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The Exec: How IU Health's Supply Chain is Coping With Inflation

Analysis  |  By Christopher Cheney  
   May 03, 2023

Indiana University Health's vice president of supply chain has three decades of experience in purchasing roles.

Indiana University Health is working closely with suppliers to limit the impact of inflation at the Indianapolis-based health system, says Sam Banks, chief procurement officer and vice president of supply chain.

Prior to joining IU Health, Banks worked at medical device manufacturers for nearly 14 years, most recently serving as vice president of global procurement at Wright Medical Group. He also worked for nearly two decades at Honda, mainly in purchasing leadership roles.

HealthLeaders recently talked with Banks about a range of subjects, including coping with inflation, supply chain challenges at IU Health, and engaging physicians in supply chain. The following transcript of that conversation has been edited for brevity and clarity.

HealthLeaders: How are you coping with inflation in your purchasing efforts?

Sam Banks: Inflation is tough for us. IU Health committed to the state of Indiana that we were not going to raise prices for five years. So, we do not have a lot of ability to absorb inflation. So, we are seeking significant cost savings this year.

We are working closely with our suppliers to make sure they understand that we need to push back on cost increases, and they need to find ways to take cost out. In some areas and contracts, we have protection against inflation or at least a cap on prices. That has saved us in quite a few situations.

We are trying to change the way we are working with our suppliers. We are engaging with their leadership teams, so they understand our current situation and our future plans. We want them to know we are a good partner as we continue to grow and continue to try to consolidate the supply base. We are also digging into their financials to understand the actual costs of their products. I am a firm believer that the better we understand how their products are made and their input costs, the better our ability is to push back on cost increases.

We are also asking suppliers about ways they can help us. If we are doing things that drive inefficiencies into their operations, we want to know that. Allowing suppliers to say something that is less than positive to the customer gives them the freedom to be honest with us.

Sam Banks, chief procurement officer and vice president of supply chain at IU Health. Photo courtesy of IU Health.

HL: What are the primary challenges of serving as chief procurement officer and vice president of supply chain at IU Health?

Banks: I joined IU Health last year, right as we were coming out of COVID. My whole supply chain experience has been almost 20 years with Honda and another 14 years in the medical device world, so IU Health has been a big change for me. When I started at IU Health, it was clear that the team was fatigued, and we were understaffed due to workforce shortages.

I was fortunate that my boss, who is the senior vice president of systems services, is a great leader and he understood what it took to get me onboarded and up-to-speed quickly. He had also put some good leaders directly under me, so I am fortunate to have a great team that reports directly to me that knows leadership and supply chain.

One of the biggest things that we struggle with is trying to find the right talent and dealing with attrition. We are challenged to compete in the marketplace because many organizations are raising salaries. So, we are trying to make sure that we have a great total offering—not just wages.

We are also challenged in supplies. The backorder situation and the disruption is getting better, but these challenges still exist. It has started to transition away from not as many backorders to more conversations with suppliers about cost increases.

Finally, our struggle is with data. We have a ton of data, but we do not have an efficient way to use it, process it, analyze it, and visualize it to help us drive our business to make it better. We need to start looking at process improvement, becoming more efficient, and taking our supply chain expertise to the next level.

HL: How have you been rising to the data management challenge?

Banks: We have been working closely with our information technology colleagues. We are also working closely with our third-party suppliers—they are getting us a lot of data and we are pushing them to help us understand how to use their services better and optimize the relationships. We are working to see how we can use that data to drive our business forward.

We are also looking internally at how we can write reports and to make sure that we have the right people in the right spots with access to the right data.

HL: Do you have a group purchasing organization?

Banks: We use Vizient. The GPO works on our behalf and negotiates national contracts to leverage the volume of not only our health system but also other health systems to get us the most competitive price offering that we can get. What a lot of people might not understand is that we use the GPO's suite of data for spend management and benchmarking. We also use the GPO's suite of data for our clinical side, with safety, quality, and efficiency metrics.

HL: IU Health has an integrated service center. What are the primary elements of this facility?

Banks: The ISC is a 296,000 square foot facility. About 150,000 square feet is warehouse and distribution. We use that space to stock between 30 and 90 days of inventory of more than 3,300 products. About 40% of our supplies flow through the ISC. The main functions there are warehousing and distribution. It is also a supply chain headquarters—it is where leadership sits as well as purchasing, business analytics, value analysis, and strategic sourcing. We just added pharmacy, so soon our pharmacy folks will be working out of that building and doing the pharmaceutical piece of our business there.

HL: How do you engage physicians in the supply chain?

Banks: We work closely with our clinical effectiveness team—they are our main liaison with the physicians. We participate in the physician-led councils. We bring physicians opportunities and they help us decide which direction we want to go. For example, we may have a category that has six suppliers, and we want to take that down to three suppliers, while maintaining safety, quality, and delivery with improved cost.

For example, we will have a physician-led council on orthopedics. We will talk about preferred suppliers and product usage. Doctors will give us feedback on how things are going. We will say this is how we are performing to the contract; and if there is an initiative that we have to work with the supplier or change suppliers, that conversation will occur with the physician-led council.

Sometimes, physicians will help us with supplier negotiations. It can be helpful to have physicians in those conversations.

We also have collaborative groups and nursing councils, which has been critical for us the last couple of years as backorders have come up and there has been a need for substitution. We are able to work closely with those nursing councils and collaborative groups to quickly decide whether a substitute is appropriate or not.

Related: The Exec: In Supply Chain, Collaboration With Clinicians Is Crucial

Christopher Cheney is the senior clinical care​ editor at HealthLeaders.


KEY TAKEAWAYS

To limit the impact of inflation on supply chain, health systems need to push back on suppliers over cost increases.

Challenges for IU Health's supply chain include staffing shortages and data management.

Physician-led councils participate in supply chain decision-making at IU Health.

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