PEOPLE & OPINIONS


alternatives, as well as facilitate recalls on items. This expands the value beyond the supply chain to purchasing partners, operations and even the financial end of hospitals. For example, this same strategy of a product data hub will allow hospitals to uickly and accurately integrate finan- cials across different organizations, or business entities.


Forecasting history to future The art of forecasting used to be sum- marized by a statement similar to “the future will be similar to the past.” Today’s supply chain professional uses numerous different information streams to develop scenarios of the future, as well as the costs associated with them. From here, decisions can be made as to the optimal course of action for the hospital. Getting to a best-in-class approach to the current COVID-19, we will start our forecast by looking at the last five years of u admissions - our history - and compare this to what we might see with COVID- 19. In addition, we will also compare our history with some other available information that is not from our history. This type of information is called causal factors and it might be general S u information from the Centers for Disease Control and Prevention (CDC), our local state, or perhaps even Google (https:// www.google.org/flutrends/about/ datauusdata.tt). Forecasting software can compare our history with these causal factors and develop a curve for how COVID-19 might act. We are in effect treating COVID-19 as if it is a new product introduction. Once we have the COVID-19 curve, we can manu- ally put in additional ‘what if’ scenarios, each of which have costs associated with them. Using the power of collaboration these forecasts, assumptions, costs, etc. can be not only shared but used in col- laboration to achieve the best outcome for the hospital. Getting away from COVID-19, doing this on a yearly basis will allow your hospital to get early visibility to the u and perhaps secure the reuired stock levels of Tamiu while other providers who do not have such strong supply chain processes find themselves facing stockout situations. Forecasts are not only used for Rx prod- ucts. Like manufacturers who have a bill of material (BOM,) hospitals have prefer- ence cards. They also have schedules from their practicing surgeons that, while not 100% accurate by any means, are in real- ity much more predictable for many types of surgeries than that above mentioned manufacturer. While it might not be as


politically feasible to rationalize the items in a preference card among the physician groups in a hospital, having a true cost comparison to such changes might help to get them executed.


Measuring forecast error Before we move on to discussing how the forecast impacts supply decisions, let’s address forecast error. You know, that concept we are not hearing about now as we all see the latest “numbers” that vari- ous agencies and centers are using for their coronavirus forecasts.


Forecast error is the difference in what was forecasted and what actually hap- pened. Now, it can get complex as gener- ally (but not always) the closer you are the more accurate your forecast will be. The key for hospital supply chains is to pick a lag time that you want to measure and use this to measure your forecast error. If you have an item with a three-week lead time, for instance, that is the error you will use. What I call the “art of forecasting” comes in when we consider the error. Is it show- ing bias by consistently over or under forecasting, or is it bouncing around up and down? Both of these situations require a different “massage” in the generated forecast, and if we are talking about what supply goes with that forecast, the error will help us to size our safety stock.


Capacity planning and profit Like best-in-class manufacturers, hospitals should also use the forecast to collaborate with their suppliers, whether they are replenishing via a PAR location or direct to the distribution center or hospital. This information can also be used when nego- tiating rates and terms of your contracts. It can even help answer strategic decisions such as “Does it make sense to do a win- dow buy for our items?”


Best-in-class supply chain companies


also forecast for capacity planning, and many times, optimization. This is not something that hospital supply chain managers often do. Simple capacity plan- ning can also be done using a forecast for surgeries. Utilizing such things as physician preference cards, individual preferences (for example, back surgeries on Mondays) and history of past surger- ies will allow hospitals to more effectively plan and time phase purchases or assem- blies for those ORs. Throw in some causal factors (perhaps skier forecasts from the trade association in Colorado for a Denver hospital, for instance) and you have the makings of a capacity plan that can lead to strategic decisions, with cost and even profitability implications.


Best-in-class supply chain processes


as outlined above can drive profitability for the business in many different ways. For example, what would changing your OR mix from 20 percent orthopedics to 40% orthopedics do to your revenue? An accurate way to estimate either new product introductions and/or EOL prod- ucts will see the optimized decisions drop right to the bottom line of the hospital. In the current COD-specific environ- ment, a hospital would be able to forecast ICU capabilities, costs to increase these capacities, as well as provide a forecast for everything from manpower requirements to ventilators.


Supply chain visibility, testing Complete supply chain visibility, and the ability to impact changes in said visibility, is another best-in-class supply chain con- cept hospitals should be focused on. Many hospitals order items, even with expedited freight costs, while a different location of the same hospital or a sister hospital a few miles away might have four weeks supply of that same item. Visibility, matched with the ability to align supply and capacities with where they are needed, will eliminate such non-value added reactions. I used to be on the board of directors


of a maor financial institution and every year we would do an interest rate “shock test” for our book of loans. While hospitals may not need to test their debt instruments in this manner, what they should do on a regular basis is “shock test” their supply chains for COVID-19–type pandemics, or even local emergencies (we are addressing you, California hospitals!). Ideally, the hospital should have a committee made up of supply chain and financial profes- sionals, who can do these shock tests on at least an annual basis. Only a best-in-class supply chain process will allow hospitals to do this, and make decisions based on anticipated outcomes and costs associated with these shock tests.


There is a reason why the Superbowl trophy is called the Lombardi Trophy. With best-in-class supply chain processes, there is no reason whatsoever that hospital executives cannot implement best-in- class supply chain processes that increase patient outcomes as well as efficiency. Strive to be the best! HPN


Mark Kuta Jr. is a supply chain expert for Oracle, and the author of four books, including, most recently, Supply Chain Rx, a hands- on, how-to book for hospital supply chain practitioners.


hpnonline.com • HEALTHCARE PURCHASING NEWS • September 2020 51


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