How to Measure Healthcare Supply Chain Management Initiatives

• Kara L. Nadeau, Healthcare Industry Contributor

Harnessing the power of advanced analytics and real-time data, healthcare supply chain management has evolved to prioritize process automation and digital integration. With a myriad of metrics available, healthcare providers can acquire actionable insights to drive decision-making.

This article explores some of top supply chain metrics for healthcare providers to monitor, from managing payables to inventory turnover, and how they can be leveraged to measure and enhance the success of supply chain initiatives, ensuring operational excellence and financial health within healthcare organizations.

Table of contents

1. Measuring healthcare supply chain success
2. Top healthcare supply chain management metrics
3. How to use supply chain metrics
4. Best practices for tracking and improving supply chain metrics
5. Real-world examples of KPI tracking in healthcare

Measuring healthcare supply chain success 

The shift from disjointed legacy systems and manual processes to cloud-based integration, process automation and digital data capture in the healthcare supply chain has ushered in a new era of advanced analytics.

Health system and hospital supply chain leaders have real-time access to actionable insights to guide their decisions. In some cases, the scope of healthcare supply chain management metrics at their fingertips can make it challenging to determine which metrics are most critical to measure.

Top healthcare supply chain management metrics

While each individual health system and hospital has its own unique challenges and opportunities, here are the six most critical financial metrics to evaluate the success of healthcare supply chain management, according to AHRMM.[1]

• Supply Accounts Payable (AP) Days: Measures how effectively the healthcare organization is managing its payables.

• Supply Expense Per Case Mix Index (CMI) Adjusted Discharge: Enables the organization to measure and trend supply expense that is adjusted for volume and patient acuity.

• Supply Expense as Percent of Net Patient Revenue: A high-level metric that monitors the relationship between supply expense and net patient revenue.

• Spend Under Management (SUM): Provides leadership with a measure of the amount of total spend that is being effectively managed by the organization’s supply chain team.

• Inventory Turns: Measures the hospital or health system’s ability to manage its inventory of products to support the delivery of care.

• Supply Chain Labor Expense Per Case Mix Index (CMI) Adjusted Discharge: Defines the labor cost per discharge for in-house supply chain functions. This unit cost informs the sustainability of supply chain’s cost structure within an organization.

How to use supply chain metrics 

Healthcare supply chain management metrics, also referred to as healthcare supply chain KPIs, are critical tools for measuring operational and financial performance. Applications include: 

1. Benchmarking: A healthcare supply chain team can use metrics to benchmark their performance against peer healthcare organizations (e.g., similar size, similar product mix/volumes) or industry leading practices. An accurate and comprehensive analysis will likely yield some unexpected findings. For instance, a team that believed its hospital’s inventory turns were on par with peer hospital’s turns might discover it has room for improvement.

2. Identify Opportunities: The insights surfaced by KPI tracking in healthcare can enable supply chain teams to identify opportunities for savings or improved process efficiency. For example, using the Supply Accounts Payable (AP) Days KPI, a team might determine that late payments to suppliers are preventing them from taking advantage of early pay discounts and rebates.

3.  Set Goals: After establishing a baseline and targeting opportunities for improved performance, a supply chain team can leverage metrics to set achievable goals. Perhaps a supply chain team discovered their Supply Expense as Percent of Net Patient Revenue is higher than that of peer organizations. They can set a goal that aligns with the industry standard and implement changes to reach that goal.

4.  Measure Progress Toward Goals: One of the most important aspects of healthcare supply chain management metrics use is measuring progress toward established goals. As the saying goes, if you can’t measure it, you can’t manage it. Let’s say a supply chain team sets a goal to reduce its Supply Chain Labor Expense Per Case Mix Index (CMI) Adjusted Discharge by 10% by the end of the current fiscal year. They implement a technology solution to automate inventory management for greater process efficiency and team productivity. Measuring this KPI pre- and post-solution implementation can help them evaluate the impact of their supply chain optimization investment.

Best practices for tracking and improving supply chain metrics

Key Performance Indicators (KPIs) are vital benchmarks in healthcare systems, quantifying the effectiveness of supply chain metrics, from inventory management to the efficiency of supply chain processes.

They serve as navigational beacons for healthcare providers, guiding strategic decision-making and operational improvements. By leveraging KPIs, healthcare organizations can not only enhance their collaboration with supply chain partners but also drive advancements in patient care through optimized resource utilization.

Here are some best practices for tracking and improving these critical metrics, emphasizing the importance of setting achievable goals, utilizing advanced technologies for metric tracking, and implementing robust continuous improvement processes to ensure the agility and responsiveness of healthcare supply chains.

1. Set realistic and achievable KPI goals

Healthcare supply chain leaders increasingly pressured to reduce expenses, operate more efficiently and contribute to improved care quality, likely want to boil the ocean when it comes to KPI tracking in healthcare – tackling many metrics at once.

A more strategic approach to measuring supply chain success in healthcare, where supply chain leaders focus on fewer KPIs that are deemed to be realistic and achievable, will likely yield greater value.

Health system and hospital leaders are typically data driven. Attempting to establish, measure and track multiple supply chain metrics during a first attempt at KPI tracking in healthcare will likely require more time and resources than most supply chain teams have in the current environment.

It is better to focus on fewer metrics, ensuring the data driving them is accurate, complete, and up to date, as opposed to forging ahead with unreliable data and therefore, unreliable analysis results. Take the time to set up your systems, data and teams for success so when you leverage healthcare supply chain metrics to quantify the value of the supply chain to executive leadership, there is no doubt that the performance results are real.

2. Leverage technology for advanced metric tracking

While data is a critical part of KPI tracking in healthcare, its value is dependent on how it is used and interpreted. Healthcare supply chain technology solutions providers recognize the growing importance of healthcare supply chain metrics, and in turn are offering advanced analytics tools to track key metrics over time.

Supply chain teams increasingly pressured to do more with less are prioritizing technologies that automate metrics analysis and measurement. Instead of having to dig for insights in their data to determine their KPI performance, predictive analytics tools surface insights for supply chain leaders. 

For instance, a healthcare supply chain team is tracking Supply Expense Per Case Mix Index (CMI) Adjusted Discharge and wants to measure supply expense adjusted for volume and patient acuity over time. Predictive analytics tools leveraging artificial intelligence (AI) can identify trends in the data that indicate expense increases and alert the team so they can dig deeper to strategically assess the upward trend.   

3. Implement continuous improvement processes

The healthcare supply chain is notorious for continuous change – changes in suppliers, products, contracts, costs, usage, etc. Therefore, measuring supply chain success in healthcare, and continuously improving performance, requires a strategy that accounts for impactful changes to the chosen KPI.

If the chosen metric is Spend Under Management (SUM), the spend data on which the analysis is performed must be accurate, complete, and up to date.

As AHRMM notes in relation to the SUM KPI, “Data usually comes from multiple sources. It is extremely important to ensure that all sources are included. The main sources of data are the organization’s accounts payable (AP) system, which may be a module within an enterprise resource planning (ERP) system, and a purchasing card (p-card) system.”[2]

 Measuring progress toward this KPI using data cobbled together from different systems that is months old by the time it is accessible does not provide the supply chain team with an accurate picture of their SUM. Inaccurate, incomplete and/or outdated data feeding the analysis also makes it extremely challenging to track this metric over time.

Data quality is key to driving continuous improvement for any metric. The growing adoption of cloud-based ERP systems that seamlessly integrate with procure-to-pay applications, electronic health record (EHR) systems, and supply chain management (SCM) solutions, has bridged gaps between data sources for improved quality and faster access.

Real-world examples of KPI tracking in healthcare

Exploring real-world applications of KPIs provides invaluable insights into the practical benefits of tracking and improving supply chain operations within healthcare. These case studies illustrate the tangible impact of KPIs in action, from achieving the 'Perfect Order' to enhancing backorder management and optimizing accounts payable processes.

They highlight how healthcare providers can harness these metrics to achieve greater operational efficiency, resilience in supply management, and financial optimization, ultimately leading to improved healthcare delivery.

Striving for the Perfect Order with Data Alignment with Owens & Minor

Perfect Order is an AHRMM KPI under the operations metrics category. AHRMM defines it as “a composite metric that serves to measure the process by which a purchase order (PO) electronically - from order to payment – occurs without human intervention to ensure it is delivered to the correct location, on time, undamaged, at the correct price with the desired quantity, all on the first attempt.” 

In this recorded GHX 2023 Summit session, Vicky Lyle, VP of Industry Associations, and Shawn Cooke, Sr. Director, Master Data & Contract Administration, for Owens & Minor described the negative impacts of product data misalignment on Perfect Order rates, and outlined ways distributors and providers can partner together to overcome them.

Better backorder management with Corewell Health

Primary Distributor Backorder Percentage Rate is an AHRMM KPI in the category of resiliency. It measures the percentage rate of backorders for a healthcare organization’s primary distributor. AHRMM notes how it “enables supply chain to have collaborative and meaningful discussions with suppliers to aid in collaborative goal setting and potential diversification of suppliers and products.”

In this recorded GHX 2023 Summit session, supply chain leaders from Corewell Health highlighted the innovative measures they implemented during the COVID-19 pandemic, including a criticality rating system, to build a more proactive and resilient process for managing backorders. The project earned Corewell Health Supply & Demand Chain Executive's "Top Supply Chain Projects Award" for 2022.

Accounts Payable optimization with Northwestern Medicine

As previously mentioned in this post, Supply Accounts Payable (AP) Days is an AHRMM KPI that measures how effectively the healthcare organization is managing its payables. Late payments to suppliers can lead to penalties and prevent the healthcare organization from maximizing opportunities for discounts.

In this case study, Northwestern Medicine’s AP team describes how they reduced supply AP payable days, increasing payment term compliance with suppliers (15-day term), from 26% to 90%, which resulted in a 133% increase in annual rebates.

Disclaimer: The third-party contributor of this piece is solely responsible for its content and accuracy, and the views expressed do not necessarily reflect the opinion of GHX.

FAQs on healthcare supply chain management KPIs and metrics

Q. What are the top metrics for healthcare supply chain success?

A. A health system or hospital supply chain leader should choose healthcare supply chain management metrics most aligned with their goals, whether they are focused on cost reduction, operational efficiency, resiliency, patient safety, data standards or sustainability. The AHRMM Keys for Supply Chain Excellence are a helpful resource offering healthcare supply chain KPIs across all these categories. 

Q. How can technology improve supply chain management in healthcare?

A. Data quality is at the core of any initiative aimed at measuring supply chain success in healthcare. Therefore, supply chain leaders who want to leverage healthcare supply chain KPIs should start with improving their data accuracy, completeness, and availability. Supply chain solutions that seamlessly integrate with relevant data sources, such as the EHR system, streamline data collection and assimilation. 

Supply chain technology solutions providers have evolved their data analytics tools to meet supply chain leaders’ demand for in depth, actionable insights to support KPI tracking in healthcare. Advanced solutions for predictive analytics are now leveraging artificial intelligence (AI) to surface insights faster.

Q. What are common challenges in measuring healthcare supply chain performance?

A. Lack of data integrity and analytics access are major challenges to measuring supply chain success in healthcare. While some larger health systems have in-house analytics teams to bridge the gaps, smaller organizations might not have the resources or time to tackle data and analytics challenge on their own.

Fortunately, supply chain solutions providers are delivering ready to use tools that are simple and cost effective for any size healthcare organization to leverage when measuring supply chain success in healthcare.

Sources

[1][2] Health Care Supply Chain Metrics and KPIs, AHRMM, https://www.ahrmm.org/keys

Kara L. Nadeau

Healthcare Industry Contributor