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Supply Chain Offers Constructive Criticism

Supply chain offers constructive criticism

Recruit us earlier in building projects or face costly consequences

by Rick Dana Barlow

Talk to supply chain managers about their fervent wishes for construction projects and the most likely list topper will be participation – way earlier on.

Involving supply chain managers at the get-go, if not during the planning stages, may help the facility elude some traditional hiccups in the process, some of which may not be discovered until long after the contractors skedaddle.

Like doorways too small or not wide enough for equipment to fit through. Flooring that retains fluid pools in odd areas. Not enough electrical outlets to support the types of diagnostic imaging or surgical equipment. Or something closer to home, such as cost overruns courtesy of subpar negotiations or "friendly" incentives.

So where in the process and project should supply chain managers plug themselves in and how should they do it strategically and tactfully?

Healthcare Purchasing News recruited five experts to share their insights on how to develop a convincing case for including and empowering supply chain management in any construction project.

Opening doors

"Many hospital supply chain departments are alienated from any thought of participation in construction projects," said Michael Bohon, CPSM, CMRP, founding principal, HealthCare Solutions Bureau LLC, Show Low, AZ, and a former hospital supply chain director. "This is often because they have little or no involvement in the daily facilities, maintenance procurement and logistics processes. The natural thought would be that they have no expertise or interest in being involved.

"In the age of centralization the procurement department should be handling purchasing for all functions of the organization," Bohon continued. "This will remove them from the specialist role and allow them to become more engaged in areas other than just medical supplies."

That’s why Bohon encourages supply chain managers to express a strong interest in the organization’s five- and 10-year capital program, including all construction scheduling.

"First, the purpose would be to display an awareness of how they can assist by coordinating the needs of a project with either [group purchasing organization] or local contracts already in place for capital equipment and capital resource management," he indicated. "This is especially the case of late as GPOs are beginning to understand the broadening needs of their members and providing contracts for items such as roofing material, etc.

"Secondly, they can offer their services as meeting facilitators and negotiators," he added. "The display of these talents will raise their value in the eyes of the construction department and provide the supply chain the opportunity to learn more about the processes and the projects."

James Dickow, president, Dickow Consulting Group LLC, Mequon, WI, argued that supply chain managers should be a "key ingredient" long before any construction project starts. In fact, they should be integral in any project that involves the procurement and design of systems or equipment, according to Dickow.

Supply chain managers can be used to select and hire a consultant, as well as schedule equipment acquisition and offer their contract negotiation expertise.

"It is important to realize that all facility planning and design team members may not be experienced in the practical application of operational concepts to the new facility," Dickow noted. "Most new facilities are designed and built to function many years and elevate the organization to the future ‘state of the art’ – best done by leaders that know and understand what that ‘art’ really means."

From a financial standpoint, supply chain management’s contribution can be considerable, according to Mark Kearschner, director, construction services, Premier Inc. "As a general rule, between 12 percent and 18 percent of the project cost is clinical equipment," he noted. "Much of this requires supply chain working with the equipment planner, [request-for-proposal] and [purchase order] support, hospital standards, planning and negotiation techniques." For example, in a $600-million project, the clinical equipment potential can reach $110 million, he added.

Cheryl Stoddard, executive director, construction services, MedAssets Supply Chain Systems, cited a state’s certificate of need as a call to action.

"The state-required certificate of need includes some preliminary budgetary numbers from design assist partners," she indicated. "These numbers include equipment and material that fall outside of the contractors’ scope of work and inside supply chain management. The FF&E (furniture, fixtures, and equipment) is typically 10 percent of the total construction equipment budget. Supply chain leaders need to take an active seat on the project team and attend regular construction progress meetings. The opportunity to aggregate the construction volume with the standard day-to-day capital procurement of the healthcare organization will present itself and drive significant cost savings."

If healthcare facilities need a compelling reason for supply chain managers to be involved in the construction process, Stoddard offered two: Capital equipment standardization and savings opportunities.

"The supply chain leaders should be strategic in using construction volume to improve the structure of their existing agreements," she said. "Capitalizing on the one-time, large-volume purchase will help their negotiation position with the equipment manufacturers and distributors."

Negotiation represents the primary justification for supply chain involvement, contended William Stitt, CHL, CRCST, CMRP, FAHRMM, vice president, materials management, Robert Wood Johnson University Hospital, New Brunswick, NJ.

"This is what we do, and those skills translate into most every area, even if we aren’t the foremost authority on construction," Stitt said. "We can use our negotiation skills and knowledge to facilitate the best outcome operationally and financially. I think another key area is the ability to contribute first-hand operational knowledge that can impact a construction project. Because the supply chain is transactional and reaches into all areas of how a facility does business and treats patients, we have a great sense of how things impact other things – whether they be physical changes in the plant, the way the workflow moves and in turn what is most efficient and the people that should be involved in the planning process who may not have been thought about initially."

For Mark Victors, director, support services contracting, GNYHA Services, supply chain involvement in a construction project of any kind should be critical – and a no brainer.

"Supply chain managers already bring to the table a full suite of pricing and market knowledge for products and services, as well as a wealth of knowledge of beneficial terms and conditions that ensure job accuracy and satisfaction," he indicated. "Supply chain managers can provide RFI/RFP preparation and guidance for bid structuring [and] a contractor-neutral mindset that ensures a fair and unbiased award."

Where to play

Once the case is made that supply chain management should participate in construction projects, the next obvious question is how and where.

For Bohon, it’s clear. "Whether working on their own or in concert with specialized consultants, the supply chain professional can supply very specific knowledge surrounding product flow, logistical design and opportunities for process changes that will not otherwise be available to the architects," he said. "A thorough review with calculated ROIs of the possible use of new technology would score points with the C-suite. Caution is advised in this area as many find that the latest and most expensive technology is not always the best choice."

Being familiar with specialized outside services such as ECRI Institute and MD Buyline also will demonstrate their value in planning and cost management, Bohon added.

Supply chain managers should scout for high-impact and high-profile subjects – either economic, cost, space or future technology, Dickow emphasized. They should keep current with trends and new ideas, as well as continue to hone their dollar-saving skill set in such areas as space, inventory, staffing, cost, coordination, technology, operational method improvements and cross utilization, he advised.

Demonstrating equipment planning knowledge and being able to work with equipment planners on clinical equipment specifications, standards, purchasing assistance and service agreements, will help, according to Kearschner.

"Early in the project they should present potential savings through leveraging GPO agreements and supplier relationships," he continued. "Many equipment planners will need assistance with this. They will need to track actual savings on clinical capital, physician preference items and service agreements to quantify successes. Identifying items that can be converted to hospital standards can also get them noticed with not only the C-suite, but construction teams as well."

During the conceptual planning stage, supply chain managers can share their bid lists and notify the designer of aspects of the job that have clinical and operational implications that may not be immediately apparent to the facilities manager, Victors noted. Further, using a GPO contract portfolio and related equipment planning software can show physical dimensional requirements and offer additional sources of supply before the design solidifies, he added.

"The contributions that will get you noticed are the ability to work in a collaborative environment that is outside of what might be considered your core area of expertise – that you can see the big picture as it relates to what the organization is trying to achieve, and that your skills and knowledge transfer into an area that was long thought to be off limits to the supply chain professionally," Stitt said. "Many construction projects are strategic, so what a great way to elevate yourself into a more senior level position by participating in this type of project.

A supply chain manager’s understanding of contract terminology and structure would make a difference, according to Stitt. "Our ability to drive value and view the facets of a construction project independent of any bias would be a strength that our organizations would benefit from," he added. "Finally, having an understanding of the operations and the equipment used would absolutely lend credibility to the project, and outline possible challenges or roadblocks to successful completion."

Stoddard called for supply chain managers to develop a strategy to track results for savings, rebates and a cost containment structure. "[Supply chain management and construction management teams] rarely communicate with each other, and supply chain is typically the last to know, which could cause costly mistakes that will require changes in the design," she said. "All CEOs want their leadership team to help them stay under budget on a large capital output that shareholders are watching closely." http://www.hpnonline.com/images/2007%20images/HPNdingbat.jpg


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