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Healthcare Supply Chain Metrics That Matter:

A Discussion

Eric ODaffer
Research Director
Gartner AMR Supply Chain Group
April 20, 2010

2009 AMR Research, Inc. | Page 1

Healthcare Value Chain Model

Life Sciences

Patient

Pharma
Biotech
Med Dev
Generic

Healthcare

2009 AMR Research, Inc. | Page 2

Linking Strategy to Value in the Healthcare Value


Chain

Value in Healthcare
High Quality Patient Care at Optimal Economic Cost

Understanding
Demand
Inventory
Management
Compliance

Communication
Timely and Accurate
Data
Knowledge and Info
Sharing

Sustainable
Collaborative
Relationships
Joint Value Creation

Shared Vision and


Goals
Extension of Supply
Chain Services
Business Process
Governance

Transparency
Aligned Metrics

Demand-Driven Value-Network Strategy


Supporting
Supporting the
the Business
Business Strategy
Strategy with
with Demand-Driven
Demand-Driven Capabilities
Capabilities
Consciously
Consciously Executing
Executing Value-Based
Value-Based Trade-Offs
Trade-Offs
Outside-In
Outside-In Focus
Focus Coupled
Coupled with
with Inside-Out
Inside-Out Excellence
Excellence

2009 AMR Research, Inc. | Page 3

Challenges of Metrics

Too many metrics!

Define a clear strategy

Endless debate over


definition

Cultural wars; lay down


the law

Constantly changing
metrics

Implement measurement
strategy now

Data too old by the time


its collected

Fix data issues

Gaming the system

Motivate consistently

Silo behavior

Cross-functional metrics
2009 AMR Research, Inc. | Page 4

A Multitude of Metrics

Perfect Order

Internal Fill Rate

External Fill Rate


Inventory

Demand Forecast
% Spend on Contract

Cash-to-Cash Cycle
SKU Reduction
Supply Chain Cost
Transportation Cost
Supply Cost as % of Net Patient Revenue
2009 AMR Research, Inc. | Page 5

Hierarchy of Supply Chain Metrics

A tiered system of metrics to improve supply chain


effectiveness the top tier assesses a companys
supply chain health, while the two successive
tiers diagnose the root cause of performance
gaps and provide insight for corrective action.

2009 AMR Research, Inc. | Page 6

The Hierarchy of Supply Chain Metrics

Demand
Forecast
Perfect
Order

Assess

SCM
Cost

Cash-to-Cash

AP
Supplier
Quality

Inventory
Total
Supplier
On-Time

RM
Inv

Diagnose
AR

Purchase Dir Mtl


Costs
Costs

Correct
Cost
Detail

Production
Plant
WIP + FG
Schedule
Utilization Inventory
Variance

Order
Cycle
Time

Perfect
Order
Detail

2009 AMR Research, Inc. | Page 7

Consciously Incompetent

Demand
Forecast

(Strong)

Perfect
Order

Assess

SCM
SCM
Cost
Cost

Cash-to-Cash

(Weak)

AP
Supplier
Supplier
Quality
Quality

Cost
Cost
Detail
Detail

Inventory
Inventory
Total
Total
Supplier
Supplier
On-Time
On-Time

RM
RM
Inv
Inv

Diagnose
AR

Purchase
Purchase Dir
DirMtl
Mtl
Costs
Costs
Costs
Costs

Production
Production
Plant
WIP +
+ FG
FG
Plant
WIP
Schedule
Schedule
Utilization Inventory
Variance Utilization Inventory
Variance

Order
Cycle
Time

Perfect
Order
Detail

High Inaccurate
Shipments

Correct
Correct
2009 AMR Research, Inc. | Page 8

Large Consumer Products Company


Consciously Excellent
Key:
Above par
On par

Demand
Forecast

Below par

Assess
Perfect
Order

Cash-to-Cash

Diagnose
AP
Supplier
Quality

Correct
Cost
Detail

SCM
Cost

Inventory
Total
Supplier
On-Time

Production
Plant
Sched
Utilization
Variance

AR
Purch
Costs

WIP +
FG
Inventory

Dir Mtl Costs

Order
Cycle
Time

Perfect
Order
Detail

2009 AMR Research, Inc. | Page 9

Measurement Best Practices


Develop a metrics strategy
Metric Definition
Goals: Different metrics portfolios for different goals
Balance: Keep the portfolio balanced, cross-functional,
and practical
Alignment: Align to business and supply strategy
Right-sized: Keep it small: avoid the mushroom effect
Standards: Address standards vs. customization

2009 AMR Research, Inc. | Page 10

Measurement Best Practices


Develop a metrics strategy
Measurement Program Implementation

Plan: Develop migration plan for the metrics with timeframes and
milestones

Scope: Define feasible and actionable scope, by supply chain, end-toend

Process: Pay attention to ownership, roles, responsibilities, and structure

Culture: Manage the culture and motivation

Tools: Invest in the tools that will enable repeatability

Pilot: Use pilots to test the approach

Tradeoffs: Beware of tunnel vision and understand the


interdependencies

Turning data into action: Identify conclusions using patterns and levers,
prioritize results, and manage the communication

Power through Process: Institutionalize the measurement program


through a business process to make it sticky
2009 AMR Research, Inc. | Page 11

Making performance management


sustainable over time
What makes it sticky?

Leadership
Continuous
Improvement
Culture
STICKY
GLUE

Measurement
Aptitude

East-West
Process
Performance

Power
Through
Process

North-South
Goal
Alignment
2009 AMR Research, Inc. | Page 12

Your Manufacturing Partners are Already Seeing the Value


Level of change seen amongst better demand forecasters
in profitability performance over the last 12 months

Benefits realized as a result of


demand forecast accuracy improvement

Improvedsupplychaincosts

Improvedmanufacturing
productivity

56%

51%

MoresuccessfulNPDL

47%

Betterperfectorder
performance

46%

Lowerinventorylevels

45%

Source: 2009 AMR Healthcare Study


2009 AMR Research, Inc. | Page 13

Demand Visibility is on the Radar Screen

Value
Analysis
Programs

Asset
Management

Provide
Real-time
Visibility to
Trading
Partners

Talent
Recruitment
Strategy

Integrating
Supply
Chain and
Patient Care
Systems

Endto-End
Electronic
Sourcing

Supply
Chain
Metrics
System

Sustainability

Optimize
Materials
Management

13. What are your companys main supply chain objectives today?

n= Healthcare Providers only, n=60

14. LIST THOSE MENTIONED IN Q13. Which one is your company most successful at today?

2009 AMR Research, Inc. | Page 14

The Hierarchy of Supply Chain Metrics

Demand
Forecast
Perfect
Order

Assess

SCM
Cost

Cash-to-Cash

AP
Supplier
Quality

Inventory
Total
Supplier
On-Time

RM
Inv

Diagnose
AR

Purchase Dir Mtl


Costs
Costs

Correct
Cost
Detail

Production
Plant
WIP + FG
Schedule
Utilization Inventory
Variance

Order
Cycle
Time

Perfect
Order
Detail

2009 AMR Research, Inc. | Page 15

Provider Supply Chain Metrics

Assess
Cash-to-Cash

Diagnose

Correct

2009 AMR Research, Inc. | Page 16

Big questions to answer


How do you sense demand? Who sees it? What do you
do with it?
Do you use demand data in Supply Chain tradeoffs?
Do you have a Joint Value Creation strategy with key /
segmented Suppliers?
Have you defined a measurement strategy that outlines
how you will use the metrics?
How do you pull this together in a Value Chain strategy?

2009 AMR Research, Inc. | Page 17

Other Questions, Comments or ideas to


share?

2009 AMR Research, Inc. | Page 18