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									IV.2 Supply Chain Metrics and
       Benchmarking:
  The Foundation for Performance
          Improvement
Supply Chain Metrics and
     Benchmarking
            Eugene Schneller
            Professor

            Vicki Smith-Daniels
            Professor

            Arizona State University

            Tempe, Arizona
           Agenda
Personal Introductions
Complexities of the Health Sector
Supply Chain
Benchmarking Opportunity
Initial Findings on HS Metrics
Health Sector Supply Chain
Benchmarking Framework
Next Steps
Health Sector Supply Chain
       Products                   Services
  •Medical Devices           •Contracting
  •Supplies                  •Distribution
  •Pharmacy                  •E-Business
  •Equipment                 •Customer Service
  •Information Technology    •Field Support & Sales
  •Food                      •Info/Data Mgmt.
  •Laundry                   •Maintenance & Repair
                             •Consulting

                      Physical

                    Information
                     Financial
Industry Challenges & Responses

  Environmental
   Uncertainty


                      Strategy        Performance


      Goal
  Incongruence




• Leveraging volume          •E-commerce solutions
• Local SC capabilities      •Distribution services
• Process improvement        •Other new services
• New entrants
      Benchmarking Success
Health Care Industry
  Tends to drive change through looking outside
  their organizations
  Benchmarks tend to be outcome measures &
  provide “gap” analysis
Cross-Industry Supply Chain Approaches
  Focus on process improvement and best practice
  identification
  Supply Chain Council SCOR Models
  CSCMP & APQC Open Benchmarking Consortium
          Project Opportunity
    Prospects for
      continued
improvement likely to
     be found by
 measuring firm-level
    and inter-firm
   processes and
  determining those
    collaborative
  practices that are
   antecedents to
      improved
    performance.
Health Sector Supply Chain Processes

    Procure
               Deliver
                         Return

              Contract
               Assist
               Relate

      Practices &
      Capabilities
       Integrating Processes

 Need to define,
  measure, and
    evaluate

  • Internal-facing
• Customer-facing
 • Supplier-facing

 processes and
   outcomes
Supply Chain Performance Outcomes



                           Cost
            Safety                   Assets



                                         Responsive
   Sustainability        Outcomes           ness



           Customer
          Satisfaction              Reliability
                         Revenue
      Research Questions

What metrics are collected about an
organization’s supply chain operations
(internal metrics)?
What metrics are collected by an
organization about their trading partners’
relationships (external metrics)?
What metrics are collected for trading
partners about their customer’s supply chain
performance (external metrics)?
              Sample Internal Metrics:
               Acute Care Providers
Cost                             Source
   Spend Metrics
                                    % GPO Contracts to Total
   P.O. Efficiency Metrics
                                    Spend
   Freight Charge Metrics
   Warehouse Costs                  No. of Non-GPO Contracts
   Number of Purchasing FTEs        %EDI, % Fax, % Manual
Assets                              Spend
   Inventory Turns, DOS and
   Dollar Amount
                                 Contracts
   Value of Consignment
   Inventory                        $’s lost due to not meeting
Reliability                         rebate thresholds
   % of invoice item price          Cost savings through self-
   errors to lines ordered          managed contracts
   Accounts payable $ per hold
   pending invoice
   discrepancies
           Sample Internal Metrics:
       Acute Care Providers - Continued

Deliver to System/Facility       Deliver to Clinicians
   Lines distributed per            Clinician satisfaction
   warehouse labor hour             Product availability at care
   Lines per FTE                    location
   Stock lines distributed for      % of rush orders delivered
   the month                        on time
   Crossdock lines per month
   Inventory turns and dollars
   Percent of nonmoving SKUs
   Order fulfillment time
   Fill Rates per SKU
   Picking accuracy
              Sample External Metrics:
                GPO – Provider Link

Cost                        Contract
   Savings through GPO         Off-tier losses $
   contracts                   Available rebates not
   Order processing cost       collected
   reduction                Assist
Reliability                    No. of customer support
   No. of purchase price       calls to correct error
   discrepancies               Turnaround time to
   Data integrity errors       correct error
   % Connectivity uptime
Responsiveness
   Order fulfillment time
         Sample External Metrics:
         Supplier – Exchange Link
Reliability                     Responsiveness
   Consistency of data on         90 minute PO status
   Purchase Order Status,         response time
   such as
      Estimated delivery date
      Status codes
      Invoice/contract unit
      price
   Consistency of data on
   Advanced Ship Notice,
   such as
      Shipping carrier
      Tracking number
      Shipped date
      Ship-From Location
              Sample External Metrics:
              Distributor – Provider Link

Responsiveness                 Assets
   Order fulfillment cycle       Inventory Turns
   time                          Days of Supply
   Number of delivery days       Value of Consignment
   per week                      Distributor capital assets
   % of rush orders              at Provider location
   delivered on time
Reliability
   Fill Rate by line item
   Fill Rate per requisition
   % of emergency orders
   to distributor/number of
   orders to distributor
Practices and Capabilities Metrics
Measured by:
  “Yes/No” implementation
  Number of “XYZ”
  Percentage of “XYZ” compared to total transactions
Examples:
  No. of vendors – total and by service line
  No. of value analysis teams
  Integration of charge master with SCM data
  Clinician preference items on consignment
  Dashboard/scorecard implementation
  Information sharing with suppliers and customers
  Tracking performance with suppliers and customers
  Collaborating on solutions with suppliers and customers
  IT initiatives
                           Metrics Intensity:
                              Outcomes
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     C os t   A s s et s     R es p.   R el .   R ev .   C us t . S at .   S us t ai n   S afet y



                                Manufacturing   Health Sector
                     Metrics Intensity:
                  Processes and Practices
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     P r ocur e    D el i v er    R et ur n   C ont r act    Assist     R el at e   P r act i ces



                                 Manufacturing          Health Sector
           Initial Findings:
   Health Sector Metrics Capability
Metric-benchmarking used to target cost reductions
or negotiate lower prices
Little emphasis placed on agility, sustainability, and
safety
Very few organizations measure supplier
performance and customer satisfaction
Limited measures of internal-facing supply chain
capabilities
Emerging process measurement through technology
implementations and six sigma projects
Measures of customer service and relationship
management need to be developed
Substantial amount of effort on compliance and
accuracy measures.
             Next Steps
Expert panel studies to identify current and
future practices and capabilities
Large-scale national metrics survey to
investigate
  Frequency of Use of Metrics
  Frequency of Measurement
  Decision Making Use
   Benchmarking Approach
   SC
Strategy
                                           Outcomes
                  Plan

                                                            Non-
               Execute
                               Financial
                                                          Financial


                Enable                     Capabilities


  Hierarchical                             Scope
     Adapted from SCOR Model
      Benchmarking Design
Promotes industry-wide perspective
Allows for gap analysis and identification of
competitive practices
Measures performance, processes, and indicators of
capabilities
Recognizes the importance of comparative
benchmarking groups
Incorporates methodologies for integrative
benchmarking
Integrates strategic decisions into the analysis
       Benchmarking Framework
            Procure Deliver       Return Contract Assist Relate



Plan
                                      Process Elements
                                         Capabilities
                                           Metrics
Execute


Enable


 Adapted from Supply Chain Council’s SCOR model
           Process Elements & Metrics
                                                     Invoice Discrepancy by Buyer,
                                                     Number of P.O.'s/Buyer;
                                                     Number of lines/Purchase Order;
                                                     Dollar amount/P.O.;
                                                     Dollar Amount of PO/Buyer;
P2 Plan and Schedule Supplier Deliveries             Percent of buyer purchase orders vs
                                                     Total P.O.'s, Purchase Order Types
                                                     (Standard, Capital, Construction,
                                                     other), # of EDI, Faxed and Manual
                                                     Purchase Orders (Total for Pur dept
                                                     and Total for each Buyer),
P3 Manage Incoming Products
                                                     Freight Charges/ Storeroom Order for
P4 Receive, Verify and Transfer Products             Prime Distributor,
                                                     Inventory Accuracy Rate, Inventory
P5 Manage Product Inventory                          Turn Rates,

                                                     Invoice Discrepancy by AP Clerk;
P6 Authorize Supplier Payment                        Percent of "Clean" invoices entered,

                                                     Invoice Discrepancy by Vendor;
P7 Assess Supplier Performance                       Fill rate from distribution,

    Manage Financial Payer and Regulatory Sourcing
P9 Requirements
                                IT Value

                           A savings of more than $845,000 net of
                       SupplyScan's cost, is expected to be realized
                        over five years from a reduction of eight full-
                         time employees in materials management,
                        accounts payable and purchasing. Intangible
                       benefits include improved clinician satisfaction
  Harder to quantify than the hard-dollar savings from a product such
                                    and product availability.
   as SupplyScan, Horizon Business Insight has nonetheless delivered
    a significant ROI to Scottsdale Healthcare: an estimated savings of
    more than $500,000 a year as a result of a decrease in time spent
       on data collection and the budget process. The tool also makes
      critical information available to management, including CMS and
  JCAHO compliance data, patient satisfaction survey data and quality
Source:
http://www.mckesso
n.com/chairmans_a
                               improvement data.
ward_2k5.html
              Example: RFID
                                                        RFID
                                                       Impact
P1    Select Supply Sources
P2    Plan and Schedule Supplier Deliveries
P3    Manage Incoming Products
P4    Receive, Verify and Transfer Products
P5    Manage Product Inventory
P6    Authorize Supplier Payment
P7    Assess Supplier Performance
      Manage Financial Payer and Regulatory Sourcing
P9
      Requirements
D7    Receive & Verify Product by Customer
D9    Manage inventory at Point of Care
D12   Assess Delivery Performance
Benchmarking Comparative Groups
      & Proof of Concept
 Develop valid measures of acute care provider
 SCM practices & capabilities using a survey
 methodology.
 Determine comparative benchmarking groups
 for acute-care providers based on existing
 practices and capabilities.
 Investigate whether benchmarking groups differ
 in their current supply chain performance, and if
 so, what practices and capabilities result in
 performance differences.
                  Conclusions
Complexity of the health sector supply chain is not
likely to be reduced.
Unique health sector service processes need to be
considered.
Not all “best practices” from the manufacturing
industries will, or should be, transferred to the health
sector industry.
Benchmarking methodology needs to be grounded
in state-of-the-art research methods.
“Big Win” improvement opportunities exist at the
inter-firm process level.
Industry-wide benchmarking should lead to
sustained improvement without comprising a critical
link in the chain.
           Concluding Thoughts
“Rising costs, shrinking budgets and declining
  reimbursements are compressing thin operating
  margins. The price-focused model of squeezing
  concessions from suppliers has largely run its
  course. Patient demand shows no sign of abating
  either in frequency or complexity…. All of this places
  unrelenting pressure on hospital materials managers
  to preserve and maximize their working capital…
  Widely used best practices supported by user-
  friendly technology and capable, experienced
  partners can help hospitals construct effective
  supply chain solutions that drive quality of care
  while ensuring financial resources are available to
  deliver services a community expects.”
                         Kurt Kuehn, 2005.
             Questions?
          For More Information:
      vicki.smith-daniels@asu.edu


wpcarey.asu.edu/shmp/consortium/projects.cfm

								
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