Thoughts on supply chain methodology from Keui expert Frederick J. Tavani, Jr., CMRP.

Supply Chain is a major concern in most healthcare organizations.  In large organizations, hundreds of millions of dollars move through the supply chain.  So executive leadership in healthcare focuses transformation efforts in this area.  However, when senior leadership and other levels of leadership in an organization are asked, “what is Supply Chain?”, you will receive a myriad of answers.

A major challenge is to change the organization’s view of supply chain.  It is a common misconception that the supply chain begins with a purchase order.  If one is lucky an organization might see supply chain beginning with the Request for Proposal.  Either way, supply chain professionals are brought into the process too late to be optimally effective.

When looking to make changes to an area of operation within the organization true success will be determined on how well the area of operation is understood.  Often times an organization will have limited success during a transformation initiative simply because they did not understand the true scope of supply chain.  We will explore the supply chain below with some level of detail.

A Thought: The supply chain begins when a need is identified by internal customers.  All levels of leadership must understand that supply chain should be brought into a conversation as soon as the thought of a need occurs.  Senior executives through all levels of management need to be aware of what supply chain is and how it can assist in meeting an organization’s needs.  Supply Chain leadership must be plugged into all decision making bodies from the departmental level to the C-Suite.

Can We Proceed?: In order to move ahead with a project an organization should understand any impediments or “hard stops” that exist before spending the effort on a sourcing event.  An organization may have existing contractual obligations with existing suppliers that may stop an event before it gets started or at least more rigidly define the path forward.  Supply Chain will know these obligations.  Also, as most supply chain executives report to either or both the COO and CFO, they can discuss a potential sourcing event with their manager to determine if there are other operational or financial impediments or “hard stops”.

Sourcing Options: Since supply chain has now been involved in the earliest stage of the event, how the item or service can be sourced can be explored.  Options of ownership, rental, leasing, outsourcing, group buys, GPO contracts, to mention a few, will shape the path forward.  At this time the supply chain professionals will also present the competitive landscape of the market place.  Knowing the providers and their relative market share will shape contract negotiation strategies later in the supply chain.

RFI/RFP: Supply Chain will work with subject matter experts (SME) within the organization to develop a Request for Information/Proposal that when responded to by the suppliers will bring hard data into the event.  Quality, cost and service/outcomes will be represented in the RFI/P responses.

Decision Time: Hard numbers and facts are now available, analyzed and presented by supply chain and the SME’s.  A decision to continue can be made to determine if the project should continue.  At this time supply chain will facilitate the SME’s identifying the suppliers that meet the need and to rank the suppliers based on quality and service/outcomes.  The cost implications can be evaluated after the SME’s have truly vetted the quality and service/outcomes presented by the suppliers.

Contracting: If the project still has a green light to proceed, the contracting group within supply chain can begin formalizing supplier terms & conditions, further negotiate pricing (if permitted by your organization’s bidding policies) and secure other value-adds.

Requisitioning: Now that the item/service has been contracted for, the item/service has been made available for the end users to request.  End users will need to complete requisitions that will be used by the purchasing department within supply chain to generate a purchase order.  Requisitions may also be tied electronically to departmental budgets and be approved by management hierarchy (dependent on your organization’s supply chain information system’s capabilities and design).

Purchase Order:  Once a requisition is approved a purchase order can be composed and transmitted to the supplier for fulfillment.  Expenses are now encumbered and vendor performance can be tracked as well as other strategic data.

Receipt:  In the case of a physical item, once the item arrives a receipt is completed and delivery to the end user occurs.  Services may not be physically handled but receipts for purchase orders still occur in various ways depending on the organization’s supply chain information system design.  The receipt ensures that the item has been received as ordered.

Use: Simply put, once the item is delivered to the end use, they use it!

Invoice:  When an invoice is received the accounts payable department will match it against the purchase order and the receipt to determine if the invoice is correct and ready for payment or requires additional action prior to payment.

Payment:  Once invoices have been identified for payment, funds are released to the supplier based on payment terms agreed upon by both the organization and the supplier.

Disposal:  Supply chain may take an active role in the disposal of some items.  Equipment, computers and furniture are some of the items supply chain may have an active role in disposal.

Of course there are deeper levels of detail that can be explored in each step.  This exercise is designed to create at least an understanding that Supply Chain is as complex as any other operational area of the organization and more pervasive than managers and executives may have considered previously.