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Unraveling Healthcare Supply Chain Complexities: Insights with Dr. Eugene Schneller · Taking The Supply Chain Pulse

• 0:10
  Speaker 1: Hello again everybody.
• 0:11
  Speaker 1: This is Fred Krantz coming to you with another episode of Taking the Supply Chain Pulse, and this week we are happy and honored to have with us one of the most honored people in the healthcare supply chain, dr Eugene Schneller from the WP Carey School at Arizona State.
• 0:29
  Speaker 1: Dr Schneller, he has too many awards for me to talk about.
• 0:34
  Speaker 1: The one he got most recently that I know of was induction into the Bellwether League, the National Healthcare Supply Chain Hall of Fame, in October.
• 0:44
  Speaker 1: So, dr Schneller, thank you for joining us.
• 0:48
  Speaker 2: Well, thanks for having me, Fred, it's a real privilege.
• 0:51
  Speaker 1: No, the privilege is for me.
• 0:52
  Speaker 1: For most people I might say it's a privilege, but for me the privilege is all mine, so I want to get into a lot of stuff.
• 1:02
  Speaker 1: Dr Schneller, you have a unique background and I think we need to set the stage, because context and milieu are things that we don't usually talk about, but they have a big impact on everything, and you came into health care from outside, so I wanted to read something that you wrote a little bit and sent to me.
• 1:28
  Speaker 1: You said you'd like to talk about a stranger in a strange land, referring to a novel that was written by Robert A Heinlein.
• 1:37
  Speaker 1: Excuse me, in that you came into the health care supply chain as a sociologist, so you came in with a unique personal history and were not embedded with the mores of the culture from the start.
• 1:56
  Speaker 1: Why don't you tell us about that, what you saw when you first came in and what it was like?
• 2:00
  Speaker 1: Yeah, so, fred, I'm a sociologist, and and what it was like?
• 2:04
  Speaker 2: Yeah, so.
• 2:05
  Speaker 2: So, fred, I'm a sociologist.
• 2:07
  Speaker 2: I was trained very classically, always been interested sort of in some aspects of the health care system and sort of how it worked, and spent the early years at Duke University Medical Center studying physician's assistance.
• 2:25
  Speaker 2: So I've always been interested in, I guess you would say, health care, human resources and health care manpower.
• 2:32
  Speaker 2: And I can tell you that in teaching at the Duke Medical School there was never a mention of supply chain.
• 2:41
  Speaker 2: Certainly medical students don't hear about it, and I can tell you that in my training certainly it's not something that was covered.
• 2:49
  Speaker 2: But I found myself later employed in health care management programs both at Union College in New York and then here at Arizona State, and across those years we never taught anything about supply chain management.
• 3:07
  Speaker 2: And so it's an area that even and I guess I would comment that for those of you who are vice presidents of supply chain, you're probably working for somebody who never took a course in supply chain management and so you have a very unique perspective and you know sort of one of your jobs needs to be to train your boss.
• 3:29
  Speaker 2: But on the other hand, I think it's interesting, since the supply chain's 20, you know maybe 20 percent of what the spend is within your organization and it's not paid enough attention to.
• 3:45
  Speaker 2: We'll get to that.
• 3:47
  Speaker 2: But about 18, 20 years ago I was doing some research with a friend and he was in supply chain management and I said to him why don't we ever do research together related to what you do?
• 4:03
  Speaker 2: And he said health care supply chain is not interesting.
• 4:05
  Speaker 2: And he said healthcare supply chain's not interesting.
• 4:06
  Speaker 2: And I said well, why don't you think it's interesting?
• 4:09
  Speaker 2: He said it's the only area I can think of in business where supplies aren't treated as assets.
• 4:16
  Speaker 2: And that got me really thinking about that.
• 4:19
  Speaker 2: What did that really mean?
• 4:20
  Speaker 2: And he and I went off to the National Science Foundation and they gave us $100,000 in walk-around money and we went to visit places and we went to places like Mayo Clinic, the Cleveland Clinic, we went to New York Presbyterian, we went to UPMC and every place I went to.
• 4:43
  Speaker 2: He was right.
• 4:45
  Speaker 2: I would look at a cabinet and filled with stents and I'd ask people what's the value of what's in that stent?
• 4:51
  Speaker 2: And they'd look at me strangely and say, well, we don't know, we just put stuff in there.
• 4:56
  Speaker 2: Or even the vendor does.
• 4:57
  Speaker 2: And I said you know, and my friend Larry Smeltzer, who I was traveling with, said you know, if this was Dell and you walked into a storeroom, they would tell you exactly what the value of everything in there was.
• 5:10
  Speaker 2: And that got me really thinking about what was different about health care.
• 5:15
  Speaker 2: Why aren't they tracking things, as you know, as assets?
• 5:21
  Speaker 2: And then I went to New York Presbyterian and met Anand Joshi.
• 5:26
  Speaker 2: Anand is the senior vice president today of supply chain at New York Presbyterian and I said to Anand what's your biggest problem?
• 5:38
  Speaker 2: He said physicians.
• 5:38
  Speaker 2: And I said, anand, what's your second biggest problem?
• 5:40
  Speaker 2: He said physicians.
• 5:41
  Speaker 2: And I asked him what his third biggest problem was.
• 5:44
  Speaker 2: He said physicians.
• 5:45
  Speaker 2: So I started thinking.
• 5:51
  Speaker 2: And you know, if you're trained as a sociologist, you're trained to look at roles, you're trained to look at the processes that people do.
• 5:55
  Speaker 2: And so I spent some time thinking about health care and and it was also interesting because here at Arizona State we have an organization called CAPS Research, the Center for Advanced Purchasing Studies, and CAPS Research has, you know, about 80 members all over.
• 6:13
  Speaker 2: You know, managing organizations all over about two and a half three billion dollars, and their senior vice presidents for supply chain really are very interested in how they manage their assets.
• 6:26
  Speaker 2: And, by the way, we don't have any health care members of CAPS Research, and I also began to ask well, why is this an industry that really feels that it has very little to learn from other people?
• 6:37
  Speaker 2: And so I began to put together a list of what I guess I would think of as health care exceptionalism and it's it's think of as health care exceptionalism and its really impact on health care, and a number of things really came out that were really interesting.
• 6:53
  Speaker 2: One was the physician involvement in supply chain selection.
• 6:56
  Speaker 2: In a sense, one had people who were professionals, who are considered to have deep knowledge of what they do.
• 7:05
  Speaker 2: By the way, I found out, they frequently didn't have deep knowledge of products, but by and large, they had products that they thought were preferences and we ran into this term called physician preference items and ones that were really hard to manage, and I said, well, other industries have that problem to manage.
• 7:24
  Speaker 2: And I said, well, other industries have that problem.
• 7:26
  Speaker 2: You know, when they, you know, make a new Corvette, they don't.
• 7:31
  Speaker 2: You know, sit around and have all the engineers each choose a different set of tires.
• 7:33
  Speaker 2: One likes Michelin, one likes Pirelli's.
• 7:35
  Speaker 2: Obviously, they've got pretty good data that shows that Michelin tires are really better than most others and they tend to go with those Michelin tires, except unless there's some exception for some reason.
• 7:47
  Speaker 2: So the whole idea of physician involvement and the role of physicians, which sociologists have been looking at for years, really came to the forefront in my mind.
• 7:58
  Speaker 2: Secondly, what was really interesting was really the high level of resource dependency that hospitals have.
• 8:05
  Speaker 2: I mean hospitals make almost nothing of what they use.
• 8:10
  Speaker 2: A little bit of that changed since the pandemic.
• 8:13
  Speaker 2: Some hospitals have said, well, maybe we can get into some manufacturing, but by and large almost nothing that is in that hospital is made by the hospital.
• 8:23
  Speaker 2: You know is in that hospital is made by the hospital.
• 8:28
  Speaker 2: So they are highly dependent on other organizations and as we become more globalized, more highly dependent.
• 8:31
  Speaker 2: And that's interesting because sociologists are really interested in looking at organizations in their level of resource dependency.
• 8:39
  Speaker 2: As a matter of fact, there's the whole theory of resource dependency, but the hospital is the archetype of resource dependency.
• 8:47
  Speaker 2: Interesting Third really reason that people were invoking this notion of exceptionalism was really the high level of uncertainty and demand.
• 8:59
  Speaker 2: You really knew if you were running an emergency room when two school buses would crash and suddenly you had lots of you know, suddenly you had a lot of patients you really didn't know you were going to have and that level of uncertainty and demand is somewhat exceptional, because if you don't have the product then patients suffer and that's really different.
• 9:19
  Speaker 2: I mean, it may be that a department store doesn't know about the demand for a new product, but by and large if it's out, that's, that's OK.
• 9:27
  Speaker 2: And in health care the other part of that exceptionalism is frequently there are no substitutes.
• 9:34
  Speaker 2: So if the department stores out of shirts, well somebody will find and they're out of shirts made by Arrow, and if they're out of shirts made by some other manufacturer, they're generally other brands.
• 9:48
  Speaker 2: But the complexity of the healthcare supplies frequently don't lead to that, or at least they don't lead to that in the minds of there being products that one would consider equivalent, products that are different, and also the level of regulation and so supply chain to me became really interesting because of those exceptional differences from other industries, and I really became interested in how people manage that complexity, the physician involvement, the high level of regulation that came from the FDA and of course, from insurers.
• 10:25
  Speaker 2: Hey, and, by the way, very few other industries have the end user who really doesn't pay.
• 10:30
  Speaker 2: It's some other payer who pays and therefore the relationship between that end user and the producer of those products and the payer of those products are really very different.
• 10:42
  Speaker 2: And then, finally, what really became interesting to me and, fred, as you know, we've done a lot of work on it is the intermediaries group purchasing organizations.
• 10:52
  Speaker 2: And so suddenly this is also not only are you highly resource dependent, but you've basically outsourced a great deal of your strategic sourcing to somebody else, and again, very few other industries are willing to do that.
• 11:07
  Speaker 2: They'll outsource, but they'll do a great deal of managing that outsourcing relationship themselves.
• 11:14
  Speaker 2: Where you don't see that happening in healthcare the way it happens in other industries.
• 11:20
  Speaker 1: Wow, you said a lot there, gene, but I got to tell you two things that came to mind when you said that.
• 11:24
  Speaker 1: When you were talking Number one, when you're talking about healthcare not having any idea of the assets that supplies comprise in their operation, I was leading the supply chain at a large urban system I won't tell you where.
• 11:46
  Speaker 1: I was leading the supply chain at a large urban system, I won't tell you where and they were having a bad financial year and I'd gotten my master's degree just a few years before and the CFO was saying what can you do to help us improve our bottom line?
• 12:03
  Speaker 1: And I said to the CFO I said do you have a formal asset inventory in surgery?
• 12:05
  Speaker 1: And he said no, why?
• 12:06
  Speaker 1: I said so?
• 12:08
  Speaker 1: You're expensing everything that's in surgery and you're just truing that up once a year.
• 12:13
  Speaker 1: He says yeah.
• 12:15
  Speaker 1: I said well, do you realize that if you created a formal asset inventory, everything that's in surgery would transfer out of the operating budget and onto the balance sheet as an asset?
• 12:24
  Speaker 1: Right, and he goes to me.
• 12:26
  Speaker 1: He goes holy cow, how much do you think that is?
• 12:30
  Speaker 1: And I said probably you got about $5, $6 million here.
• 12:33
  Speaker 1: And he said holy cow, why didn't I think of that.
• 12:36
  Speaker 1: I said evidently you didn't get your master's degree at Kent State like I did.
• 12:42
  Speaker 2: No, that's great, but it's true.
• 12:43
  Speaker 2: And the story I told about stent cabinets is true.
• 12:46
  Speaker 2: You know you could have a million dollars worth of inventory in there and you don't even know when they're going to expire.
• 12:52
  Speaker 2: Yeah, I know.
• 12:56
  Speaker 1: And the second story.
• 12:57
  Speaker 1: The second thing that came up was you said doctors didn't seem to know too much about products and the note I made is their knowledge of products was given to them by the sales reps or the school where they studied.
• 13:11
  Speaker 1: So they would study at a school that used certain orthopedic products Boom, they'd be using those.
• 13:18
  Speaker 1: And then the sales reps who we couldn't control back in the 60s, 60s, 70s and 80s would be in their offices and in the OR telling them what to use all the time.
• 13:30
  Speaker 1: So that's where they got their product knowledge from.
• 13:35
  Speaker 2: Yeah, absolutely, fred.
• 13:36
  Speaker 2: You know I've always believed supply chain.
• 13:38
  Speaker 2: People should never practice medicine, that's not their job, yep.
• 13:42
  Speaker 2: But you know there's certain guys that you know certainly they can serve as guys.
• 13:47
  Speaker 2: You know, throughout that whole process, you know, and that's that's really important, you know, as as we've tried to understand some of the changes in the health care system over the last 20 years, many more physicians are employed today than they used to be.
• 14:02
  Speaker 2: So you know, yeah exactly?
• 14:06
  Speaker 1: Yeah, because I was looking at the numbers and these are.
• 14:10
  Speaker 1: I'm sure you're familiar with this, but for people that aren't, the US GDP right now is somewhere around $27.36 trillion.
• 14:18
  Speaker 1: 16.5% or $4 trillion of that is spent on health care and that's divided up.
• 14:25
  Speaker 1: If you just look at hospitals, there are 6,139 hospitals and when you combine them up into IDNs, there are probably, say, half that.
• 14:36
  Speaker 1: So what we really have is about 3,500 mom-and-pop operations that comprise the spending of maybe half of that $4 trillion.
• 14:46
  Speaker 1: The number is big, but the organizations themselves are small and they may very well be led by smaller-minded people.
• 14:56
  Speaker 1: Is that fair to say or not?
• 15:00
  Speaker 2: Well, you know there are people who are focused on the bottom line, but you know their margins are so different than the margins of the people they work with that they struggle around that I'm not sure if they're.
• 15:13
  Speaker 2: And, by the way, their accountability is actually very different because you know, if you fail, if you don't have product, you're going to have a problem.
• 15:24
  Speaker 2: So how do you manage inventory in ways that really deal with?
• 15:29
  Speaker 2: You know, we learned this during the pandemic.
• 15:32
  Speaker 2: We fell into thinking, just in time was great, but we really forgot about just in case, and so suddenly, you know, one had a disruption and that was.
• 15:42
  Speaker 2: That was a big, big kind of problem for everybody.
• 15:47
  Speaker 2: I'll go back to this comment, fred, that they're employed.
• 15:50
  Speaker 2: One of the questions we've asked, and again is you know, I'm a sociologist, I'm running around with hypotheses in my head If you employ them, they'll be more compliant in terms of standardizing on products.
• 16:03
  Speaker 2: Well, there are two studies done, one we've done and it shows they aren't, and the second one that shows that they may be.
• 16:11
  Speaker 2: So certainly systems like Mayo, where all the physicians are employed, appear to be very successful of putting in systems to be able to standardize.
• 16:21
  Speaker 2: But even there you've got physicians who have helped develop products.
• 16:25
  Speaker 2: They may even have patents on products and they want to use the ones they have.
• 16:31
  Speaker 2: And so I think that there is some leverage because personally you know there may be the opportunity to gain, share and share with physicians, and certainly the ACA has really put the clinician in a position where he and she is much more responsible for that total episode of care and you might be then much more prudent in terms of the supplies you use, in terms of the cost of those and the ability to standardize.
• 16:59
  Speaker 2: But again, in other industries a scale matters.
• 17:04
  Speaker 2: You see mergers and acquisitions, and those mergers and acquisitions are really frequently designed not only to take out a competitor but to gain advantage within the supply chain which we're about to publish.
• 17:21
  Speaker 2: We looked at IDNs and hospitals prior to a merger and then following a merger, thinking that there ought to be a drop in the supply chain costs because you suddenly have more scale and more ability to negotiate.
• 17:41
  Speaker 2: You know the answer is there's a short drop off, but the savings out of scale really don't seem to be what one would expect in other industries.
• 17:48
  Speaker 1: Yeah, when you think about that you're requiring.
• 17:51
  Speaker 1: When you acquire or merge, you're acquiring both real estate and patients, and so you have to put in place a strategy that will plan to take advantage of both of those things.
• 18:08
  Speaker 1: And that's the difficulty, I think, is that if you look at a large place like Northeast Ohio, where you have the Cleveland Clinic Foundation and university hospitals and Metro Health and university hospitals and Metro Health, two of those are, you know, big, and Metro Health is the local county organization that takes care of the folks that neither the clinic nor university hospital are likely to treat.
• 18:35
  Speaker 1: But when the places they're acquiring around here are usually older, existing struggling community hospitals or stuff usually older, existing struggling community hospitals or stuff and so how long does it take to successfully incorporate those acquisitions into the bigger system?
• 18:55
  Speaker 2: It's a really interesting question and we've pursued it.
• 18:57
  Speaker 2: We went out, we interviewed several of the large for-profits and many of the large not-for-profits that have grown by acquisitions.
• 19:06
  Speaker 2: I can tell you that the for-profits, which see themselves as growing through acquisitions, have dedicated teams to manage those mergers and within 90 to 120 days get good value out of the merger from a supply chain perspective.
• 19:25
  Speaker 2: They have a team that goes in, looks at that and, by the way, they're frequently contracts you can't change and there may be mismatches in GPO, there may be mismatches in distributors, and so one has to be able to align the newly acquired organization into the system right.
• 19:45
  Speaker 2: So one of the things we found is that the large for-profits do really well in managing that and managing the supply chain.
• 19:54
  Speaker 2: A few of the not-for-profits do, but overall the not-for-profits were not nearly as effective in managing that and we went into it, having looked at a few, and we saw that basically an integration of supply chain can take as much as three years being able to in a sense switch over.
• 20:17
  Speaker 2: Gpos deal with distribution, actually bringing in a medical staff that may have preferences that are really very different, Fred than the medical staff that may have preferences that are really very different, Fred, than the medical staff that you have when you go through that acquisition.
• 20:30
  Speaker 2: And the other thing is that the for-profits really seem to engage in the merger discussions much earlier than the not-for-profits.
• 20:43
  Speaker 2: Most not-for-profits merge and able to get more patients.
• 20:46
  Speaker 2: That's what they're trying to do.
• 20:47
  Speaker 2: They're trying to build, you know, build that up.
• 20:49
  Speaker 2: And, by the way, research has shown quite conclusively that as a result of mergers, prices do not go down.
• 20:58
  Speaker 2: As a matter of fact, that's just what the FTC, the Federal Trade Commission, is looking at as it begins to look at mergers to say you know what's happened as a result of that?
• 21:07
  Speaker 2: Who benefits from that?
• 21:09
  Speaker 2: And at the end of the day, is the patient benefiting, Is the insurance company benefiting or is the organization itself benefiting?
• 21:17
  Speaker 2: And I think the future of many of those combinations is going to be denied by the FTC.
• 21:26
  Speaker 2: And there's even a good deal of discussion of unbundling some of those combinations that have happened.
• 21:32
  Speaker 2: I don't know.
• 21:33
  Speaker 2: So I think that that's that's really a fear within that.
• 21:37
  Speaker 2: And again, it goes against what we would think in other industries of mergers to be able to gain scope, to be able to really reduce costs and bring more value to the customer.
• 21:50
  Speaker 1: Yeah, that is so true.
• 21:52
  Speaker 1: One of the things I'm going to switch my questions out of order here, but one of the things that bothers me or that concerns me is it seems and this is my opinion, so you can correct me, it's only opinion-based that there may be 30 or 40 very large IDNs that understand and can acquire the talent they need to do their business well.
• 22:17
  Speaker 1: What's the impact on the rest of the people for talent?
• 22:26
  Speaker 2: on the rest of the people for talent.
• 22:27
  Speaker 2: Well, it's a huge issue.
• 22:28
  Speaker 2: You know, I teach in the largest business school in America.
• 22:32
  Speaker 2: We have a lot, I think we're actually the largest business school in the world.
• 22:37
  Speaker 2: We have 20,000 students in the Cary School.
• 22:38
  Speaker 2: That's not in the university, that's just in the business school.
• 22:41
  Speaker 2: And the largest major is supply chain, and we have lots of students who come in interested in the health care sector and very few, almost none, leave with jobs in the hospital side of the health care sector.
• 22:57
  Speaker 2: Who do they go to work for?
• 22:58
  Speaker 2: They go to work for consulting firms that do health care work.
• 23:01
  Speaker 2: They go to work for suppliers where they can really actualize their you know, and basically they've got two years of debt sitting there, having been in a two-year full-time MBA program, if that's what they're in.
• 23:14
  Speaker 2: They go to the GPOs.
• 23:17
  Speaker 2: Gpos are hire our students.
• 23:19
  Speaker 2: They like them, as do distributors, but they don't go to the provider organizations and I think that's that's a real problem because increasingly and by the way, they may go to other organizations outside of health care and get rehired, come back in.
• 23:34
  Speaker 2: You know, you look like you look at guys like Jim Solozny at UPMC or Tom Nash, who had been, you know, in a variety of different health care organizations.
• 23:45
  Speaker 2: Those guys were actually graduates of our supply chain program but came into health care afterwards and I know because the second or third day they showed up.
• 23:55
  Speaker 2: I got a phone call and they said, hey, who are these strange guys, doctors?
• 23:59
  Speaker 2: They're telling me what I can do.
• 24:00
  Speaker 2: I didn't have that in Alcala.
• 24:02
  Speaker 2: You know that.
• 24:04
  Speaker 2: You know it was just a different environment that they found themselves in and they had to learn to deal with that.
• 24:12
  Speaker 2: I think what we're seeing and we just did a study, and you can go on to the CAPS research website and see it of the cited talent skill gaps, and those are gaps that frequently didn't exist when most of the CEOs or the CFOs or the CIOs trained.
• 24:33
  Speaker 2: The biggest technical skill was demand planning and forecasting, and that's what we went back before.
• 24:40
  Speaker 2: How much inventory?
• 24:42
  Speaker 2: What should you be doing?
• 24:42
  Speaker 2: Supply chain optimization how do inventory?
• 24:43
  Speaker 2: What should you be doing?
• 24:44
  Speaker 2: Supply chain optimization how do you optimize what you're doing?
• 24:48
  Speaker 2: Technology system expertise and cost management the financial pieces of that and relatively few people in supply chain really have strong backgrounds in financial management and that's really an issue.
• 25:01
  Speaker 2: They report to the CFO frequently, even if they're in the executive suite, they're generally beholden to the CFO, but that's really interesting.
• 25:12
  Speaker 2: And then, of course, when you think of AI, where that is I mean our business analytics program is the most subscribed to program of any of our programs today subscribe to program of any of our programs today and within that, we have a growing emphasis on artificial intelligence, machine learning and those issues.
• 25:30
  Speaker 2: And those are basically the things that are going to transform supply chain management going forward.
• 25:39
  Speaker 2: And I think what's interesting, I teach our strategy course.
• 25:41
  Speaker 2: It's the last course students take in supply chain, supply chain strategy course and we use a lot of the cases I've developed, but we also we also use other cases, like Dell, which went through a huge digital transformation.
• 25:53
  Speaker 2: When Dell stops, if you remember, dell used to be all customized things selling directly to the customer, and then Dell, of course, went to you know much more of a strategy focused on finished products and being able to do that.
• 26:09
  Speaker 2: Well, you know the supply chain guys have similar transformational issues in health care.
• 26:14
  Speaker 2: I mean, how do you move from things being done from inpatient to outpatient, what happens to the hospital at home?
• 26:20
  Speaker 2: And that agility really means a kind of training, not just ordering for what's happening in the operating suite.
• 26:29
  Speaker 2: It's really very different because the logistics of that getting product to the patient, being able to monitor the utilization of those products, those are all different.
• 26:40
  Speaker 2: And so not only did we see that gap in technical skills, but we also see the gap in the qualitative skills strategic planning, innovation and creativity.
• 26:51
  Speaker 2: You know you've been, you know you've been buying things basically by you know the dozen.
• 26:56
  Speaker 2: Now you want things that can go to the home package nicely for home use, and you want them I don't know you might want in a pack of three or four really very different in terms of those requirements and really the ability to communicate with different stakeholders, really from the suppliers through your warehouse or your consolidated service center to the home.
• 27:21
  Speaker 2: That's a whole different set of skills of dealing with people at very different levels who don't see the world through your lenses.
• 27:31
  Speaker 1: Yep.
• 27:31
  Speaker 1: So I'm going to give you some bullet points that you provided me with and I want you to comment on them, okay.
• 27:37
  Speaker 2: Okay.
• 27:39
  Speaker 1: This is like what has to happen.
• 27:40
  Speaker 1: What are the implications for talent?
• 27:42
  Speaker 1: Number one supply chain executive as a crap detector?
• 27:47
  Speaker 1: But it doesn't all smell bad.
• 27:49
  Speaker 1: That's what you wrote.
• 27:50
  Speaker 1: Tell me about that.
• 27:52
  Speaker 2: Well, you know, somebody brings you something into your office and they say that this is an equivalent.
• 27:58
  Speaker 2: Right, well, is it really an equivalent?
• 28:01
  Speaker 2: Is the bell and whistle better?
• 28:02
  Speaker 2: The physician comes in and says I just saw this at a meeting I was at.
• 28:08
  Speaker 2: I need to have this because I know my patients will be better off.
• 28:13
  Speaker 2: And so I think what we don't see in the supply chain executive is one who's heard the term called value based purchasing but really doesn't have in their mind what value based purchasing is or how that works and what it's about.
• 28:28
  Speaker 2: And so you really need to be able to evaluate what's being put in front of you and make decisions from it.
• 28:34
  Speaker 2: Really, you know, I think the word crap detector is interesting.
• 28:40
  Speaker 2: I think it was Hemingway who said that's what you need to get out of a good education.
• 28:45
  Speaker 2: And just because you read it on the web, just because a rep tells you that it's great, or just because a doctor tells you this is better than the one I'm using, you need to be able to do that, work, to do that.
• 28:56
  Speaker 2: And, by the way, healthcare suffers from not having great comparative effectiveness research and in the absence of that, it's really hard to have a great crap detector, but you need it and in many ways value analysis teams are designed to make that up.
• 29:12
  Speaker 2: But you know I have lots of friends who are very much involved in value analysis.
• 29:17
  Speaker 2: They need those crap detectors too because they need to be able to really make judgments on the basis of a population of physicians that they're working with.
• 29:28
  Speaker 2: It comes down to an early thing that we recognize that the notion of equivalency is not clear.
• 29:35
  Speaker 2: The FDA may say two things are equivalent, but it doesn't mean they're the same and it doesn't mean one substitutes for the other, and we need to be able to understand when that happens.
• 29:46
  Speaker 1: True, here's your next thing the supply chain executive as an orchestrator.
• 29:51
  Speaker 1: Separation of sourcing and procurement operations and strategy.
• 29:57
  Speaker 2: Yeah, so it's an interesting question.
• 29:59
  Speaker 2: As I said, I teach the strategy course and right up until the end we are teaching our students amazingly strong quantitative skills.
• 30:08
  Speaker 2: You know we will give them a set of products and simulations and say you know what?
• 30:15
  Speaker 2: How many warehouses should we have and where should they be?
• 30:18
  Speaker 2: Ok, and they'll be able to take that data and figure that out.
• 30:21
  Speaker 2: And, given our past performance, what should we expect in terms of arrival in the emergency room?
• 30:27
  Speaker 2: And we do a lot of modeling of those things and for supply chain.
• 30:31
  Speaker 2: That's important because you need to be able to adjust to to be able to do that.
• 30:36
  Speaker 2: But the guy at the top all that together and that's really important and he's running very different programs.
• 30:44
  Speaker 2: You know, the buyers, people who are working on strategic sourcing, are very different than those are who are doing implementation and frequently and I know that in many industries they say well, the people who are doing the negotiating shouldn't be the people who make the choices.
• 31:02
  Speaker 2: They should be out there just finding the best deal, but at the same time, you have to know what the implications of that best deal are.
• 31:10
  Speaker 2: So, yes, we really do believe that the senior person has to be able to orchestrate very different people who look at the world through very different lenses.
• 31:21
  Speaker 2: To be able to do that.
• 31:23
  Speaker 1: And you can be a generalist.
• 31:24
  Speaker 1: You don't need to be an expert in all aspects of the supply chain to be the supply chain leader.
• 31:31
  Speaker 1: Would you agree with that?
• 31:33
  Speaker 2: Yeah, and I think the trick pony is how do you get the people who come in and you put into those functional skills to be able to mature to the point to be able to become an orchestrator rather than focusing in a more narrow way.
• 31:47
  Speaker 2: And I think that part of that orchestration is being a good teacher, being able to take people and advance their careers.
• 31:57
  Speaker 2: That's really important.
• 31:59
  Speaker 1: Yeah, I just did an interview with Brent Johnson last week and Brent had that skill set of being able to be a good teacher.
• 32:09
  Speaker 1: He's put some fine leaders out there in the healthcare supply chain.
• 32:12
  Speaker 1: Yeah absolutely.
• 32:14
  Speaker 1: So the next thing you had here that I really want to learn more about is organize around clock speed.
• 32:24
  Speaker 2: Yeah, so I stole that term.
• 32:25
  Speaker 2: A guy named Charles Fine at MIT wrote a really neat book called Clock Speed.
• 32:30
  Speaker 2: It's worth getting a hold of.
• 32:32
  Speaker 2: You can find it on Amazon.
• 32:33
  Speaker 2: It's fairly old, for a couple of dollars.
• 32:37
  Speaker 2: Fine says organizations made up of, or different industries have different clock speed.
• 32:41
  Speaker 2: And I always ask when I work with hospital people is what do you see when you come to work in the morning, when you look at the building?
• 32:49
  Speaker 2: And they give me these really strange looks back and I say, ok, as a supply chain person, what is the clock speed in spine?
• 32:58
  Speaker 2: And that is you know, how quickly do products change?
• 33:02
  Speaker 2: What does that look like and how do you manage spine?
• 33:05
  Speaker 2: And I hear well, that's really difficult because every two weeks somebody's I've got a detail man telling me that there's this new great product, or my chief of spine surgery is telling me they want that really fast clock speed.
• 33:20
  Speaker 2: You go over to psychiatry, fred, and they're still shocking people.
• 33:24
  Speaker 2: You know they're where they were three decades ago, four decades ago.
• 33:29
  Speaker 2: Things haven't changed quickly and so the hospital is not one organization, it's a place made up and again, this is sort of a sociologist view it's a set of independent production centers, and each with very, very different characteristics and needs to be managed, understanding what that difference is within the clock speed of that organization.
• 33:58
  Speaker 1: Well stated.
• 33:59
  Speaker 1: Here's another great one that you wrote.
• 34:01
  Speaker 1: These are yours.
• 34:02
  Speaker 1: I'm attributing these to you, so you're getting credit for these questions.
• 34:07
  Speaker 1: Know when to invoke exceptionalism or not.
• 34:13
  Speaker 2: Yeah, that's interesting.
• 34:14
  Speaker 2: By the way, I hate being held accountable for what I've read.
• 34:17
  Speaker 2: You know, one of the aspects of exceptionalism we talked about and it's come up several times is is really, uh, the physician and his or her power.
• 34:33
  Speaker 2: And you know, I said earlier on that supply chain should never, um, uh, practice medicine, right, uh, but the physicians the physicians is what we've written about as a surrogate buyer.
• 34:47
  Speaker 2: He or she may not work for the hospital.
• 34:51
  Speaker 2: They go out and find products and they bring them back in and they make claims about those right, and sometimes those products are equivalent.
• 35:03
  Speaker 2: You know, we know that the anatomy of the knee hasn't changed a lot, and so we have to understand that.
• 35:10
  Speaker 2: When somebody says that people are going to die if we don't do this, well, that may be true, but it may not be true.
• 35:18
  Speaker 2: That's really important.
• 35:19
  Speaker 2: And also one of the things we tend to forget when we look at products is how products really bring value to the organization.
• 35:30
  Speaker 2: I mean, if you think of an MRI and you just think of what an MRI costs and you depreciate it, the way that you would depreciate your car, that you would depreciate your car, well, you have to think of how many elective surgeries did that MRI avert, and it may be hundreds of surgeries that just never got done because you were able to use scanning to be able to make those decisions, and that may be an area where, again, and that may be an area where, again, we need to think very differently about the value of what we have, and I think that's an area where exceptionalism has some real validity to it.
• 36:13
  Speaker 1: Well, I'll tell you what.
• 36:14
  Speaker 1: Of all the things you've said, that last statement about cost averted by employing this technology is something that I think people should stick in their craw and keep there, because I think that is an extremely valid point.
• 36:29
  Speaker 1: We're coming near the end of our time, dr Schneller, so I would ask you had some recommendations.
• 36:37
  Speaker 1: One thing you said is that we need to watch TV.
• 36:40
  Speaker 1: Another is that we need to push to understand value.
• 36:46
  Speaker 2: Just as you know, is a last shot here.
• 36:53
  Speaker 2: Could you talk about those two things?
• 36:54
  Speaker 2: Yeah, I've been watching the Resident.
• 36:55
  Speaker 2: If you haven't watched the Resident and you know you need something to do late at night, it's really an interesting series because it's got the good, the bad and the ugly of health care in it, and I think they had perhaps some really good supply chain people advising them, as others who saw that and so they talked about the role of reps.
• 37:19
  Speaker 2: People non-healthcare people watch shows that really begin to reveal what is happening within the healthcare system and what's happening within supply chain.
• 37:29
  Speaker 2: They're going to ask harder questions when they're in the hospital and I think that's really important to be able to do, and so I think that there are things to learn by watching some of those and saying what, where did that idea come from, and is that good or bad?
• 37:45
  Speaker 2: So that's my, my focus on the resident and, by the way, I don't get any residuals for that.
• 37:53
  Speaker 1: I'm surprised you haven't negotiated those.
• 37:55
  Speaker 1: Yeah, I probably should, dr Scheller, we're right at the right at the end of our allotted time, and I think this these meetings automatically close themselves down when you get to the allotted time.
• 38:08
  Speaker 1: So I just want to thank you for sharing your knowledge and your experience with us and your insights.
• 38:15
  Speaker 1: It's been a great conversation.
• 38:16
  Speaker 1: I've learned a lot and I can't say that all the time, so I'm really happy to have had you join us.
• 38:26
  Speaker 2: Fred, this was great fun.
• 38:27
  Speaker 2: I can't wait to see you soon and love our relationship and our brotherhood through the bellwether you got it.
• 38:33
  Speaker 1: And, dr Schneller, I hope you'll come back again sometime.
• 38:36
  Speaker 2: I'm happy to do that.
• 38:38
  Speaker 1: Thank you, sir, have a great one.
• 38:40
  Speaker 2: Take care, bye-bye.