What Does It Take to Really Fix a Supply Chain?

Knowing best practices and having the right policies doesn’t necessarily translate into desired operational improvements on the front line. So, what does it take for people on the front line to do the right thing?  inventory management

A recent report for the IBM Center by a team of Northeastern University researchers, Gilbert Nyaga, Gary Young, and Russ Moran, offers a case study of what it takes to help people do the right thing.  In this case, they examine efforts to effectively manage medical supplies on the front line within the vast network of Veterans hospitals.  Much of it boils down to the right mix of hands-on management, good training, standardized processes, and a dash of up-to-date technology.

Effectively managing inventory is a widespread challenge in the federal government, ranging from agencies such as the Defense Department to the Environmental Protection Agency.  In fact, this challenge has landed several agencies on the Government Accountability Office’s High-Risk List of programs at risk for waste or inefficiency.

The research team found that “many government agencies have policies on inventory management that – if fully implemented – would likely result in significant performance improvements” and that these practices “are based on best practices from the private sector.”

So Why the Gap?  The research team explored the disconnect between policy and performance by conducting an in-depth, multi-year study of inventory management practices in the Department of Veterans Affair’s New England region, covering eight VA medical centers and over 35 community health centers.  To understand the dynamics of how the medical supply chain worked on the front line within hospitals and clinics, they focused on the processes and technology in use, as well as staffing issues.  Their key findings and recommendations include

Management Matters.  The team found that VA hospitals have considerable discretion regarding the operation of their frontline hospital inventory systems, and that the role of senior leadership within the hospitals is key to the effectiveness of these systems.  They found wide variability among the hospitals they observed, noting that in many: “The inventory function is often seen as merely providing a supporting role” and that senior leaders assign it a low priority for their attention.

However, the team “noted differences among medical centers as to the level of engagement between medical center senior leadership and the logistics officers on inventory issues.”  They observed that “effective leadership at . . .  two medical centers appears to have trickled down to the leadership of the logistics departments.” For example, they found that when junior staff are empowered by their leadership to “own” the frontline inventory processes “they are reportedly highly motivated to improve them, resulting in more effective inventory management.”

Based on these observations, the team recommends that top VA leadership create an expectation that hospital executives would become more engaged in how their hospital’s medical inventory is managed, by increasing the visibility of inventory issues and decisions.  The team also found that “frequent communication between senior leadership and logistics staff, and between logistics staff and clinical staff, appears to be a major contributor to better inventory management” at the two hospitals where they observed more effective operations.

Training Makes a Difference.  The team also observed that “the on-the-job training approach common in government agencies tends to perpetuate organizational cultures that may not be receptive to innovative practices common in the private sector.”  They noted that in the two hospitals with the most effective inventory management practices, that some logistics personnel had previously worked in the commercial retail sector prior to joining VA and brought some of those experiences with them

They write that VA has created its own training programs for logistics (the VA Supply Chain Management School), and encouraged participants to become mentors, but according to interviewees: “this reportedly rarely happens. . . . many frontline personnel are not familiar with it.”

The team recommends a broader based staff training initiative, requiring managers to complete supply chain management certifications used in the private sector and partnering with local universities to develop inventory management training programs that could expand what the VA is doing internally with its own school.  The team also recommends going beyond just training to creating an employee-driven culture of continuous improvement, with performance benchmarking initiatives to keep staff actively engaged in learning and innovating.

Streamlining and Standardizing Processes Is Important. While there is wide discretion at some points in the inventory management process, there are strong constraints at other points. For example:

  • The existing contracting process “often contributes to the inefficiencies noted” because “The emphasis is not necessarily on cost efficiency.”  They observed that “purchasing and supplier contracting often entail multiple governmental units which have a great deal of autonomy in making supply chain decisions.” And since decisions are largely independent, they miss opportunities to consolidate orders, delivery, and transshipments between units, as well as reducing “opportunities for volume discounts and greater supplier collaboration.”
  • Standardizing inventory processes is important to managing large-scale operations, and agencies such as at Defense and the VA “have specific guidelines published in handbooks” that outline procedures.  However, “even with good guidelines . . . most government agencies have not fully implemented the guidelines or put them into practice.”   For example: “. . . many inventory problems in the VA are attributable to a lack of standardized processes and a lack of effective coordination between logistics personnel and other staff members.” . . . “there is a need for effective coordination in handling inventory within the medical centers.”
  • The VA’s inventory ordering system was seen as fragmented between six major areas (e.g., dental, medical and surgical, laboratory): “Each of these areas typically controls its own budget” and as a result, ordering is fragmented, missing potential opportunities to lower costs by consolidating both procurement and delivery of medical supplies.

The researchers identified specific initiatives undertaken by staff at individual hospitals to streamline processes and reduce waste, but their successes are not shared among other VA hospitals, so others could benefit from these innovations. The research team recommends creating communities of practice to share frontline innovations, the adoption of process mapping to identify wasted effort as well as to identify effective processes and practices, and to develop arrangements with suppliers to collaborate on inventory forecasts and target replenishments of supplies.

Technology HelpsRecent news stories highlight how many federal agencies “use legacy systems that are old and in great need of replacement or overhaul.”  The same is true in VA, according to the research team.  They observe that “the VA’s IT system was designed as a standalone technology and as such, it cannot be readily updated and/or interface with other systems such as those of the agency’s suppliers.”

In addition, they found the VA medical supply system did not make much use of predictive analytics, a common practice in the private sector, “ to identify patterns in current and historical data, and then to make predictions about future trends or outcomes.”  The chief reason?  The VA’s inventory management system has “limitations regarding inventory data capture and processing” for analytical purposes.

Despite these limitations, VA staff at the two hospitals that were on the forefront found ways to stretch the capabilities of their existing IT system. One used bar code scanners to update inventory data and the other created a more user-friendly format for entering and retrieving data.  But these were isolated efforts.

The research team recommends that VA adopt easier-to-use software for its medical supply system, and provide targeted training to logistics staff in the field on how to use existing legacy systems.  They also recommend a broader use of predictive analytics “to forecast demand more accurately, determine appropriate replenishment levels, and improve inventory availability.”  But doing so is predicated on standardizing processes and data, as noted earlier.

Next Steps. Fixing the medical supply system on the frontline in VA hospitals will take more than just having the right policies and right practices in place.  Frontline leaders have to inspire, engage, train — and pay attention to their logistics and clinical staffs.  But they also need to provide the technology tools and rethink archaic supply processes to allow them to work better, as well.

Senior Fellow and Associate Partner - US Federal Team

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