Tactics without Strategy - The Art of War

What you need to know before you hire an expense reduction consultant.

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. - Sun Tzu (Chinese General, circa 500 BC , “The Art of War”)

One of the more frustrating times in the life of a consultant occurs when you follow after a competitor into an engagement: when you believe that the competitor has done a disservice to the client. When viewing the work of one of your peers it is poor form to point out what you believe to be incompetence or sloppy work. By definition competitors compete, so pointing out the shortcomings of another firm can appear to be tasteless and aggressive marketing behavior. Often you’re forced to frame your observations in a manner that while being appropriate to the client’s condition, allows them to contrast and compare your work to your competitor’s product, i.e. lets them draw their own conclusions with help. Unfortunately the prior damage done by some firms can make this a difficult task.
The peers for whom I have the greatest respect are supply chain professionals based in industries other than healthcare, where expectations of supply chain performance are very high and related decision making is performed within a strategic framework that engages most if not all of the senior management team. However, as a specialist in healthcare supply chain I am often dismayed, though not surprised, at the level of ignorance of the discipline by healthcare’s senior level managers - few have any training in the field - and how easily consultants with little formal training themselves exploit that ignorance. More often than not I see “final reports” that contain little more than a litany of tactics that cannot by themselves deliver any long-term results. Many times these clients have spent millions of dollars for essentially short term (2-4 years) financial swings.
There are a few points that every senior executive in healthcare should know before they hire their next expense reduction consultant. Knowing these points should raise your level of expectations and improve your chances of achieving long-term results.

1. As the lead-in to this article implies, there are supply chain strategies and supply chain tactics. Every senior manager needs to know the difference. Irionically, most do understand the difference in strategic vs. tactical nuances when it comes to matters such as marketing and building plans, but somehow lose their focus in other matters. For example, focusing on low unit pricing is a tactic, not a strategy. There are other ways, often more successful ways, to contract for bottom line results. Organizations need to conduct a formal supply chain strategic planning session at least annually to confirm and adjust their strategy and outline planned tactics. Key stakeholders should participate and afterwards be able to articulate the strategy and tactics for their organization’s supply chain. The initial meeting may be an all day affair. There is a lot to consider. This day will pay many dividends. Supply chain strategies should reflect and support an organization's overall strategic plan. Tactics to achieve intermediate goals may vary, but they must be created in support of a long-term or global strategy.

2. High supply expense is not a problem, it is a symptom. Allowing a consultant to renegotiate existing contracts to lower unit prices may mask the symptom in the short-term, but does nothing for the problem.
Fixing bad prices can be analogous to taking aspirin for a headache when you have a brain tumor. The fundamental questions that must be addressed are how did bad prices occur in the first place, and what assurances are there that they won’t begin to return as soon as the consultant is gone? Cure the problem.

3. Supply Chain is not a department. It is a management function and an ongoing process.
The best analogy that I can offer is the area of Human Resources. HR is both a department and a management function. HR pre-qualifies candidates for hiring, but the department manager participates in final selection. Neither side operates in a silo. Teamwork is assumed. HR develops policies that guide the rest of the organization in matters of employee relations. But, the actual contact with the employees is usually the responsibility of the individual managers and supervisors. Sometimes the rules change and HR has to make sure that every manager is up to date. Supply Chain should be operating on a similar platform: offering system-wide guidance, expertise and vision to all stakeholders. And all managers are stakeholders. Processes that are solely driven by a Supply Chain Department usually don’t work, or are marginally effective at best. Unless all managers are involved, including the senior team, supply chain performance will be mediocre.

4. Measurement against some national benchmarks is great, but not good enough.
Unfortunate side effects of measuring against benchmarks can be “we’re average – we’re OK” or “Heck. We’re so far off that mark we’ll never get there. Something must be wrong with the data”. In either case the benchmark has not helped. However, if you’re not working towards measurable goals and objectives your supply chain performance will not be particularly good. It is recommended that organizations start with a benchmark, but then measure against themselves working towards continuous improvement. Every supply decision that is made should be made within the context of how it affects whatever unit you’re measuring.
One set of benchmarks is never enough. There are multiple facets to a supply chain. Market intelligence needs to be developed that addresses every facet. Knowing that your supply expense per admission is higher than some other organization’s is useless information unless you grasp the underlying causal agents. Are your unit prices out of line? What is your length of stay compared to your peers? How does the cost per day compare? How do you compare to peers in specific procedures and departments?

5. Someone will control your supply chain. Will it be you or your suppliers, or you and your suppliers? Unless formal and rigorous processes are in place the suppliers win sole control by default. As a group, medical salespeople are better trained, organized and more specialized than most healthcare professionals. Many organizations put up a single mid-level supply chain manager with a sign-in sheet in the lobby against an army of highly trained marketing professionals: each with a special focus. Guess who wins? An adversarial attitude towards suppliers presupposes that someone has to lose.

I would expect a supply chain improvement engagement to deal with this last issue head on. Few do. Why? This is the ugliest and toughest aspect to fix with no immediate dollars that can be attributed directly to it. Yet, dealing with this is probably the largest single cost control with long term implications that can be implemented.

Knowing what to expect from an effective supply chain improvement engagement can go a long way in assuring that your organization will achieve the desired results. Organizations that have historically made poor decisions in the supply chain arena need to be careful to not make another poor choice when they decide to fix the problem.

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Home Cooking

Every town in America - and I do mean EVERY - has at least one restaurant that claims to have "home cooking". I have personally eaten in about a thousand of these places and can report that as a general rule "home cooking" is a relative term. In many areas you are left wondering how the locals can bear it if the food you just ate is indicative of their daily fare: runny instant potatoes, canned soups and jarred spaghetti sauce - hardly the stuff of grandma. Surely if this is their idea of "home cooking" domestic skills are lacking in the region.

The city of Altoona, PA has a place named Granny's Family Restaurant. It was a winner of their local newspaper's poll under the heading of Where The Locals Eat. I landed here while driving in search of sustenance from a non-chain eatery. Tonight's special was pork and sauerkraut, with real (slightly lumpy) mashed potatoes. Now I recognize that not everyone comes from a half-breed ethnic background like myself (Croatian and PA Dutch) where pork and sauerkraut was the equivalent of ambrosia. But, for me it's one of those dishes where my Slavic and Germanic sides converge. Obviously with this prejudice I tend to give such cuisine two thumbs up.

However, think about it. Only a restaurant that actually has home cooking would even think to serve pork and sauerkraut. And not just pork and sauerkraut, but pork cooked in the sauerkraut and broken up into nice chunks. Then they serve it with an additional two wieners - also cooked in the sauerkraut - on the side. Included in the price was a soup and salad bar where the soup was "homemade" ham and bean. Not canned, but obviously made on site with irregular pieces of ham. The salad bar was one of those that has cottage cheese and apple butter.

After leaving a 35% tip I walked out feeling all warm and secure for under $12. They have a flyer/calendar with their nightly specials. I took one for November. Next Monday is stuffed green peppers. It's almost a shame I never eat here on Fridays - fish fry all day!

The Ends of the Earth

If you leave Harrisburg and turn right (East) in 165 miles or so you find yourself in Manhattan. As most of you know that's where I've primarily resided since November, 2004.

On the other hand if you turn left (West) in 140 miles you're in Altoona. Talk about contrast! I started today as an interim VP at a client in Altoona. (Altoona is no relation to Charlie Tuna)

While in Manhattan I was in an apartment lacking air-conditioning, and where I had to launder my own sheets, towels, etc. Also, I had basic housekeeping duties. All night long sirens would whine which could not be ignored since the windows had to be kept open. I had to fight the subway mobs to and from the office.

In Altoona I'm staying in a Holiday Inn with an exercise room, full cable, a least 2 dozen chain restaurants within walking distance, maid service, free breakfast, free coffee and cookies 24/7, etc. The client is providing indoor parking on the same level as my office.

The Holiday Inn would actually be cheaper if I stayed all month than the rent for the apartment in Manhattan - $1000 cheaper. The fact that I'll only stay 12-15 nights a month makes it even less. Hmmm? I guess location really does affect real estate.

The interesting part for me though is that Altoona is 12 miles south of Tyrone, PA. Tyrone was the first city in which my father lived after emigrating as a young teenager from Croatia. I have never visited Tyrone, though I have driven by on the highway. At some point during this engagement I intend to drive to Tyrone just to see the landscape and walk its streets. To me this is very special real estate.

The Devil and The Sales Rep

While walking down the street one day, a Sales Representative was tragically hit by a truck and died. His soul arrived in heaven and was met by St. Peter at the entrance. "Welcome to Heaven," said St. Peter. "Before you settle in, it seems there is a problem. We seldom see a Sales Representative around these parts, you see, so we're not sure what to do with you."

“No problem, just let me in," says the Sales Representative.

“Well, I'd like to but I have orders from higher up. What we'll do is have you spend one day in Hell and one in Heaven. Then you can choose where to spend eternity."

"Really, I've made up my mind. I want to be in Heaven," says the Sales Representative.

"I'm sorry but we have our rules."

And with that, St. Peter escorts him to the elevator and he goes down, down, down to Hell. The doors open and he finds himself in the middle of a green golf course. In the distance is a club and standing in front of it are all his friends and other Sales Representatives who had worked with him. Everyone is very happy and in evening dress. They run to greet him, hug him, and reminisce about the good times they had while getting rich at expense of the people. They play a friendly game of golf and then dine on lobster and caviar. Also present is the Devil who really is a very friendly guy who has a good time dancing and telling jokes. They are having such a good time that before he realizes it, it is time to go. Everyone gives him a big hug and waves while the elevator rises.

The elevator goes up, up, up and the door reopens on Heaven where St. Peter is waiting for him. "Now it's time to visit Heaven.

So 24 hours pass with the Sales Representative joining a group of contented souls moving from cloud to cloud, playing the harp and singing. They have a good time and before he realizes it the 24 hours have gone by and St. Peter returns.

"Well then, you've spent a day in Hell and another in Heaven. Now choose your eternity." The Sales Representative reflects for a minute, then answers: "Well, I would never have said it, I mean Heaven has been delightful, but I think I would be better off in Hell." So Saint Peter escorts him to the elevator and he goes down, down, down to Hell.

Now the doors of the elevator open and he is in the middle of a barren land covered with waste and garbage. He sees all his friends, dressed in rags, picking up trash and putting it in black bags. The Devil comes over to him and grins menacingly.

"I don't understand," stammers the Sales Representative. “Yesterday I was here and there was a golf course and clubhouse and we ate lobster and caviar and danced and had a great time. Now all there is a wasteland full of garbage and my friends look miserable."

The Devil looks at him, smiles and says, "Yesterday was the presentation. Today you signed the contract!"

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Really Big Island

Yesterday the temperature in Central Park hit a record for the date: 97F. Today wasn't much better. But, this isn't a story about the heat, it's to give you an idea of how big is Manhattan Island.

Around 3:30 today a news flash announced that a severe storm with 60 mph winds and hail was moving across Manhattan, the Bronx and into Queens. Later I spoke with the security guard for our building. He lives in Harlem (top part of Manhattan) and was traveling to work when the storm hit. He described his bus rocking back and forth from the winds and admitted to being scared that the hail would break windows on the bus. He described deep pools of water from the rain due to sewers that couldn't handle the high volume from the deluge.

While this storm was hitting one part of the island, I was sitting on the 9th floor of a building on E. 15th St. (Manhattan's Gramercy section located in the lower 1/3rd). The sky overhead was bright sun. You could not even hear the thunder from the severe storm hitting another part of the island. The air was dead still. The air is still dead still. It is still in the 90's. I suspect it's a little cooler in Harlem.

NY, NY Continued

It rained all day in New York today. This means that the usually crowded subways are even more so. It didn't help that the L Train was for some unknown reason unusually late. When it stopped at the platform a wave of humanity, myself included, squeezed into the car. But, just when you thought it would stop more people continued to push in and squeeze. It is an experience unlike any other. It cannot be described - it must be lived. I could not lift my arms or move. You are completely helpless. On the bright side you didn't have to hang on. It took the door several attempts to close.

At the next stop the unthinkable happened. A very large man insisted on squeezing into the car. Now the door really had trouble closing. Two young girls, who had been part of the last excess push, started berating the guy yelling "You're too big!" "Get off!". Well he didn't, the doors closed and the train started moving. However, the mouths continued - on and on - "why did ya squeeze in?" and on and on. Another passenger spoke up and said "Hey, I saw you doing the same thing. The man just wanted on the train." Of course the mouths had to reply with "mind your own business! Who in the f*** asked you? Etc., etc."

It was getting tense - the abusive language was going back and forth - the passengers were all very nervous. Just then I spoke up in a voice loud enough to be heard through the entire car, "I'm from out of town and I always tell the folks back home how amazed I am at just how polite New Yorkers are towards one another on crowded subways." Well the entire car, including the mouths, cracked up. People were guffawing and laughing. As they stopped I spoke again, "Whether you know it or not you're the most beautiful people on Earth in tight places. Please don't change that image for me."

A middle-aged woman who was squeezed up against me whispered "That was very nice"; a young black guy - dressed in full rapper regalia - squeezed on my other side whispered "thank you". At that point we hit the 1st Ave. stop and a lot of us got off. Room again to breathe.

Some people can't see the forest for the trees. New Yorkers really are beautiful in tight spaces. Now they know someone noticed. The funny thing is that after I said it, they immediately began living up to it.

Terrorist, Manhattan and Me

Everyone knows about the September terrorist attack in lower Manhattan, or do they? Did you know you have to ask " Which one?"

Most people today are unaware that on September 16, 1920, around noon, a horse drawn wagon loaded with hundreds of pounds of TNT and 500 lbs of sash weights exploded on Wall Street killing over 40 people. It was the first terrorist attack in this neighborhood.There are some good articles on the subject on the internet.

Windows were blown out 1/2 mile away. The blast was huge. Anarchists were suspected, but never caught. To this day the guilty party(s) are unknown.

The interesting part of this for me is that as a result of the attack many business leaders on Wall St. came to the conclusion that lower Manhattan needed a hospital. They founded the Beekman Hospital. Years later this very hospital treated the people injured in the 1993 attack on the World Trade Center and in 2001 treated over 350 of the victims of 9/11. This hospital is now known as the NYU Downtown Hospital* and it is just completing a $25 million renovation of their Emergency Services to prepare for future needs. It is strange that a hospital founded by terrorism continues to be so motivated and affected by terrorist behavior.

It is where I'm currently working. I'm really thrilled to be a part of this.When I started my career I never realized that I would be given the opportunity to play such a prominent role in such an heroic mission. I thank God for leading me here. They really need what I have to offer. The pinnacle of one's career has to be really making a difference in something that matters. It's worth being stuffed into a subway car twice a day and walking by piles of trash. Some things are bigger than comfort.

OK - so the restaurants are pretty good.

* Note: in late 2005 the hospital became The New York Downtown Hospital.

The City of Holidays

I have been in healthcare since 1971 (you do the math). In all of those years I waited from New Year's Day to Memorial Day for an extra day off: a 5 month gap. I thought this was normal. After all, I spent the first 16 years in the hotbed of unionism - Pittsburgh. If any place in the country would reward its workers with more time off it would be Pittsburgh, right?

Then I moved to Harrisburg. Another 15 years with 2 area employers - Same number of holidays as Pittsburgh.

Now I have a hospital client in Manhattan. Since New Year's this client has shut down for 2 additional holidays: Martin Luther King Day, and today Presidents' Day. I learned of this after I bought my train ticket and made my travel plans. My co-worker is flying in from St. Paul. He already bought an air ticket at discount - nonrefundable. I write this as I ride the train into New York.

It's always an afterthought as in "You mean you didn't know we closed for (fill-in-the-blank)? No one will be here Monday." They appear shocked that the rest of the country doesn't close for every federal holiday. I'm almost afraid to ask what other days they celebrate. One VP told me the number of annual holidays was 12. When I replied that most places had 7 or 8 including personal days, she responded that the 12 didn't include 4 "personal days". We're not talking vacation. This is holiday time: 16 days. This particular VP also gets 5 weeks of vacation.

I'm thinking of taking a cab when I get into Manhattan instead of the subway. Friday I learned that the subway will be on a "weekend schedule". I have no idea what that means.

What rubes we were in Pittsburgh.

ISO 9000: A Guide to world-class quality standards

ISO 9000: A guide to world-class quality standards Hospital Materiel Management Quarterly; Rockville; Feb 1997; Stephen F Tambolas , Vol. 18, Issue 3, pp’s 62-68. ISSN 01922262, Aspen Publishing

NO TOPIC IN THE 1990s, outside of managed care contracting, has generated more interest and activity among health care providers than quality: quality control, quality assurance, continuous quality improvement, total quality management, quality systems, Joint Commission on the Accreditation of Healthcare Organizations quality standards, etc., etc. The focus of quality management has quickly evolved to the engineering of continuous quality improvement throughout all processes (quality systems) measured by consistent and predictable outcomes. While this started in clinical areas, support functions, including materiels management, are feeling the pressure to keep pace. This is because it is impossible to embark on a path of continuous quality improvement without moving up the chain to all internal and external support systems and vendors. Health care providers are now finding their quality programs being scrutinized by someone else, usually managed care providers, who view them as vendors. While this may all appear to be quite a revolution in quality management, health care is simply following another well-established industrial paradigm. Just ask Ford Motors or General Motors (or any other well known industrial company), where formal supplier certification, including reviews of quality management, is an established routine of doing business.

The process of supplier certification by health care organizations has, up to now, been superficial, haphazard, or outright neglected. The foremost reason for this being the unique existence of government [Food and Drug Administration (FDA)] regulations concerning medical products fitness for use and/or consumption. These regulations were viewed somewhat as a guarantee of product quality, leaving providers free to choose products based upon other factors such as price and usage characteristics. However, documented failures of products whose prototypes and designs received pre-market FDA approval are rather common. Product failures demonstrate that government regulations alone do not guarantee consistent manufacturing quality. Nor do they guarantee that manufacturers will ever improve upon the minimum standards that allow a product initial entry into a medical market.

Health care providers today are seeking suppliers genuinely committed to the concept of continuous quality improvement for all aspects of a product's life cycle, including end use by the customer. Obviously, by picking these companies as suppliers a company can better assure that its own quality level will improve. The idea is simple enough: find and partner with suppliers dedicated to improving their product(s). But, how does a company find out which suppliers are really doing their best to improve quality? How does it find out which suppliers are engineering continuous quality improvement into all of their processes? It seems that when a vendor is asked if they're committed to quality the answer is always a yes.
Fortunately, we don't have to take their word for it. And we don't have to create complex vendor quality questionnaires, site visits, or other certification activities surrounding quality. Someone else has already done the work. ISO 9000, a broad series of standards made up of many quality system elements, provides a company with the tools necessary to design, document, and implement a quality system that, once implemented, is certifiable by independent auditors and recognized throughout the world. A company certified in one or more ISO 9000 standards has been audited, registered, and provided with documentation assuring its level of commitment to quality improvement. Understanding the full ISO 9000 process, which is already widely adopted in Europe, Asia, and the U.S., can greatly benefit anyone working to improve supply chain quality. In fact, ISO 9000 certification is a requirement to market some regulated products in the European community.

THE INTERNATIONAL ORGANIZATION FOR STANDARDIZATION

Since 1946, ninety member countries have run the International Organization for Standardization (ISO) in Geneva, Switzerland. The United States is represented in this body by the well-known American National Standards Institute. ISO establishes, publishes, and maintains international standards for manufacturing, trade, and communications. Among these are the broad series of quality standards referred to collectively as ISO 9000, first published in 1987.

To obtain ISO 9000 certification, a company is required to: (1) document their quality processes in quality manuals, policies, procedures, work instructions, and records; (2) actually do what the documentation says; (3) keep records of what happens; (4) look at what happens and measure it against expectations; and (5) take action when performance doesn't meet expectations. Companies then prove that they actually do these by being audited and certified by a quality system registrar, an independent company whose function in quality management is analogous to a financial auditor in matters of accounting.

THE 9000 SERIES

ISO 9000 is actually five separate series of standards, which are further divided into two categories: guidance and conformance. The guidance standards, 9000-1 and 9004-1, are sometimes referred to as the road maps to the conformance standards. That's because they are informational guides to help a company accomplish the implementation of the conformance standards: 9001, 9002, and 9003. Companies certify to the conformance standards, but not to the guidance standards. If a company wished to begin the process of certification, a good place to start would be obtaining a copy of one or both of the guidance standards. These provide written outlines and details of the conformance standards to assist a company in deciding which of the conformance standards apply to its particular market(s) or product(s).

The most comprehensive conformance series is 9001. An outline of the 9001 requirements is contained in the Appendix. These requirements cover every aspect of a product starting with management responsibility, to product design, through aftermarket service, statistical techniques, and the contracting processes used with customers. Companies certifying to 9001 have touched on quality at every level of a product's development, sales, and service. Manufacturing and some service companies would normally select 9001.

Almost as comprehensive is the 9002 series. However, these ignore product design. Often, plants or companies that choose 9002 build to specifications developed elsewhere. An example is companies that subcontract to build assemblies and parts used in another company's product. Or, a company with multiple plants may certify one plant to 9002 and another to 9001 depending upon the particular location's activities. One central location will likely carry on all design activities, while production may be worldwide. Another example, very pertinent to health care, is the refurbishment, sometimes referred to as remanufacturing, of high-tech equipment. Firms involved in this area often perform every aspect of equipment manufacturing and servicing except the original design. Hence, the need to certify product design processes is not always present. When buying equipment, informed buyers should know where and when design processes occurred as well as manufacturing.

Least comprehensive is 9003, which deals with problems found during final inspection and testing. It is sometimes referred to as a good, old fashioned quality-control program. Companies that do not make anything, such as distributors, can use 9003. These firms' services can be less complex and thus rated using inspection and testing.

THE AUDIT PROCESS

Once a company has implemented the entire series for a particular standard, they are audited by a third party company called a registrar. Firms begin dealing with their registrar as soon as they decide to embark on obtaining 9000 certification. The registrar can assist them with pre-certification audits that reveal how far they need to go to achieve their goal. It has been estimated that it takes a firm, on average, a little over one year to prepare for their first audit. However, some companies are able to do this in as little as six months. The difference is the strength of their existing quality systems prior to embarking on the 9000 path.

Registrars audit a firm on every applicable standard and issue certificates of approval to companies that meet or exceed all standards. Firms may receive a conditional approval for minor deficiencies, but quality systems that do not meet all of a standard's elements are not approved. Typically, companies are registered for a period of three years, though this can be changed with different registrars. If minor problems exist that need attention, but do not warrant disapproval, the registrar may conduct periodic surveillance audits to monitor and assure progress. Once certified companies can copy registration certificates and provide them to customers and other interested parties. Thus, an objective proof of a defined quality process is obtainable.

Just as faith in the integrity and capabilities of a financial auditor is required to believe his or her evaluation of a client's financial statements, so is the need for faith in the quality system registrar's ability to ascertain a company's adherence to a particular ISO 9000 standard(s). The key to the system is confidence in the audit firm. The reliance on ISO 9000 by many of the world's leading firms is possible due to an accreditation process to which the audit firms themselves are subject. Not all audit firms are accredited, however, and it is a caveat emptor, buyer beware, world. In the United States the accreditation body, also called the authoritative body, is known as the Registrar Accreditation Board. In Europe, several other reputable boards exist, including RvC (Dutch abbreviation for the Dutch Council for Certification) and the National Accreditation Council for Certification Bodies (NACCB). While this writer is not familiar with any specific examples of registrars falsely or carelessly certifying poor quality programs, it is still recommended that the authoritative body of a company's registrar be known prior to accepting his or her certification as proof of compliance with series 9000 requirements.

The entire world is moving on a path that leads to ongoing improvements in quality. The need to communicate and verify a company's quality activities has led to worldwide standards that are verifiable by independent third parties. No doubt, even these standards will improve over time. Purchasers of equipment and supplies owe it to their companies to learn more about the ISO 9000 process. Dun & Bradstreet has been found to be a good source. In fact, several of their publications are listed as Suggested Reading in this article. In addition, they can provide a current database of every company in North America with ISO 9000 certification. However, the best information will come when specific questions concerning a company's commitment to quality are found in every request for proposal.

SUGGESTED READINGS

The Road to Quality . . An Orientation Guide to ISO 9000 (lst ed.). Fairfax, Va.: Irwin Professional Publishing, 1995.
ISO 9000 Information Guides, Series 1, CEEM Information Services. Fairfax, Va.: Dun & Bradstreet Information Services.
ISO 9000 Information Guides, Series 2, CEEM Information Services. Fairfax, Va.: Dun & Bradstreet Information Services.
ISO 9002 Certification and Reconditioned Medical Equipment, Wayne Tschirn, MED Medical Electronics, December, 1995.

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Breeding ground for growth

Original article may be found at

http://www.matmanmag.com/matmanmag_app/hospitalconnect/search/article.jsp?dcrpath=AHA/NewsStory_Article/data/MATMANMAG501&domain=MATMANMAG


There is a debate in health care about whether a fully-integrated financial system performs better than a best-of-breed combination. Hospitals deploy both types of systems to serve their evolving needs for better supply chain efficiencies and management information. The debate won't be settled by the software vendor community because of its economic interests. Regardless, most end users don't realize the potential benefits of any system.

When vendors speak of a fully integrated system, they mean a solution created by their company. Usually this doesn't mean they have designed a system from the ground up, but that they own and market systems for which they also have off-the-shelf interfaces.

Often the supply chain management portion is either an afterthought or an acquisition, which allows a company to make a claim of being fully integrated. If it is an afterthought, what results is a not-so-magical transformation of a best-of-breed system into a fully-integrated system. In either situation, the design of critical expense management functions usually is secondary to the financial general ledger (GL) package.

Making the connection

It's ironic that the two systems often operate in the same way. However, one big difference exists--users on the materials management side are almost always happier with best-of-breed systems, because systems from specialty providers bring attention to MMIS detail that users require and appreciate.

Those using a fully integrated system often say it was forced on them by an IS or finance department that didn't understand the highly specialized programs of an MMIS.

Fewer connections are needed between an MMIS and a general financial system (GFS) than most would estimate, and these connections are relatively simple batch files. A number of connections exist between the finance and materials management departments, butisn't close to the number of connections within an MMIS. An MMIS is as complicated as a financial system and in many cases, more so.

Racking up points

There is detailed integration between the accounts payable and purchasing departments, while a simple batch interface exists between the MMIS and the financial system in a single transaction. This makes it possible to perform AP/PO matching on the MMIS and pass a daily batch to the GFS.
Benefits include a 95 percent reduction of problematic invoices. With a best-of-breed MMIS, PinnacleHealth has pursued technological options aggressively. This has allowed the organization to deploy an online requisition solution to end users permitting desktop ordering of supplies, stock or non-stock, from a custom catalog.

End users have real time inquiry capability regarding POs, status, pricing, etc. Procurement deals with service issues instead of transactions. Same-day placement of expense line requisitions exceeds 99 percent, and contract compliance is almost universal.

Other accomplishments include:

• Centralizing procurement and contracting functions in a single location for a multi-facility system that extends more than 70 miles
• Performing an abbreviated launch of a true business-to-business e-commerce solution using a GPO-sponsored portal
• Opening EDI links with providers not yet Internet-ready, including the use of 810 electronic invoices
• Creating entire vendor classes capable of tracking supplies through risk-sharing arrangements, providing accurate inventory information without negatively affecting accruals to the GL
• Using hand-held bar code scanners
• Using touch-probe technology
• Using computer-generated inventory ordering patterns
• Moving supplies through multiple packaging schemes and issue units
• Developing such in-house, no-pay vendors as print shops
• Reducing supply expenses through controls and producing custom reports on demand
• Exploring a Web-deployable application with a vendor that includes seamless conversion and short learning curves
• Maintaining customer satisfaction.

While there are good fully integrated systems, most do not give the MMIS function dedicated support. This results in minimal use of its capabilities.
One particular integrated system with wide market acceptance is incapable of performing basic supply chain tasks.

A compelling example is its inability to track credits for product returns. There is no hospital in the industrialized world that does not experience frequent product returns.

Failure to account for this in an MMIS reflects a design process that lacked input from someone with supply chain credentials. Such flaws are not a part of best-of-breed solutions.

Each organization should make its own choice based on an objective cost-to-value model, but that model should include extensive examination of vendor claims vs. real-world performance. If basic functions are lacking in a hospital's MMIS, it could be argued, that organization has not actuated an MMIS, but has simply extended its front-end GL entry functions.

When originally published Stephen Tambolas was the director of materials management, at the Pinnacle Health System, Harrisburg, Pa. He earned a B.S/B.A. in information systems from Robert Morris College and an M.P.M. in health system administration from Carnegie-Mellon University, both Pittsburgh-based universities.

This article first appeared in the January 2002 issue of Materials Management in HealthCare