Kaiser Permanente's Laurel Junk

Laurel Junk, chief supply chain and procurement officer at Kaiser Permanente, presides over a sprawling, bicoastal supply chain. Founded in 1945, the healthcare provider and not-for-profit healthcare plan serves nearly 12 million members across the country, encompassing 38 hospitals, more than 660 medical offices, and more than 200,000 employees.

For years, supply chain decisions, technology, and operations were managed regionally or locally, a situation that continued as Kaiser Permanente acquired healthcare providers beyond its home state of California. Junk (pronounced "Yunk") saw a need for a first-class supply chain organization that would turn a highly decentralized operation into a cohesive, centralized whole. The goal was not just to reduce costs and improve efficiency, but also to help Kaiser Permanente provide better care to patients. That challenging and ambitious initiative, started almost five years ago, has exceeded its promised deliverables by a wide margin.

In this brief excerpt from a longer, in-depth interview, Toby Gooley, editor of Supply Chain Quarterly and senior editor at DC Velocity, speaks with Junk about her career path and about Kaiser Permanente's supply chain transformation. You can find the full interview at www.supplychainquarterly.com.

Q: How did you get involved in supply chain management?

A: I liked math and had a great math teacher in high school, and I've always liked technology, so I studied computer science as an undergrad at the University of Minnesota. In my first job, I worked for Eli Lilly & Co. as a computer analyst. I quickly realized that I loved technology and analytics, but I enjoyed the business side much more, so I got an M.B.A. at Duke University majoring in marketing and finance. Then I worked at a Lilly subsidiary doing market research and later finance. Eventually, I got a general manager position for an acquisition and was tasked with integrating that into the company. After that, I somewhat serendipitously ended up as head of materials management there. That's where I learned to love what ultimately has become supply chain management.

Q: What was the supply chain organization like when you joined Kaiser Permanente?

A: When I came in, I was the first supply chain executive who had a real supply chain background, and I was also the only national supply chain resource. I had two direct reports: one was the Northern California director of operations, and the other was the same for Southern California. They were responsible for regional support functions like the warehouses where patient records were stored. A true supply chain function should manage getting products and services to clinicians from start to finish, but few of the existing roles or processes focused on that. Much of the supply chain activity was happening in the clinical settings, largely by clinicians. There was no national oversight or coordination; supply chain management was very decentralized, and there were no reporting relationships to national. For example, many of the materials management directors at the individual medical centers rarely worked together with other directors, and pretty much never across regions. We had to change.

Q: What changes did you make, and why?

A: We realized that we needed to change the organization and centralize it—really do a reset and create a full strategy. We also needed the company to recognize supply chain as a discipline and a profession, which was not the case before. So we developed a five-year plan that looked at organizational structure, process, metrics, and technology.

There were supply chain directors and supply chain managers at each site. They were good, very dedicated people, but there had not been a lot of investment in their education and training in regard to supply chain. So we rewrote their job descriptions and made them all the same to start. Then we recruited talent into those roles and centralized their reporting. In California alone, there were about 100 of those positions, and 80 to 85 percent of the people we hired came from outside Kaiser Permanente, and most of those were from outside health care, something historically not done.

We created a national team, including a head of demand planning and of inventory management. Kaiser Permanente had never managed inventory centrally before. We connected all the sites and their inventory together and brought in a head of supply chain operations [and] a head of warehousing and logistics. We also developed and implemented standard processes for activities like receiving, ordering, and cycle counting, and we standardized those across all sites.

We started with four "proof of concept" sites. ... They defined what their existing processes were, and then we set up metrics for things like inventory reduction. When we standardized their processes, we blew those measures out of the water. The improvement in service levels, cycle time, and inventory reduction gave us credibility with leadership. ...

By the end of this year, we will have a centralized supply chain organization in all regions, and we'll have standardized what they do. That includes technology; we now have a single instance ERP (enterprise resource planning) system—we used to have seven or eight—and we have a single item master. Our electronic medical record system is now integrated with our ERP system, so clinicians scan items as they use them, connecting usage with patients and outcomes. We then use the product usage to manage our inventories by statistically setting our safety-stock levels and decrementing actual inventory. What we are building is an overall national shared service that encompasses the execution of what we call "buy to pay"—everything from sourcing to supply chain execution and all the way to accounts payable.

We now have almost 2,700 people in the supply chain organization, and we are growing. We are still educating people internally about what supply chain management is. And we're still trying to change the old beliefs that it's just ordering—people would think, how difficult is that?—and that supply chain professionals are just people who bring you stuff. We do so much more.

Q: Were there barriers you had to overcome?

A: There were. One of the biggest barriers involved inventory. Clinicians at the sites were ordering products, and safety stocks were being set by nurses. Our research found that they were spending 15 to 40 percent of their time doing what I call "hunting and gathering" for supplies. We had to take that back and convince them that they would get reliability and accountability from us in exchange. In the past, they couldn't always count on that, so they were hoarding and stuff was stored everywhere. I believed we needed to own the supply chain from the point of care all the way back to our suppliers in order to make sure clinicians always have what they need. ... But for them to give that control back, we had to build credibility.

Q: Tell us about one of the "new and improved" organization's most important achievements.

A: The biggest is that we are on track to triple the return we committed to in our five-year business plan, showing the credibility and value of supply chain management and getting it recognized as a profession. Our service levels have gone up, and we have given nurses and physicians more time to spend on care and education. We have shown that there is true value in investing in supply chain professionals, and we've demonstrated the critical role supply chain can play in support of the company's overall mission. The whole transformation has been challenging, but I believe we did the right things.

Q: You consider yourself to be a business leader, not just a supply chain executive. Why is that?

A: That has always been who I am. I love supply chain because I get excited about how we can support what the business does, but this is not about building a supply chain "empire." It's about using the power of supply chain management to get the maximum benefit for the entire company, and in our case, the absolute maximum benefit for our members and the communities we serve.