Intermountain Healthcare: How to become a supply chain driven organization

As a rule, healthcare organizations aren’t known for their supply chain prowess. Historically, they outsourced purchasing and logistics operations to group procurement organizations and medical supplies distributors while they concentrated on patient care. That is changing, however, as hospital groups struggle to lower their costs while maintaining a high level of care.

Intermountain Healthcare is at the vanguard of that change. Headquartered in Salt Lake City, with network of 22 hospitals and 180 clinics across the state, Intermountain is Utah’s largest healthcare provider, serving 55% of the market. And, with 34,000 employees, it is the largest company in the state. The analyst firm Gartner ranks Intermountain number 4 on its Top 25 list of healthcare supply chains; in a list dominated by the likes of Cardinal Health, Intermountain and the Mayo Clinic (2) are the only healthcare providers to make the rankings. Gartner recognized it for the $40 million investment the organization made in its supply chain center, a 357,000 square foot distribution center and for the fact that it employs some 700 people in the supply chain organization to oversee a $1.3 billion annual spend.

I had a chance to talk to Brent Johnson, vice president of supply chain and support services, about the evolution of Intermountain’s supply chain. Johnson has spent some 30 years in supply chain, including 21 years in the electric utility industry where he says he “gained a passion for supply chain.” In addition, he spent ten years as a consultant.

Q. What brought you to Intermountain Healthcare?

A. I like to say it was McKinsey. About nine years ago, before I was hired, Intermountain conducted a study with McKinsey who told them that, like many healthcare organizations, they weren’t managing their supply chain with best-in-class processes. I had been doing some consulting outside of the healthcare industry and learned about this opportunity. I didn’t know healthcare and I’d never worked in a hospital, but the same principles of good supply chain management apply.

Q. Before we talk about Intermountain, how do you describe the state of the healthcare industry when it comes to supply chain management?

A. In general, we are not a supply chain focused industry. People come into healthcare to give care and not run a business. As a result, there’s a lot of data chaos in the industry and supply chain costs are high. Much of that is because the industry has traditionally outsourced supply chain processes to distributors and purchasing organizations. Hospitals just didn’t invest in supply chains. As an example, how do you think many clinical products are delivered to hospitals? They’re stored in the trunks of our suppliers, who then carry them up to the OR. We’ve trusted suppliers to do those things for us.

Q. Is it changing?

A. It is definitely changing and it has to change. For one, as an industry we’re all going to have to do more with less, not just on cost restructuring but also based on outcomes. You’re going to see a lot of consolidation among hospital groups and that’s going to drive a focus on supply chains. We were ahead of that curve. McKinsey convinced our leadership to invest in our supply chain almost a decade ago.

Q. Tell us a little about what you’re doing at Intermountain that sets you apart?

A. When I was hired, I was given the green light to hire 25 people. We were given the opportunity to bring anything that had anything to do with supply chain under our umbrella. We centralized all of the buying and all of the warehouses. In return, we had to promise $20 million in savings in the first four years. In reality, we doubled that, delivering $80 million in savings. Over the last 8 years, we’ve saved over $400 million.

Q. I understand the centerpiece of this is your Supply Center, where you’ve located purchasing, contracting and sourcing and distribution?

A. We invested $40 million to build the Supply Center. It’s a 327,000 square foot facility, that includes 160,000 square feet of warehousing and distribution space. On the distribution side, we’ve invested in a WMS, voice picking technology, as well as pick and pass conveyor system with sortation and spiral conveyors. We have also standardized products and we deliver everything in low measure of unit totes – about 200 pallets leave here every night. We went from 93% to over 99% efficiency.

Q. Gartner also recognizes you for your investment in talent.

A. We have nearly 700 people in the supply chain organization. Outside my door are 32 MBAs who have trained in categories like procurement and supply management. Twenty-eight of my team members earned their CPIM certification last year from APICS. We believe in reinvesting in our people.

Q. Where does the healthcare industry go from here?

A. It’s a noble industry that is saving lives. At the same time, there’s waste, a loack of standardization, and a lack of metrics in every hospital and department. Wasteful supply chain processes do impact patient care. The industry needs to realize that. There needs to be two things. First, there needs to be more resources invested in supply chains. And, there has to be acceptance in the C-suite. Supply chain has to be a senior level position. Last, the talent doesn’t exist broadly within the industry right now, so we need to bring in people from other industries. We need talent that is strategic, analytic, and has good interrelationship skills. It’s all about resources: You either have to build it or source it.

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