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Healthcare Supply Chain Metrics That Matter: A Discussion
Eric O’Daffer 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 it’s 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 company’s 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
Improved supply chain costs
Improved manufacturing productivity
56%
51%
More successful NPDL
47%
Better perfect order performance
46%
Lower inventory levels
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
End–to-End Electronic Sourcing
Supply Chain Metrics System
Sustainability
Optimize Materials Management
13. What are your company’s 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
Eric O’Daffer 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 it’s 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 company’s 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
Improved supply chain costs
Improved manufacturing productivity
56%
51%
More successful NPDL
47%
Better perfect order performance
46%
Lower inventory levels
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
End–to-End Electronic Sourcing
Supply Chain Metrics System
Sustainability
Optimize Materials Management
13. What are your company’s 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
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