PMI versus TMI
Performance measurement indicators trumps too much information
Back in the 1980s, two future Hall of Famers worked diligently to develop and establish acceptable industry-wide key performance indicators and standardized performance measurement tools for healthcare supply chain operations.
Br. Ned Gerber, Bellwether Class of 2010, and Mary Starr, Bellwether Class of 2018, piloted a number of projects with the intent that the parameters they researched and studied would become standard operating procedure in a healthcare industry driven by managed care and cost management.
While much of that seminal work remains in circulation and practice, passed down through the next generation, it has yet to reach universal status. Within the last decade, the Association for Healthcare Resource and Materials Management (AHRMM) promoted the Cost, Quality and Outcomes (CQO) initiative as something of an acronym-familiar successor to the Total Quality Management (TQM) and Continuous Quality Improvement (CQI) movements during the healthcare reform years of the 1990s.
With universal adoption and implementation of a standard set of key performance indicators (KPI) and performance measurement indicators (PMI) still looming on the horizon, Leaders & Luminaries sought to gauge expert and informed opinions of how healthcare supply chain performance should be measured and why. Three Hall of Famers have passed since this interview was conducted, but their insights still resonate and remain valuable as part of their enduring legacy and are included here.
Here's what healthcare supply chain experts and leaders told us.
“Two ways: First, I think clinical staff need to weigh in on how they think Supply Chain is doing [in] meeting their needs. A survey, if you will, could be done to get at how those who directly serve patients feel Supply Chain performs. And second, of course, is how we perform in reducing costs – not just alone, but in partnership with clinical departments who also should have cost reduction targets to achieve. It can’t just be Supply Chain.”
John Gaida, Bellwether Class of 2018, Board Secretary 2010-2012 and Chairman 2013-2016, Bellwether League Inc.
Cost savings will likely always be seen as the primary measurement for improvements in supply chain, but contributions to the success of the organization’s strategy should also be a factor in the “performance” of supply chain. The dollars an organization spends can have substantial impact on goals outside of just cost savings.
Mary Starr, Bellwether Class of 2018, Bellwether League Inc. Board Treasurer, 2012-2016
“Most importantly, balanced. Financial KPIs are easy to come by and have been used for years, but we regularly walk and chew gum at the same time. I would add to that Operational, Clinical, Customer and Talent Management KPIs as well because most of us work in matrix organizations, indirectly and sometimes directly reporting to multiple individuals. Because of this, financial metric alone do not tell the story. At my organization today, Supply Chain has two to three KPIs for each of these key categories.”
Ed Hardin, Bellwether Class of 2020, Vice President and Supply Chain Officer, Froedtert Health, Bronze Sustaining Sponsor
“Supply chain metrics should be a subset of your organization's overall performance measurement. Evaluating pure supply chain service levels – cost to serve, inventory investment and inventory returns – those are all basic aspects of supply chain measurement.
“But again, just as supply chain can be strategic, the metrics should tie back to the strategy. If you measure service indicators like customer satisfaction and your ability to meet customers or patients where they are, then supply chain metrics can empower that examination. They can inform your review of customer relationships and loyalty, the quality of your customers’ experience doing business with you, and their inclination to recommend your company and products to others. Supply chain performance is a key part of that assessment.
“Customers, patients and consumers want to be empowered with the necessary data to find, buy, trace and fulfill orders. Here, too, the use of interoperable standards enables trading partners to share product identification and track and trace those products throughout the supply chain. The ultimate goal of optimized logistics in healthcare is to improve patient safety by making sure that the right product reaches the right provider and patient, via the right route, at the right place and time.”
Siobhan O’Bara, Senior Vice President, Community Engagement, GS1 US, Silver Sustaining Sponsor
“Strategically the healthcare supply chain should be measured based on cost, quality and outcomes. Of course, this has to tie back into clinical integration activities. Certainly, the primary driver at ‘front end’ of the provider supply chain process is in terms of cost avoidance, cost reduction and effective contract negotiations. Following procurement activities there are the issues of creating a collaborative working environment with the clinical personnel linked to clinical standardization efforts to achieve the best possible patient care outcomes.
“There are numerous metrics and key performance indicators that can and should be applied to different portions of the supply chain to track performance. Some of these indicators are focused on macro performance while others drill down into specifics of operational activities. Each organization must select the indicators that it deems are most important to track overall performance, e.g., supply cost per patient day, as well as more micro-focused indicators, such as incomplete shipments received from specific vendors.
Dick Perrin, Bellwether Class of 2014
“Performance metrics should include traditional markers like inventory turns and inventory values. Other markers like supply expense per net patient service revenue and supply expense per total expense can be influenced by many factors including revenue recovery, patient care intensity levels, etc. Healthcare supply chains are many times giving supply savings targets. These are most effectively accomplished by partnerships with clinicians. Measures of reaching the target should include both dollars saved, and the ability to create strategic partnerships that serve as the base on which to build continued value.”
Deborah Templeton, R.Ph., Bellwether League Foundation Chairman, Bellwether League Inc. Treasurer, 2016-2020
“It must be in terms of ‘total value’ – often called Value-Based Procurement (VBP) in Europe. This is sometimes described as M.E.A.T., which refers to the ‘most economical’ tender response, or project proposal. That is fine, though Sweden does not apparently like using this approach. Regardless, ‘total value’ MUST include both clinical and financial outcomes.”
Br. Ned Gerber, Bellwether Class of 2010
“There are many metrics that can and should be used to measure performance of [Supply Chain Management.] They are both qualitative and qualitative. Both are important. That’s the good news.
“The bad news is that no single source has been recognized as having developed THE metrics that all healthcare providers can and should use. This makes no sense. There is not that much difference between hospitals across the country that rationalizes that each provider needs its own metrics. That being said, it is better for every provider to have metrics that can be measured and managed, even if no other provider uses the same ones. In the worst case, that should allow every provider to have metrics that can identify if [Supply Chain] performance is improving or not, and at a rate that is needed.”
Jamie Kowalski, Bellwether Class of 2017, Bellwether League Foundation Co-Founder and Board Secretary, Bellwether League Inc. Co-Founder and Founding Chairman, 2007-2013
“Certainly, savings is the basis of supply chain value, but there is so much more. Other measures should include customer service, quality and connections to the clinical care outcomes.”
Brent Johnson, Bellwether Class of 2014
“Measurement of supply chain is very difficult because there are so many parts, pieces and accountabilities. Supply Chain should not be measured just by traditional fill rates and inventory turns, but also by the quality at the point of use or care. My vision of quality is when a nurse, doctor, technician or any healthcare professional says, ‘I need this for my patient,’ then it immediately appears in their hand 100 percent of the time. Supply Chain needs to get as close as possible to that desired result.”
Tom Hughes, Bellwether Class of 2012
“Supply Chain should be measured on a combination of cost and quality, as well as the ability to grow market share by service line. For example, Supply Chain should be measured on price as well as total cost, which includes utilization, length of stay, readmissions and those must be tied to quality.”
Rand Ballard, Chief Customer Officer, Vizient, Founding Sustaining Sponsor
“Supply Chain should be measured on both traditional metrics like first-time fill rate, as well as on system-wide metrics that Supply Chain has impacts on, like length of stay, ER wait times, etc. Supply Chain plays a key role in these metrics. If the products are not available, these factors move in a negative direction. Supply Chain leaders also should have at least half of their bonus tied to system objectives so as to align goals across departments.”
Carl Meyer, Bellwether Class of 2019
“There are a variety of metrics available to add context to the traditional measure of ‘supply costs,’ but at the end of the day, perhaps what matters most is user satisfaction, something we seldom measure empirically. It is true that user clinicians and others often don’t understand the complexity and challenges of the supply chain. Even more often, they don’t particularly care. Our challenge is to engage them in devising solutions to the those elements that most often raise complaints.”
Ted Almon, Bellwether Class of 2010
“Supply chains typically have a plethora of metrics that are used to measure performance. The problem is that most metrics are internally generated and not benchmarked with any external best practices. We measure internal performance among all operating units and benchmark as much as possible with external sources to determine our overall performance. This often involves engaging companies that assess performance compared to industry best-in-class or world class performance. Our main gauge of success is whether or not we are making progress, improving operational and financial performance, becoming more efficient, reducing the cost of operating the supply chain, etc., rather than focusing on just a critical few metrics.”
Jim Francis, Bellwether Class of 2017
“To be fair, this cannot be answered without the context of the overall organization’s mission and strategy. To wit, a system of community hospitals may have as its strategy to deliver low-cost, quality care within local markets. In this context, the supply chain organization must be laser-focused on the availability of quality products at low prices. A strong, tight product formulary, supported by efficient inventory control and distribution processes would be paramount.
“Conversely, an academic-based medical center would hone much deeper capabilities in evaluation and procurement of more sophisticated clinical products, including understanding of and ability to evaluate clinical efficacy.
“Lastly, a regionally integrated health system would necessarily develop deeper skills in product and process standardization and highly efficient logistics.”
Mark Van Sumeren, Bellwether League Inc. Board Member, 2014-2019
“From an operational perspective, even within the context of the broader role of supply chain, many of the same metrics are still valid albeit with a larger scope of resources under management. You still want to maximize inventory turns, reduce stock outs and the percentage of wasted and obsolete products, optimize contract compliance, reduce logistics costs, and automate and even eliminate some processes when possible, (e.g., pay invoice on order). And yes, buyers will always need to negotiate the best possible price for a product or service, but this should no longer be the primary metric by which many on the acquisition side of supply chain are measured.
“The fundamental change needs to occur at the strategic and system level, where leadership measures supply chain in relationship to its support of value-based metrics. For most organizations, this is a work in progress, with the majority of hospital revenues still tied to fee-for-service payment models. But, while the path may not be clear, there is a common resolve, even in the highly fractured halls of Congress, to move to a system in which reimbursement is based on value delivered, not volume. As of 2017, nearly 40 percent of hospital revenues were already tied in some way to value, and both government and commercial payors are moving to systems where the majority of their payments are made through value-based models.
“Under such models, supply chain should be measured in a manner that recognizes the role it plays in improving patient outcomes relative to the total cost of care – the definition of value. But this is not an immediate leap; there are many steps to get there, starting with first effectively calculating what it costs to deliver care and what resources were consumed in the process, after which improvement efforts can be designed and implemented. Supply chain organizations are playing an increasing role in helping document clinical supply usage at the point of care, starting in the procedural suites. Some progressive organizations like the Mayo Clinic are also capturing total resource utilization in order to calculate costs for entire episodes of care, such as treating chronic disease, where the majority of our national expenditures are consumed.
“Having the data on what supplies and other resources are consumed positions Supply Chain to assist in redesigning clinical pathways. Duke University, for example, has provided physicians leading care redesign with information on both the products used by which doctors for what procedures and the associated costs, which combined with patient outcomes performance metrics, helps them determine how to standardize care, including the products used, for specific patient populations, based on risk and disease states.
“Supply chain-specific metrics for this broadening role have not yet been fully developed, but they must be tied directly to the overall performance of the healthcare delivery system and as such must reflect interdependencies with the performance of other aspects of healthcare delivery, including suppliers. Beyond effective price negotiations, supply chains should also be measured on how well they work with suppliers to better match the right products and services with patient need, to standardize on what works for what kinds of patients, which includes variation when warranted, e.g., when a patient is at greater risk. There are many suppliers who are working to deliver solutions to meet the changing needs of healthcare, but only when the conversation goes beyond the acquisition price metric can those new opportunities be discovered.”
Karen Conway, Bellwether League Foundation Advisory Council Member, 2021, Bellwether League Inc. Board Member, 2018-2020, Vice President, Healthcare Value, GHX, Gold Sustaining Sponsor
“Certainly, the quality of patient care must be our first priority, but even if the product doesn’t affect patient care a low-quality product may fail more frequently, not perform adequately or otherwise drive up costs. If you cannot get the product or there are problems with the delivery, poor service may outweigh a low price. Measurement should be on the highest value of a product taking all of these factors into account.”
Jim Olsen, Bellwether Class of 2015
“The supply chain key performance measures (KPIs) should be measured in a framework that drives a balanced approach. The balanced scorecard measures allow the supply chain to measure the value and effectiveness of several KPIs both from a strategic and operational prospective. The organization’s strategic scorecards must be cascaded to the supply chain metric and measured in ways that bring value and deliver a contribution up to the overall strategic goals and objectives of the organization. These goals include financial, customer satisfaction, employee satisfaction, service performance, quality measures. The initiatives, key actions and projects are guided by the balanced scorecard. The supply chain leadership team utilizes the scorecard guidance to measure performance of the month, quarter and year and develops adjustment as required.”
Nick Toscano, Bellwether Class of 2018, Bellwether League Foundation Advisory Council member, 2021, Bellwether League Inc. Board Member, 2020
“[For] the Chief Resource Officer (CRO), performance should be measured based on the results of the business plan approved by the [Board of Directors].”
Bill McFaul, Bellwether Class of 2008
“Supply Chain should best be measured overall based on a series of key metrics. Adopting a ‘true north’ measurement approach should be encouraged so that there is one leading measurement that executive management can follow. A true north metric, such as Supplies, Drug and Food Expenses (SDF) against Net Patient Revenues can be utilized, but there could be other appropriate measurements as well (e.g., SDF/Total Operating Expenses). Customizing this metric to include administrative revenues associated with GPO contracts or other income statement line items also should be addressed. Isolating key ‘support’ and ‘watch metrics’ that align to the true north measurement should be explored among the areas of contracting, purchasing, database-performance reporting, and logistics and operations also should be determined.
“‘Support metrics’ (e.g., surgical supply costs per procedure) are those that directly impact the true north metric while ‘watch metrics’ are those measurements that one would desire to maintain vigilance should their performance trend negatively (e.g., pallet or tote quality). Establishing a true north metric along with support and watch metrics that provide an overall dashboard of supply chain performance is solid performance management discipline and will drive the engagement and accountability among members of your Supply Chain team.”
Tom Lubotsky, Vice President, Supply Chain, Allina Health, Bronze Sustaining Sponsor
“Quality should be a key measure and should be tied to outcomes, costs and availability when needed by the clinicians. Measuring against peer organizations is important, but reliable information makes this difficult. Ultimately, the quality and cost of outcomes by diagnosis should be the measure since this is the end product of the healthcare institution.”
Joe Pleasant, Bellwether Class of 2014