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As a chief financial officer (CFO), I can understand the tremendous pressures health system and hospital CFOs are facing with rising labor and supply costs and declining reimbursement rates. Financial leaders, regardless of the industry, want to drive higher gross margins, but that seems impossible in healthcare today given the current economic climate.
Healthcare CFOs are seeing their organizations’ checkbooks inundated with huge bills at a time when the C-suite is tasked with saving money. With supply chain being the second largest area of expense, CFOs are applying that pressure on their organization’s chief supply chain officers (CSCO).
Because most CFOs and CSCOs don’t have a shared system linking supply chain and financial data, they struggle to collaborate on cost savings initiatives. Furthermore, they can’t connect the dots between operational execution, planning and improving key performance indicators (KPIs).
Finance is often the “professional skeptic”— in other words, trust but verify! If a CFO doesn’t have access to a shared system with solid metrics showing supply chain is doing its job to reduce expenses, there will always be doubt in their minds. Successful collaboration and communication are built on trust; therefore, healthcare needs to overcome this visibility hurdle.
Here are three steps to establishing a technology backbone that unites healthcare supply chain and financial leaders in pursuing financial improvements.
In most healthcare organizations, supply chain and financial leaders, and their teams, are boxed into their own technology platforms. While supply chain can see what the organization is purchasing in terms of supplies and services, finance is the owner of overall financial metrics — the big picture spend.
The inability to link these two systems, integrate data and develop analytics for informed decision making on both sides makes it extremely hard for CFOs and CSCOs to collaborate on cost savings initiatives.
What they need is a common technology platform to bridge both of their worlds. A supply chain management (SCM) solution can serve as this enabler, enabling finance to gain downstream visibility to supply chain processes and data, and supply chain to see upstream how its actions impact the bottom line.
Part of the CFO role is to ensure internal controls are in place to safeguard assets and ensure proper accounting and reporting. Success in supply chain execution needs to happen under the broader umbrella of a robust internal control framework. Advanced supply chain software can help an organization lay the groundwork for success by creating that level of visibility and control.
While a healthcare organization can have higher level goals and objectives that link to KPIs, achieving real operational change and driving the execution of results in supply chain that support those KPIs requires digging down another couple of layers.
At the finance KPI level, I just want a higher margin. It is the supply chain team that can move the dial by establishing, measuring and tracking more granular KPIs that roll up under the higher margin objective. It is all about optimizing at the supply chain level to support the attainment of health system or hospital level KPIs.
Examples of impactful and measurable supply chain KPIs include spend on certain classes of supplies or drugs, spend with certain vendors and on-contract versus off-contract spend.
While in the enterprise resource planning (ERP) system, the CSCO has access to this information at a high level, they can’t link it back to the overall financial health of the organization. But with an SCM solution, both the CSCO and CFO can examine how attainment of supply chain performance goals moves the margin.
Nothing makes an inquisitive finance person happier than clarity. With advanced supply chain software solutions, supply chain and financial leaders are better enabled to communicate effectively.
Take inventory management for example. Within a healthcare organization’s ERP system, the CSCO and CFO can only see the processes of procurement and payment. The ERP system is not designed to track supplies from the moment of receipt through the point of use (POU).
If the supply chain team can’t see real-time inventory levels, they can’t communicate to finance that they are managing these levels appropriately and accurately (e.g., balancing stockout avoidance with overspend/excess inventory expiring on shelves).
An end-to-end SCM solution that integrates with the healthcare organization’s ERP and electronic health record (EHR) systems can track the movement of supplies from procurement through use. Having a tool that enables supply chain to do this effectively and efficiently has the byproduct of helping enable effective communication about those processes.
Going back to the “trust but verify” nature of CFOs, if supply chain can show they are cost-effectively managing inventory assets through the SCM, then finance can sit back and let supply chain do their job. When the need arises to communicate and collaborate, the information is right there in the SCM to drive those conversations.
For any organization where supply chain management is critical, and that’s a lot of organizations, technology and leveraging the power of data in decision making will continue to be critical.
Greater process automation to facilitate real-time data collection and the use of artificial intelligence (AI) to perform advanced analysis and reporting will be a part of the evolution of SCM technology. By that I mean AI that isn’t a hammer looking for a nail, but rather AI that is built from a problem-solving standpoint.
As systems become more sophisticated, this will enhance our capacity for collaboration across functions.