Supply and Demand:

Supply and Demand:
Making Materials Management Work for ASCs and Surgical Hospitals

By Michelle Beaver

Best practices in materials management is not a simple system. Between payment terms, service levels, delivery costs, leveraging compliance and pricing administration, it’s no wonder that entire university programs are dedicated to the study of this topic. Materials management is, however, one of the largest contributors to the bottom lines of ambulatory surgery centers (ASCs) and surgical hospitals. Therefore, it is best to research as many sections of applicable supply chains as possible, and then to narrow the field of options. A streamlined, organized system that staff members understand as well as possible from beginning to end will cut down on confusion and will increase profits.

Trends

Even modest healthcare supply chains involve a dizzying amount of widgets, cogs and personnel, and the average operator of an ASC sees most of this only through the face of a product or service representative. That person, and easy access to him or her, is therefore vital to an ASC or surgical hospital team. According to Brent Sapp, a director at CuraScript, a specialty medication provider. “Most of what we’ve determined is that the market is finding it very difficult to access quality phone service,” Sapp says. “They’re usually put on hold for 15 minutes or they’re transferred to a foreign country.”

Authentic relationships between ASC managers and their materials management representatives are invaluable, Sapp emphasizes. Ironically, personal service doesn’t always have to involve people.

There is also increasing investment in ecommerce sites, he says. Sapp expects that such sites are going to become more accessible, increasingly user-friendly, and will build a database of information on each purchaser so that they can anticipate that customer’s product needs. “One trend that we’re definitely seeing is that we’re getting to a tipping point where people and customers are very comfortable ordering online,” Sapp says. Sapp and other companies are investigating Web sites that allow buyers to have more interaction with each other, to ask questions and to leave feedback. The healthcare industry does not have many such vehicles, Sapp says, but his company is moving in that direction. The key is for the sites to be versatile enough to appeal to the in-and-out shopper who wants to click on their product, pay and go, as well as appeal to shoppers who want to virtually communicate with peers and experts on products before they buy anything.

Another trend is that ASC purchasers are becoming increasingly interested in safety products such as ergonomic devices, and in infection control, says Tom Carter, healthcare product manager at MarketLab, which is a direct-mail catalog supplier of specialty healthcare products. “People are becoming more aware of not only the patient’s safety, but ASCs and hospitals are also looking at products that are going to prevent the caregiver’s injury,” Carter says. “They’re looking at products that will result in less workman’s compensation and less time off.” This interest increased dramatically in 2005 and has grown since, Carter adds.

Pitfalls

Materials management processes can be so vast, even at small outfits, that problems are inevitable. One such problem can occur via errors in manufacturer’s product codes, says Eugene Schneller, PhD, a professor of health sector supply chain initiatives in the School of Health Management and Policy at Arizona State University’s W. P. Carey School of Business.

“I rarely think that regulation is an answer to problems in the healthcare business environment,” Schneller says. “(However) I think the role of government is to provide standards for operating. If we did not regulate roads, we would have trucks failing to make it under every other bridge. Standardized product codes are key to performance improvement in the health sector.”

Accuracy is imperative and true is the old adage, “time is money,” according to Sapp. “We make sure that we minimize the (clients’) number of returns and that the order accuracy is extremely high,” he says. “A lot of personnel who are in physicians’ offices and surgery centers — they’ve got clinical and other responsibilities, so we try to make sure that we’re doing everything we can to minimize the effort they have to put in.”

ASC owners and operators should accept only a small number of errors before they take their business elsewhere or make certain that the problem is solved. Incorrect product codes can, after all, lead to a delay in service which means a small mistake can have big consequences.

Another potential pitfall is delivery cost. ASC administrators should always factor delivery costs into their budgets and make certain to work with vendors who make the costs clear. Distributors need to offer fast, reliable service at a low price. That balance can be difficult, but is possible for reputable companies, Sapp says.

Delivery costs should be based mainly on the quantity of products purchased, Carter says. “The freight expenses are pre-paid and added to the invoice,” he says of his company. “It’s not going to be any different no matter where you order it.”

Some businesses, such as MarketLab, offer small quantities of products if the ASC in question only needs a little. This cuts down on delivery costs, Carter adds.

As for units of measure, It is possible to avoid errors by actively ensuring the accuracy of product data for surgery transactions, says Jacob Nguyen, vice president of business development at Craneware Inc., which produces financial software products for the healthcare industry. “It is important for an ASC buyer to update the item master (to) reflect the most current products being purchased,” Nguyen says. “One method is to create strong partnerships with suppliers to ensure that the units of measure accurately reflect the product, the functional equivalent items, and transaction. I suggest a user to cleanse and correct the data and establish electronic trading partners to increase accuracy of the units of measure for the ordering process. Understand that updating an item master is a process and requires effort (and) monitoring of the units of measure for discrepancy reporting.”

Accessibility

As noted previously, ASC and surgical hospital administrators should try to work with companies that offer highly accessible service personnel. 

Sapp has served as a field service representative and says people in that position are pulled in many different directions, but that it is no excuse for dropping the ball. “They work hard and they try to be everywhere at once, but it’s difficult to access them as quickly as you might want to,” he says. “To be able to call in to that rep and know that the rep is sitting at the phone minimizes down time. We have all of our sales and service people under our roof, and that translates into being able to get to that person (almost immediately). Each of our sales representatives have their own phone number so that the customer can reach them directly.”

And so there are alternatives to the monotone computer prompts that droll forth options such as, “if your question regards product delivery, press number seven.” If administrators continue to ask their distributors for more personalized service as opposed to getting help from a cyborg, chances are good that the trend of real people on the phone will come further into fashion.

Another way to cut down on purchase time is to cut out the middle man and technology. The catalog system that MarketLab is based on offers guaranteed pricing and no obligation quotes. The catalog is available 24 hours a day and is at the disposal of its user. “That catalog is in a facility until someone throws it out,” Carter says. This gives purchasing managers more flexibility than having to meet with a sales representative. And while many sales representatives are honest and straight forward, there are some who offer the hard sell more often than some purchasers prefer.

“The sales rep really is going to sell what they’re getting commission on,” Carter adds. “Here they’re able to flip though a catalog instead. A lot of times it’s the nurses who are looking though this and finding stuff and sending it down to the purchasing manager or office. Our catalog is our sales rep and (the buyer) is getting product that they know they need.”

Materials Management Benchmarking

Sometimes comparing and contrasting the supply chain habits of various facilities can bring to light necessary changes. One new benchmarking project aims to give healthcare facilities of several sizes an idea of what they are doing well, and what could be improved. This project is in its first phase and is being spearheaded by the Association for Healthcare Resource & Materials Management (AHRMM), and the W.P. Carey School of Business at ASU. It is called the Healthcare Supply Chain Benchmarking and Performance Improvements Metrics and is meant to improve the analysis of healthcare supply chain performance. This online tool will use research techniques from supply chain performance benchmarks that have been applied in other industries. Myriad facilities will be able to learn from the results, says Sarah Oaks, associate executive director of AHRMM.

“In the sense that (the project) will gather data to address real issues regarding supply expense and supply chain processes — and ambulatory surgery centers obviously have both — I think it would be relevant (to surgery centers), yes,” Oaks says.

ASU’s benchmarking project is unique in its scope of questioning, Schneller says. “Certainly there are benchmarking tools that look at expense items and processes within organizations,” Schneller says. “Few, however, begin to capture the broader dynamics of the supply chain environment. Many factors go into producing great healthcare outcomes, and factors such as the service provided by a supplier to a surgeon, for example, are rarely captured in conventional metrics.”

The benchmarking information could improve the ASC market, because it is based on standardized data sets, Schneller says.

“We hope to provide some very clear and consistent definitions,” he adds. “Metrics and benchmarks are only useful if they are employed to gain strategic goals, such as improved quality, outcomes, reduced costs, etc. There is a great thrust today toward evidence-based medicine.”

Even the financial examination of single specialty vs. multi specialty ASCs that are of similar size shows interesting disparity. According to the American Association of Ambulatory Surgery Centers (AAASC), single specialty ASCs spend an average of 15 percent of total revenue on medical and surgical supplies and products, whereas multi specialty ASCs spend an average of 21 percent.

There is good reason for this, Schneller says. “Once one begins to have a wider range of specialties and larger number of providers, arriving at equivalencies in products becomes very difficult. Most ASCs do not invest heavily in value analysis or standardization processes. Some do better because physicians understand that their reduction in the range of products gives them leverage in purchasing.”

Healthcare supply chains need more benchmarking options, says Vicki Smith- Daniels, a professor of supply chain management at ASU. She is leading the healthcare benchmarking project at the W.P. Carey School of Business. “Industry-accepted benchmarks are centered on financial metrics that lag performance and provide few insights on what factors contributed to either poor or superior performance,” Smith-Daniels says. “Most benchmarking solutions focus more on acquisition prices rather than total delivered supply costs.”

The ASU tool will show data on centralized/ decentralized supply management, distribution systems, consignment inventory, and information technology systems. It will include quarterly inputs of financial and operational metrics and a bi-annual evaluation of supply chain structure and practice implementation, she adds. The team has been developing the project for several months and plans to launch it in October 2007.

Less is More

Much like the choosy star of the fairy tale Goldilocks and the Three Bears, it’s advisable to procure just the right amount of materials. That way, there is less to manage and so that less is wasted. Easier said than done, according to Carter. “I think some of the challenges ASCs face are how much inventory they need, especially if it’s a new ASC,” he says. “They don’t know the volume. They can specialize in a particular procedure but they really don’t know what the demand is going to be.”

That’s why it’s good to work with flexible distributors who offer several size options. 

“You call some of these larger distributors and you have to buy a case, even though you might not need it,” Carter says. “(Whereas) we can actually break those cases and sell them in smaller quantities.”

It is also wise for ASC administrators to take advantage of organization products that distributors sell, or to fashion their own. It is, after all, useless to order the right materials if they’re going to get lost in the shuffle or destroyed through improper storage.

A distributor should ask, “How (is the purchaser) going to organize their product and put it in a way that’s functional for them,” he says. “Shelving units, bins, baskets and carts can all be customized.”

Every ASC and surgical hospital whether big or small should take a systematic approach to materials management all the way from ordering inventory to determining storage locations. Organization and consistency is huge, Carter says.

“If you don’t have a system in place you don’t know what you have,” he adds. “If you set your par levels too high you’re just wasting money because you’ve spent money on a product you’re not utilizing … That money could be better used somewhere else.”