In a recent issue of this newsletter, Fred Crans wrote about “the one thing” that people in any line of work must master in order to succeed. This month he has begun a series on “the three things” – the main challenges facing the supply chain over the next five years – in Healthcare Purchasing News. In this issue Fred introduces, or reintroduces, “the five Rs.” Not to be outdone, I’d like to chime in with my “most important thing,” which is also one of the Rs: relevance.
When I opened my consultancy in 2001, I decided to go back to school for my master’s in Supply Chain Management to be sure that I was up on the latest. I am very fortunate to have the top-rated supply chain school in the country, Michigan State University, located close to my home. The program at MSU grounds the practice of supply chain in three main tenets – efficiency, effectiveness and relevance. The first two are straightforward enough; supply chain excellence can be defined and measured in terms of how efficient or effective a process is, but defining relevance is a bit more elusive.
The idea is that a supply chain can be second to none in terms of efficiency and effectiveness, but if it isn’t relevant, it will fail at some level. Relevance is measured in terms of fulfilling customer demand. A good example is Amazon, a case study in supply chain relevance. Amazon’s supply chain fulfills customer demand in a number of ways. Its ordering system is intuitive and easy to use. It helps shoppers find what they want with suggestions and categorization of the items. Product selection is massive and constantly improving, based on customer demand. Customers can pay an annual membership fee and get their orders delivered in two days without a shipping charge. And, innovations such as four-hour drone deliveries are a perfect example of a supply chain innovation driving increased customer satisfaction. Amazon is a supply chain company; It beats its competition by being more relevant. That is its most important metric. There are clearly more efficient and effective ways to get product to customers, but they would not be as relevant to the customer demand and would fail to differentiate Amazon from the competition.
As Fred’s “three things” responses are flowing in, one of the common themes is the interpretation/response to the Affordable Care Act’s impact on supply chain. In other words, understanding and ensuring how the supply chain remains relevant in this time of change. However, my opinion is and remains that we have missed the mark by failing to deploy the basic foundational practices to ensure relevance. We are not in the position to associate supplies and purchased services to the customer (the patient). If we don’t know what the customer demand is, we can’t measure our relevance (e.g., outcomes experienced with supply A versus supply B) and make improvements (e.g., demand matching for optimal outcomes). Our focus has been on being the most efficient and effective in service to the caregiver as the customer. I believe that the ACA is motivation to finally put our emphasis on the patient as the customer. Again, if we can’t associate our activities with a patient, we can’t ensure our relevance.