Editor’s note: APICS magazine welcomes Michael Morand, CFPIM, CSCP, CLTD, senior manager of supply chain at Johnson & Johnson, as the new author of “Management Perspective.”
The health care landscape is rapidly evolving, and more pressure is placed on hospitals and health systems to reduce costs, improve outcomes and increase patient satisfaction. For many health systems making this transition, the supply chain is a key area of focus for cost savings and improved value-based care. The following real-world account demonstrates the benefits that can be realized when partners work to solidify relationships and deliver results by clarifying needs, identifying root causes and gathering data to inform solutions.
Identifying the opportunity
In early 2016, after noticing regular stockouts of many Johnson & Johnson Medical Devices Companies (JJMDC) product codes, Spectrum Health turned to JJMDC to help improve efficiencies and standardize processes within its distribution center (DC). With roughly 80 percent of these medical devices flowing through Spectrum’s DC, dozens of out-of-stocks each week led to clinical inefficiencies and an increase in expedited orders.
While it was easy to see that stockouts were reducing service levels and increasing costs, determining the root cause proved daunting. “It was hard to get our arms around the issue,” says Gerry Hakala, purchasing supervisor for the Grand Rapids-based hospital system. “Was it backorders? Stocking level? Ordering patterns? We didn’t have a good idea of why this was happening.”
Spectrum and JJMDC share a common focus on achieving optimal results. To that end, JJMDC developed a tailored approach to improve efficiency, decrease complexity and reduce waste. Weekly ABC volume classifications were assigned to stock keeping units (SKUs) ordered from the Spectrum DC. Efforts were focused on the higher-volume A items, where the greatest impact could be expected. This enabled the team to allocate time to the areas that were most critical to success.
Benchmarking then was performed against similar health systems on inventory metrics and key ordering behaviors, such as order timing, order size and shipping method. Recognizing that planning and forecasting expertise were not limited to those directly involved in this Spectrum-JJMDC collaborative effort, JJMDC tapped its upstream planning organization for best practices and additional recommendations for the Spectrum purchasing team to consider along with the benchmark data.
The Spectrum and JJMDC teams solidified their integrated approach by establishing a weekly inventory management process that linked supply and demand needs across the two organizations. The increased data sharing also uncovered other opportunities to improve efficiency and cost. “Most companies conduct quarterly or annual business reviews,” says Jason Shelton, manager of supply chain management operations. “We were essentially having operational reviews on a weekly basis. We were able to collaboratively look at the situation in real time and make adjustments.”
Bob Rowe, supply chain customer solutions manager, Johnson & Johnson Customer & Logistics Services, says that improving the experience of clinicians and patients is a direct result of this collaborative effort. He adds that a significant benefit from the initiative was the development of a collective understanding of key process flows, which continues to uncover additional opportunities.
In the end, JJMDC and Spectrum together have cut the number of weekly out-of-stock JJMDC devices by 49 percent, nearly eliminated expedited shipping fees for replenishment of out-of-stock items, and reduced the average number of days that a product is out of stock by 18 percent — all evidencing how effective collaboration can significantly contribute to value-based health care.
Michael Morand, CFPIM, CSCP, CLTD, is senior manager, supply chain at Johnson & Johnson and a DBA candidate at Temple University’s Fox School of Business. He may be contacted at email@example.com.