As his title suggests, Brené T. Johnson, Intermountain Healthcare's vice president supply chain & support services and chief purchasing officer, oversees some areas that don't normally fall under a supply chain professional's purview. In addition to managing the company's $1.5 billion nonlabor spend, he's responsible for a number of other functions that are pivotal to the Utah-based health-care provider's success, such as laundry and linen services, sustainability, environmental services, clinical engineering, food and nutrition, information technology (IT) asset management, and printing.
Intermountain Healthcare's senior leadership views supply chain management as strategically important for the company, and it has supported major investments in labor and facility resources that bring added value, Johnson says. In 2012, the company demonstrated its commitment to supply chain excellence by opening the $40 million Intermountain Kem C. Gardner Supply Chain Center, a 327,000-square-foot distribution, warehouse, and office complex near Salt Lake City that employs more than 350 people. The facility, which has qualified for Gold LEED (Leadership in Energy and Environmental Design) certification, stocks and distributes more than 2.5 million medical items annually. The center brings together under a single roof programs and services that previously had been scattered across Intermountain's system.
To Johnson's mind there's good reason to place all that and more under the supply chain umbrella. The nonprofit's supply chain organization, he believes, has the expertise and problem-solving skills to improve many of the processes and activities that support Intermountain Healthcare's network of hospitals, clinics, pharmacies, and other health services. The more efficiently and cost-effectively they are managed, the better the outcome for patient and provider alike, he says.
In this interview, Johnson—who came to the health-care field from the electric utility industry—explains how this inclusive approach as well as best practices he's adopting from other industries will help the company reduce the cost of providing health services while maintaining its high standard of care.
Q: Whom does the new supply chain center serve?
A: It was built to serve one company: Intermountain Healthcare. We're the largest company in Utah, with 33,000 employees, 22 hospitals, 185 clinics, and 26 retail pharmacies, plus a health plan. The distribution center will support all operations for all of the hospitals, the clinics, and our home-care service.
Q: What functional areas does the supply chain center handle, and what makes that unusual?
A: The whole campus totals about 327,000 square feet of building space, but only 160,000 of that is the distribution center. The administrative building is 60,000 square feet, and there's a 40,000-square-foot materials management and logistics wing. We also have a 60,000-square-foot ancillary services building.
There are other, similarly large DCs in the health-care industry, but few are built adjacent to or combined with supply chain management functions the way ours is. Everything that's involved in managing our supply chain is in this one center: purchasing, accounts payable, sourcing, analytics, information systems, logistics—including our courier department, which has 140 people and 80 vehicles—distribution, and warehousing. We have a call center for supply chain functions and a medical-surgical recall management center. Sustainability also reports to supply chain.
We also put waste stream management, publishing services, and linen services under the supply chain function. For example, we have a central laundry that reports to me, and linen services is co-located in the same facility so that we are now cross-docking linens to hospitals. That's unique in health care, where they typically don't manage these types of activities as rigorously as other aspects of the business. Generally, if health-care providers have extra money, they spend it on clinical care. They don't realize that having poor technology and processes does impact clinical care.
We evaluated 12 to 15 other programs [for possible location at the supply chain campus]. We selected whichever ones had the best business case. Some we own, and some are outsourced but we control them.
Q: You expect savings of about $200 million over the first five years the supply chain center is in operation. Where will those savings come from?
A: The savings will come from a number of areas, starting with managing the contracts for and distribution of our basic medical and surgical products. This includes over 200 contracts with 7,000 products. Some of the savings will come from lower pricing. More will come from efficiencies—fewer touches—and even more will come from increased service levels that will impact patient care and remove the supply burden from the nurses. Also, from one distribution center, we intend to reduce by one-third the 15,000 road miles we put on to deliver products and equipment to our facilities. We will cross-dock many other products from other supply chains that make sense—clinical, pharmaceutical, lab, IT, linen, food, MRO [maintenance, repair, and operations], etc.
But we expect four other areas, from our ancillary services that are co-located at the supply chain center, to generate more value and savings. The first is pharmacy services. We installed a 20,000-square-foot pharmaceutical fulfillment center and invested in $8 million to $10 million worth of robotic equipment. We buy pharmaceuticals in bulk and use the robots to break them down and prepackage orders. That way, every hospital doesn't have to buy in bulk, which means they don't have to buy more than they need. This system helps us manage expiration dates, too. We expect to reduce pharmaceuticals inventory for hospitals and our 26 retail pharmacies, many of them in our clinics, by 40 percent. We have a pharmacy call center on site, and we can take advantage of the warehouse and courier services being located together on the same campus.
Number two is printing. Before, printing was being done all over the place. Now, we print 800 million pieces a year coordinated from this one location for the whole company. The supply chain function manages it, and we see lots of opportunities to reduce costs.
Third is IT asset management. We have centralized the storage and shipping of equipment, and we use our own couriers to deliver things like laptops, printers, and copiers. We ship out about 1,200 devices a month. All of the used assets come back here for asset recovery.
And fourth is our ancillary imaging equipment service program. We have 2,000 or so imaging devices in our system. Rather than outsource that, we started hiring our own technicians and are managing it ourselves. They have their own call center and space for sourcing, repair, and storage here on the supply chain campus.
We are also saving a lot of money in procurement. We have the most robust purchasing card system in health care. By implementing about 5,000 "p-cards," we removed 250,000 transactions worth $70 million a year from our system, including travel, fleet management, and asset recovery.
Q: In what other ways is Intermountain's supply chain strategy different from most in the health-care industry?
A: We have implemented Low Unit of Measure (LUM) technology in our medical-surgical distribution operations, where we bypass our own warehouses at the hospitals and deliver standardized products in LUM totes every night to every nursing floor and clinic. To do this, we have installed high-end technology conveyor systems and voice-directed picking to maximize efficiency and improve quality.
Another key to success was standardizing products across the system's 22 hospitals. This took extensive efforts working with nursing product committees. When you have to pay for the touch and inventory of every item, it becomes very important to you. Often, these costs are hidden behind distributors and other supply chain partners.
Q: Any other changes in the works?
A: If you look at all the operations that make up Intermountain, you will see that there are a lot of supply chains. Medical and surgical supplies are only one aspect. We also have food and nutrition, IT, clinical engineering, and others. They all have their own supply chains, and they have their own way of getting supplies and materials in and out. We've gotten very good at managing medical supplies, which represents the largest volume. Now, we're looking at those other supply chains to see what value we can add by handling them.