Value-Based Thinking and Relationships Propel Novant Health Supply Chain to Smoother Operations

Part of the supply chain team since 2005, Mark Welch continues improving and innovating, from high tech drones to low tech relationship building.

Editor's note: This article appears in the September/October 2022 edition of HealthLeaders magazine.

Mark Welch has been on the Novant Health supply chain team since 2005, and he was able to make several changes such as lowering procurement staff turnover and achieving higher savings levels after rising to the senior vice president of supply chain role in 2015. Welch continues juggling a number of initiatives while overseeing the entire health system’s supply chain functions, with more than 800 locations, including 15 hospitals in North Carolina.

Here are five ways that Novant Health is innovating its supply chain.

1. Supplier diversity

Novant’s supplier diversity program is not new – it's been around since 2006. But it received a boost in the past few years after adding an executive-level position to oversee it. "It took from 2006 to 2019 to surpass $1 billion in expenses with the supplier diversity program, which seems like a long time but is actually pretty good," Welch says. They have already crossed the next half billion mark, which took around three years. This year, they will likely spend $180 million with diverse suppliers.

Sourcing managers have goals for supplier diversity spend for tier 1 suppliers, which are direct suppliers. Team members speak to outside organizations such as the Latino Chamber of Commerce or Black, Asian, veteran, and LGBTQ business resource groups (BRGs) on how they can support Novant's diversity sourcing efforts. Last year, they asked the BRGs to each recommend several vendors that Novant could use.

One reason for the growth in spend is that Novant no longer requires vendors to serve the entire health system. This allows Novant to use smaller regional vendors, which can help build the businesses. Novant also asks their vendors to report their tier 2 spend, if they know it. "What good does it do the community if we have a tier 1 supplier who doesn't use diverse suppliers?" Welch says. He wants the Novant suppliers to also help grow the business community.

This approach isn't just altruistic. Novant hopes it engenders consumer loyalty to the organization. "With our demographics, it makes sense," he says. "The majority is the minority in most of our markets. We try to represent the population that we serve."

2. Changing delivery patterns

About 80% of Novant's inventory is stock items and most goes directly to the warehouses. Some specialty nonstock items that aren't typically carried in the warehouses due to low volumes such as knee implants may go directly to the hospitals. Novant is starting to bring a higher percentage of all supplies through the warehouses, both stock and nonstock, to free up the congested hospital loading dock area. The loading docks also receive food, mechanical parts, office supplies, and other items. "There are just too many people running around and things are not being handled correctly," Welch says. Plus, there is a lot of employee turnover in this area. "It doesn't stop. It's like water dropping on the forehead, it's torture in my mind," he says.

He wants to organize it for better flow, providing a sense of calmness for those in delivery and receiving. This won't necessarily reduce staff numbers, but some might be transferred to the warehouse, and they will all enjoy their jobs better. "They can structure their day differently," Welch says. By creating a more controlled environment for product handling, Novant can better track products, receiving, tagging, and deliver them to the floors.

He also slowed the order frequency to decrease the constant deliveries and stress levels. With the Amazon mentality, staff members were frequently ordering small quantities of items based on clinician demand, overwhelming the staff. "Stop ordering stuff and it will stop coming in," Welch says. "We were creating our own problem." They have three-, five- or seven-day periodic automatic replenishment (PAR) systems for stock items. "Now, we just have to build that in the formula on our reorder points." Nonstock items might now take an extra day to receive, but they have not received complaints from the end users. Making this change was initially a hard sell, but it's worked out. Even Amazon has switched, so that Amazon Prime deliveries are not necessarily guaranteed for the next day, he says. Amazon realized it was efficient to do this, he says.

3. Value-based thinking

Welch went from a priced-based mentality when working with vendors to value-based thinking. "It's what we can we do within our supply chain channels to reduce cost to have better value," he says. He commonly asks vendor sales executives about their goals and how they get rewarded, whether it's based on revenue, profitability, or a product line. In turn, he tells them how he's compensated, based on savings and quality. The sales executives are often surprised Welch shares this information. He then tries to work with them to make their sales goals while doing what is best for Novant. "You can be open and transparent with your vendor community, and they'll give you a win."

By giving a requested discount, Welch might agree to ask his sourcing team to promote their product to grow the company's market share, if it's a good fit. In turn, he wants the sales executives to go back to their company's pricing committee and fight for Novant's ask.

Welch also promises the vendors contract integrity. He will agree not to ask for contract changes while it’s in effect, and he will then ask for a lower price up front. Some health system executives will ask for discounts soon after a contract is signed, if another vendor offers a lower price. By sticking to his commitment, Welch gains trust and a better relationship.

4. Turning supply chain staff into SMEs, and clinicians into advocates

Before Welch took over as the top supply chain leader, about half of the 10 sourcing managers would leave each year. That was because they would constantly be taking over new service lines or product categories, learning them, trying to identify savings, and then getting switched to a different one. Now the sourcing managers have portfolios such as cardiology, and they become and remain subject matter experts. He hasn't lost a sourcing manager since, other than to promotions or other internal moves.

Welch then introduced the physician leaders to the sourcing managers to form a relationship. "Now, we have a physician partner in every one of those service lines," he says. When a physician is trying to buy supplies that aren't on contract, the sourcing manager can ask the physician leader to talk to the doctor about it. The supply chain team also shares data with physicians such as the cost of supplies per case, using physician names. They started off doing it anonymously, but the physicians asked for the identities. "They know who they're competing against, if they're competing," Welch says. They also ask what they need to do to lower their costs, which can lead to a preference card discussion. The physicians ultimately make the supply decisions based on data.

Welch created a clinical variation reduction team to look at how variation affected spending. He worked with the chief medical officer (CMO) to assign different physicians to the team, and they created a strategy based on data. With 1,800 affiliated physicians, they have plenty of talent to choose from for the teams. There is risk in reducing the number of vendors. While there's the potential to save millions in one category, eliminating a vendor could result in physicians leaving if they can't use their preferred products. This can lead to a revenue loss instead of savings.

Welch may involve the CMO to deliver the message when making higher stakes vendor changes, especially for doctors who are not employed by Novant. The CMO can explain that even if the hospital savings don't benefit the doctor, the hospital buys capital equipment for them, keeps the doors open, and saving money is the right thing to do for the community. He shows how the savings will be spent to benefit clinical care.

Drone delivery

Novant just announced it is beginning to use long-range drone deliveries to deliver products from its Kannapolis, North Carolina, distribution center. It is working with drone company Zipline. They're doing research on drone capabilities and how the service can help the health system. "The issue is you have to get beyond the visual," Welch says. "Zipline is now able to do longer distances and not have a visual during the entire flight, not having someone watching the entire time."

Novant conducted a pilot project in 2020, and the health system received Federal Aviation Administration approval for contactless delivery of personal protective equipment and emergency supplies. They plan to use drones now to deliver specialty medications to patients.