When Brian Zuck joined Essentia Health, the company was in the process of standardizing its supply chain operations. That meant aligning processes and procedures across seventy clinics and fifteen hospitals throughout Minnesota, North Dakota, Wisconsin, and Idaho. The challenge for Zuck, Essentia’s administrator for supply chain management, was that while his team was mandated to drive the change, other departments were at differing stages of readiness and willingness to change their decision-making models for supplies and services.
“Supply chain was an early adopter in a newly centralizing organization,” Zuck says. “It was difficult to achieve the progress we hoped for because implementing the desired changes wasn’t always the top priority for other participants on our sourcing teams.”
At the same time, supply chains, in general, were evolving away from group purchasing organizations (GPOs), a thirty-year old concept in which third-party contractors use the inventory volume of their group members to negotiate pricing. Instead, category management was gaining momentum by creating and executing strategic plans that guide resources and procurement tactics to generate and sustain enterprise-wide value.
After several years at Essentia, Zuck had the opportunity to assume a position with a large energy company that allowed him to experience and learn about category management firsthand. In 2015, he was able to return to Essentia, bringing his newly acquired knowledge and expertise with him.
“Category management enables us to more holistically and proactively manage our expense categories,” he explains. “It lets us drive the sourcing and contracting of our own supply chain—while still working as partners with GPOs—by making more intentional decisions that take our entire value proposition into account.”
An important factor in successfully implementing category management has been building trust into the relationships between the supply chain team and Essentia’s physicians and clinical staff. That process began with the team developing objective analytical data that was combined with evidence-based data provided by the physicians and clinicians. The exchange also helped Zuck gain a deeper appreciation of the important differences between commodities, like saline solution or trash can liners, and complex, highly specialized devices, like orthopedic implants.
“Surgeons learn different techniques that require different supplies to perform a given procedure and maintain individual comfort levels and the highest quality patient outcomes,” he says. “It’s not as simple as standardizing by deciding everyone has to use the same rod or screw.”
In one instance, by accommodating individual physicians’ preferences, the teams cooperated to develop a preferred supplier model with capitated pricing that limited the number of vendors, set a price point for hip and knee replacement joints, and reduced costs by $2.2 million, about 25 percent.
New partnerships have also been created with several important outside vendors. TECSYS has supplied Essentia with a logistics platform that has enabled the company to establish truly consolidated service centers. It automatically integrates with all the various modules of the clinical system, incorporates demand history, and results in better management of inventory levels, turn rates, and replenishment.
The system is on its way to providing real-time visibility into productivity and into every inventoried item. Zuck expects that the ability to eliminate expiration date waste alone has the potential to result in in up to $1 million in savings.
Nihon Kohden, a manufacturer of patient monitors, is another external partner that participated in Essentia’s first successful system-wide capital standardization effort. Even though standardizing these essential pieces of equipment was a priority, individual facilities followed different capital budget processes and schedules. Additionally, the monitors themselves have a five- to ten-year life span, so if one hospital bought them the year before, it could be up to nine years before it was prepared to replace them. However, according to Zuck, Nihon Kohden was able to create “creative scheduling” and value-based pricing that facilitated a two-year cycle for completing the standardization at fifteen hospitals.
“We approach every customer relationship as an alliance,” says Nihon Kohden America CEO Dr. Wilson P. Constantine. “For Essentia, this meant working closely with their diverse stakeholders to ensure a smooth transition. It also meant delivering value through our premium-as-standard product philosophy.”
When asked to characterize the overall results that the change to category management has produced, Zuck refers to a graphic that used to be common at healthcare conferences. It shows a triangle with sales, physicians, and hospitals and administrators each represented at different points, with the strongest relationships being between sales and physicians. But now, the supply chain team, the physicians, and clinical staff all work together to engage with the supplier market.
“One of the goals of category management is for supply chain to work with physicians and clinicians to drive value for the hospital and suppliers,” Zuck says. “We want to establish less competitive bidding and to be able to drive value through dynamic supplier relationship management.”
He believes that being inclusive and transparent are critical to achieving those goals.
“We have to engage and include the executive suite, the person that uses a device, and everyone in between,” he says. “When it comes to supply chain in healthcare, it’s definitely a team sport.”
Accurate, Consistent, Repeatable
When Brian Zuck left the Army as a logistics officer with the rank of captain, he was used to a strict process-oriented system that produced accurate, efficient, consistent, and repeatable results. “There were shortcuts, but they usually ended poorly,” Zuck points out.
He’s brought the same reliable results to Essentia, but admits he had to adapt to a level of persuasion to be effective in the civilian word. “It calls for a softer sell,” he says. “That approach, though, forces you to think through what you’re asking people to do, which facilitates beneficial feedback and better buy-in on the back side.”
