be known to The Travels. Submit manuscripts via e-mail to stambolas@comcast.net and use the word MANUSCRIPT for the subject. Guest articles published will stay on the site for 30 days and be open to comments from readers subject to our 4 Rules policy. After that they will become part of our permanent archive under a new “Download Past Guest Articles” site. Travels will retain rights to all articles published though any article may be re-printed by the author in other outlets.

Collaboration

Negative (adj. - pessimistic or tending to have a pessimistic outlook).
Tone (noun - the way somebody says something as an indicator of what that person is feeling or thinking).

Regular readers of the healthcare industry press know that almost every article concerning supply chain is written in a negative tone, often describing a broken system that somehow needs to be fixed. And that suppliers and physicians are the co-conspirators/villains that keep the system broken. Why?
For starters, almost every writer in the industry press comes from the hospital side or writes to a hospital audience. Suppliers will hardly write articles critical of their customers (at least not suppliers desiring to stay in business), and physicians who publish tend to stick to matters of science (or tort reform). This leaves hospitals free to point the finger in any direction they choose without challenge. For some reason this dynamic brings to mind the parent and child in some public place where Johnny carries on, but the parent decides to ignore their charge – somehow believing that the child’s behavior will improve through neglect, except Johnny’s behavior never improves. It only gets worse until the parent addresses the problem. Bad behavior left unchecked only begets more bad behavior. After serving this industry for over 30 years I feel qualified to flatly state that many hospitals are in desperate need of an attentive parent.

Strategic Supply Chain Management (SSCM), a clearly defined set of disciplines and behaviors, is as pertinent to healthcare as it is other industries and it is no more difficult to implement in healthcare than it is in other industries. Some hospitals get it, but most do not. Unfortunately, most cannot even articulate the five (5) requisite disciplines or attributes of SSCM. This is not surprising. While supply chain has long been recognized as a factor that separates the winners from the losers in most human enterprises, it is not easy or intuitive. Otherwise it would not be a factor. Further, supply chain is a dynamic process, requiring continuous attention.

Henry Ford was the father of the modern supply chain concept in industry, which resulted in his firm having a cost advantage over his competition. His successors lacked his vision and as a result Ford now trails industry leaders like Toyota. Every serious observer of the auto industry attributes the changing fortunes of these two firms to their different approaches to supply chain. Toyota, the acknowledged market leader, continues to evolve and improve its underlying SSCM processes – choosing to not assume that what worked in the past will work in the future.

Increasingly in healthcare, just like other industries, the winners can be clearly distinguished from the losers by their openness to adopt the disciplines of SSCM. Of the five (5) core SSCM disciplines (not all of which are reported here), one of the least understood or applied in healthcare is the building of a collaborative model. To the contrary, the usual situation in healthcare is to create an antagonistic model. Two on one alliances are regularly created: physician and supplier vs. hospital, physician and hospital vs. supplier, or hospital and supplier vs. physician. It doesn’t have to be this way, and ultimately doesn’t work for anyone.

The Altoona Regional Health System (ARHS) located in Altoona, Pennsylvania provides an example of how things can be turned around - and quickly. The system was formed via a merger of two (2) hospitals in 2004: Altoona and Bon Secours-Holy Family. Both predecessor hospitals utilized what can be called the traditional hospital/supplier relations model: mutual distrust. Jim Barner, ARHS President and CEO, and Charles Zorger, CFO recognized that improving supply chain performance was critical for the system to continue its track record of profitability and to fully realize the system vision: “….to be a world-class health care organization.” From late 2005 through mid-2006 I was privileged to work with this organization as they retooled their supply chain operations.

The first order of business was the hiring of a new VP of Supply Chain. Gary Zuckerman took over the reigns in February, 2006. What he has accomplished relative to collaboration in 6 months should be a primer for other organizations seeking to improve their position. In this period ARHS has launched a full redesign of their old value analysis approach to a resource management model that incorporates executive leadership and participation by physicians and management at every level. Supply Chain is no longer viewed as a department, but instead as a core management function. An executive council and at least three (3) standing committees have been organized and actuated.

Gary and the Director of Pharmacy, Nick Genovese, have launched a formal supplier relations program and in three (3) months provided an in-person orientation to over two-hundred (200) supplier representatives and fifty (50) internal staff members (they require staff who meet with suppliers to sit through the same orientation as the suppliers.) This orientation provides their suppliers with clear expectations and a how-to for improving their firm’s position with the system. They have used a team approach to tackle one of their highest expense lines and have already realized savings in the 20-25% range. Note this was done by creating a supplier and physician and hospital collaborative approach.

Gary Zuckerman and the ARHS executive team are rebuilding their supply chain function based upon the disciplines of SSCM - the same core disciplines used by Toyota and every other successful organization. They get it! And because they get it, ARHS is reaping the benefits – quickly! Better yet, their process includes continuous improvement – not one-time savings or reductions. ARHS is building true strategic relationships with suppliers, physicians, and internal staff. The bottom line here is in lieu of ARHS moaning about what could not be done and how things were broken, they set about to make right whatever they could. And they have done this in an open and forthright manner. They understand that only the customer i.e. the hospital can initiate the relationships needed for a true collaborative model. And they are discovering that their suppliers can be vast resources for improvement and change. The kind of change needed if you are “….to be a world-class health care organization.” World class organizations tend to avoid negative tones.

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It Is Worse Than We Thought

A recent exposé by NY Times reporter Reed Abelson documents payments from Medtronic Sofamor Danek to physicians that can only be described as obscene. One physician, a spine surgeon, was receiving $400,000 a year for 8 days of “consulting.” Others are identified as receiving annual sums ranging from $75,000 to $700,000. The company, in response to a lawsuit brought by a former employee, admits paying physicians at least $50 million over 4 years through June or later 2005.

Let’s assume that Dr. $400,000 did all of his work at a single hospital. Do you believe that hospital made $400,000 on all of his cases? How many hospitals make any money on spine surgery? This is one of the worst procedures from a hospital reimbursement perspective, with some, but not all, hospitals accepting it as a loss leader/community service. Would $50 million dollars in the hands of America’s hospitals made that big of difference over the past four years? Maybe not, but it would have helped those willing to allow this procedure. Few hospitals schedule high end spinal procedures due to poor reimbursement relative to the cost of the procedure. How many patients have had to wait or travel long distances to get a needed medical procedure whose cost we now learn is artificially inflated due to the practice of legal bribery? We only know that Medtronic spent $50 million. How much is the total from all companies? Would that have made a difference? I suspect it would.

What happened to the AdvaMed Code of Ethics - the 16 page industry document that stresses the term bona fide when addressing the matter of consultants? And those bona fide consultants must be compensated consistent with a fair market value of their services? Is $50,000 a day fair market value? On the subject of gifts the code calls for “modest gifts” only if they “serve a genuine education function.” Well since the article also reports that Medtronic’s people were taking surgeons to strip clubs I guess they tied these visits to anatomy lessons. Some time ago a Medtronic sales rep proudly handed me a copy of the code and announced that Medtronic was the driving force behind its adoption. He took me to the AdvaMed website where I could see that Medtronic was a full supporting member of this group, and how every member had to adopt the code. I still remember that first reading of the code - how refreshing! At last, I thought, the industry is cleaning itself up. I was mistaken. The industry was simply throwing another smokescreen at those of us charged with making it work the way it’s supposed to in an ideal world. I now know that was a set up, that the AdvaMed Code of Ethics is a shill, raised to quiet people like me and to get us to stop asking questions. I was duped. I will never give it credence again. This is part of the price Medtronic’s practices exposed extracts from the entire industry. I have no choice but to be skeptical of everyone. Burn me once, shame on you. Burn me twice…..

Unfortunately, I would bet the ranch that Medtronic is not out of step with its competitors. They should not be singled out for scorn or punishment. The NY Times was able to get the goods on this firm only because of a lawsuit resulting in legal discovery procedures that were made public. The books of their competitors are closed. But, do you believe that Medtronic was paying $50 million while their competitors were paying nothing?

A group of physicians recently published an article in JAMA entitled “Health Industry Practices That Create Conflicts of Interests.” In it they advocate that academic centers take the lead in eliminating many of the conditions (bribery) that create these conflicts. The authors represent a who’s who of prestigious academic centers. This should bring hope to the industry. It’s too bad they are naïve and should be totally ignored. Their solution is simply more self regulation. Better yet, regulation by the same profession that is being bribed to the tune of millions. How credible is that? Is this more smokescreen from the other side of the transaction? There are legitimate, bona fide, needs for physicians to serve as industry consultants. The rapid growth of technology in medical science is a result of this dynamic. But, who is to set the definition separating legitimate, bona fide, consulting from outright bribery? Who can establish fair market value? I am reminded of a definition of insanity - doing the same things over and over again while expecting different results. More self regulation of the potential bribers by the potentially bribed - how long are we going to take it?

Attempting to delineate the necessary from the obscene will only lead to more confusion and further abuse. The only answer that makes any sense is simple full public disclosure of the dollar amounts and to whom they are paid. Hospital administrators need to lobby the heck out of Congress and the Senate to make disclosure of these payments public information, including notification to all patients. Make failure-to-disclose a criminal act punishable by high fines and jail time if necessary for company officers and physicians alike. Let’s face it - the dynamic of selecting products to use in surgery will completely change when everyone knows that a physician is a highly paid representative of the firm for whose products they are advocating. Likewise patients have a right to know that “their” doctor is a paid representative of the company that makes the implant that they are recommending for use in their case. Demands couched in “best quality” and “best interest of the patient” will sound a little shallow coming from someone with this large of a financial stake.

In the meanwhile hospitals should:

1. Since the firms sell to the hospitals and not the physicians it is fair for all hospitals to require, via contract, that all payments to consultants or others doing business on the hospital premises be disclosed by any company selling to the hospital. This should be a part of every hospital’s supplier certification program.
2. Implement a requirement that all members of their medical staff disclose all payments made from third parties, other than insurers, for any services performed on their premises. This should be part of credentialing.
3. Here’s a novel idea: require that all payments made to consultants be matched as price reductions for product purchases. The physician gets $400K – the hospital, and ultimately the payors, gets a $400K break.
4. Not do business with any company refusing to agree to this. After all, if the company is adhering to THE CODE, then this should not be an issue.


The AdvaMed Code of Ethics: What a joke!

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