A Call to Action for Our Healthcare Supply Chain

Gibson Consulting recently invited me to share a perspective on the healthcare supply chain.  This was my first article introducing the talent imperative in our healthcare supply chain.  Click Here for the original article.  ​

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The Undervalued & Misunderstood Healthcare Supply Chain

Healthcare is experiencing profound macro pressures including revenue compression, growing consumerism, rapid provider consolidation, population health strategies, payor-provider integrations and the emergence of many non-traditional disrupters and competitors. Aggressive cost reduction targets inevitably become a large component of a multi-faceted strategic response to these pressures. Cue the supply chain team (or procurement team in some organizations) for supply expense reduction efforts. To unlock the full potential of the supply chain, we must be willing to re-imagine the supply chain function and invest in talent management strategies.

Let’s consider the current state of the typical healthcare supply chain function. It is grossly underfunded and understaffed when benchmarking the investments relative to world-class performers such as Proctor & Gamble, Unilever, McDonald’s and Cisco. Healthcare too often benchmarks within healthcare exclusively, which may be one of the root causes preventing revolutionary progress. Supply chain typically influences purchasing decisions for only 50% of the total addressable non-payroll expenditures; thus, leaving significant annual expenses on consulting services, marketing services, IT infrastructure, construction services and HR services relatively unmanaged. Supply chain typically relies on Group Purchasing Organization(s) for the majority of its contracting activities with suppliers. Therefore, the supply chain team hasn’t had the development time or resources to progressively advance its own cost management capabilities.

Far too often, supply chain is only measured on its ability to reduce operating expenses by showing how it negotiated lower pricing with suppliers. This myopic measurement process results in industry-wide value shifting. Simply stated, value shifting means that a hospital saves money by negotiating away a bigger slice of the supplier’s profit margin. The supplier’s cost structure has not changed at all and therefore the total cost structure of healthcare remains unchanged. Rather, the provider and supplier have just renegotiated how to redistribute the value between them (i.e value shifting). Healthcare has an underlying cost problem and this problem can’t be address through value-shifting activities alone.

Compounding these supply chain challenges is the underinvestment in supply chain talent. We have experienced an unprecedented number of retirements of C-level healthcare supply chain leaders over the last five years, many of whom are industry icons. There are currently more than 20 Vice President or C-Level open roles at hospital systems alone, which also suggests succession plans didn’t exist or failed. Healthcare is not yet a destination industry for the thousands of talented graduates from supply chain management degree programs. Our professional associations, trade shows and education opportunities do not provide accredited leadership education programs that adequately develop our executive supply chain leaders of tomorrow. Most healthcare supply chain functions do not have budget for talent acquisition, talent development, coaching and education, even if the solutions existed.

This is a call to action to everyone in healthcare. The supply chain function matters more today than ever before. Ask more of the supply chain function; fight the temptation and peer pressure to inadvertently relegate the team to a price management department. Supply chain has the potential to impact cost, quality, patient satisfaction, innovation, physician engagement and so much more. They also have the potential to influence 100% of an organization’s non-payroll expenditures, which includes all supplies, all purchased services, all drugs, all software and all capital across every line of business. This team can return ten dollars for every dollar you invest in them, every year for the foreseeable future. You may be strategically hurting the company with budget cuts that are uniformly applied across every department of the organization.

Once you ask more of your supply chain, it’s also important to invest in your supply chain team. An intentional talent management strategy unlocks the business strategy! Exercise uncompromising discernment when hiring talent and offer total compensation packages consistent with world-class performers from beyond healthcare. Goal and incentive alignment is also part of a comprehensive talent management strategy. Imagine a future where we measure the effectiveness of supply chain through the lenses of lower total cost of ownership, improved clinical outcomes, increased patient satisfaction or even increased revenue capture.

Effective talent management also means investing in the development of your supply chain team members. Technical competency development is essential, especially for front line team members. AHRMM, Sourcing Interest Group, APICS and other trade associations offer relevant technical certification programs. Leaders have an obligation to value these certifications and to help their team members pursue mastery in their roles.

Technical competencies must also be complemented with leadership competencies, especially as a rising star assumes more responsibility in a rapidly growing organization amidst rising expectations. Currently, there is no industry-wide leadership development program for healthcare supply chain leaders. The nuances of our healthcare industry, combined with the uniqueness of the healthcare supply chain profession, implore us to develop a supply chain leadership competency model. This model would help current leaders, emerging leaders and next generation leaders with specific leadership development, including attracting and engaging talent, change leadership, strategic visioning, execution, alignment, emotional intelligence, relationship building/collaboration, communications, customer centricity, quality management and possibly others.

Finally, talent management also includes succession planning for key roles and talent management reviews to ensure we are fostering the early and intentional development of our next generation of leaders. I’m grateful for the extraordinary executive coaches and mentors I’ve had throughout much of my professional life. These coaches have accelerated my development, deepened my self-awareness, expanded my worldview and dramatically improved my self-confidence. Competency development programs, succession planning and talent reviews become exponentially actionable with formalized coaching and mentoring programs.

Healthcare is a service industry, which means people are our most valuable resource. Have the courage and conviction to invest in a talent management strategy for your supply chain. Ask your supply chain team to do more, to immerse themselves into the business, to deliver more forms of value and to just be more courageous. Talent management unlocks a new world of possibilities so profound, you may find yourself having to re-name the supply chain function itself. Any suggestions?