24 minute read
Carlos Aguilar, vice president, Buy to Pay, Sourcing, Kaiser Permanente
from REP OCT 21
Supply Chain Leader Spotlight
Editor’s note: Carlos Aguilar, vice president, Buy to Pay, Sourcing, Kaiser Permanente, was one of this year’s Ten People to Watch in Healthcare Contracting. The Journal of Healthcare Contracting, a sister publication of Repertoire, interviewed him for the August 2021 issue.
The Journal of Healthcare Contracting: What’s the most challenging or rewarding project you have worked on in the last 12 to 18 months?
Carlos Aguilar: I would have to say the most challenging for us has been reconfiguring our supply chain and identifying new sources to meet our PPE needs. Everything from gowns, masks, and gloves to needles, syringes, and sanitary wipes were in shortage. It has been quite a range of categories and products that we had to identify new sources for, making sure that products and suppliers were verified and vetted. That was a big challenge, largely because there was a global shortage of all these products. But we also ran into more disruptions. Right when we solved one category, another arose. For example, once we had a handle on the PPE supplies, then it was a shortage of the ultra-low temperature freezers for the vaccines, needles and syringes.
I would say the most rewarding project was when we had the supply chain stabilized and got to the point where we were setting up mass vaccination sites. This is really where the rubber meets the road. We set up large venues where we can help high volumes of our members get vaccinated, as well as the community
at large. That is when it finally felt like there was light at the end of the tunnel, not just for our organization and our members but for all of us. Seeing all that come to fruition, that made it feel like we were not just treading water, but we were making the major progress we needed to overcome the pandemic.
JHC: What changes brought on by the pandemic are here to stay regarding the supply chain?
Aguilar: The biggest challenge that we all recognize throughout the industry is there has been a lot of leaning out of our traditional supply chains in health care due to inventory issues and limited availability. When something like the pandemic hit, there just wasn’t enough buffer in the inventory. As a nation, we’ve been looking at some of those regulatory changes that have been passed at the local and national levels. But I think making sure that we are considering inventory and redundancy of supply, geographic diversity (domestic and global sources), and supply assurance is going to stay with us. And we’re asking the question more broadly than just PPE. We’ve always looked at that in other categories, like pharmaceuticals and elsewhere, but now with the pandemic, I think we’re revisiting and looking at that much more broadly than just PPE. What categories? What inventory? What risk mitigation plans do we need to put in place?
I’d say the second one that certainly was an eye opener for us is, as we worked with our manufacturers and distributors, it became pretty clear to us that suppliers and distributors
We’re looking at our end-to-end digital supply chain and transforming it. That was one of our major priorities before COVID hit. Obviously, when COVID hit, we needed to shift our priorities. But we’re at that point where we’re stable enough and mobilized, and we just launched that blueprint phase for the digital transformation.
didn’t always have complete control of the supply chain down to raw material and the factory level. That’s another area I think we’re taking away as an insight and one where we’re putting in more controls, more rigor, more due diligence around really understanding all aspects. What factories? What are they doing to assure supply assurance at the factory level? How are they going about verifying the quality of those products? It’s really taking that extra level view into the first, second and third tier in the supply chain.
JHC: In order to maintain supply chain continuity, have you added or changed anything as far as storage, warehousing, or self-distribution?
Aguilar: We’ve done a combination of things. Prior to COVID, we had implemented a hybrid pharmaceutical distribution strategy through partnerships with a national pharmaceutical national wholesaler and third-party logistics leader (3PL). The 3PL direct channel stored, inventoried and distributed pharmaceuticals that showed a benefit to KP of a cost savings or supply assurance for care critical items.
As the pandemic hit, we had to expand these areas. We worked closely with our supply chain 3PL partner, who manages those warehouses and we’ve had to expand our relationship with them to cover some of the PPE categories as well. But I think as we look ahead, it’s probably going to be part of our ongoing strategy. We just need to figure out how to optimize it. It really comes down to understanding the potential risk for which categories and what inventory levels might be affected. We want to make sure that we’re not just solving for this pandemic but anticipating any future disruptions too.
JHC: What project or initiative are you most looking forward to?
Aguilar: We’re looking at our endto-end digital supply chain and transforming it. That was one of our major priorities before COVID hit. Obviously, when COVID hit, we needed to shift our priorities. But we’re at that point where we’re stable enough and mobilized, and we just launched that blueprint phase for the digital transformation.
That is probably the most exciting because after a year plus being in triage mode, it’s nice to be back into a project where you’re transforming and improving your operation. It covers the entire span of our organization from sourcing, ordering distribution, supply chain all the way through payables. We’re very excited about getting that moving again.
Made in America
Can increased U.S. manufacturing help us avoid future product shortages?
Last year PPE and ventilators were in short supply. This year, it’s been just
about everything else, including consumer products. Equipment shortages, capacity limits and logistical chokepoints throughout the supply chain created a backlog of container vessels and marine terminals at West Coast ports.
In the face of these challenges, “Made in America” looks like an attractive strategy to healthcare providers as well as consumers. But how realistic is it? Do we have the capacity? The raw materials? Will vendors jump onboard? Are buyers committed to American-made products, even if they cost a bit more?
Repertoire posed these questions to a group of healthcare supply chain experts:
Mark Henderson, executive vice president, sales and marketing, Concordance Healthcare Solutions.
Linda Rouse O’Neill, vice president of government affairs, Health Industry Distributors Association.
Elizabeth Hilla, senior vice president, Health Industry Distributors Association.
Laura Reline, vice president, supplier management, NDC Inc.
Soumi Saha, vice president, advocacy, Premier
Made in America
Repertoire: How would you gauge the demand for ‘Made in America’ among healthcare providers today?
Laura Reline: I believe everyone agrees that having more healthcare products produced in the United States boosts our domestic economy and creates more job opportunities, reduces transportation expenses and lead times, and provides less dependency on foreign nations. The complexity of this situation is: Will product prices be as competitive, given higher wages, more stringent regulations and potential lack of raw materials?
Let’s assume for a moment U.S.-made goods are more expensive. How much of a premium are customers willing to pay? NDC distributors are not unique in that they face increased pressure to provide quality products at competitive prices, especially given e-commerce price transparency. So where is the balance?
NDC works with many suppliers who manufacture products in the United States and several that purchased machinery during COVID to produce key products domestically, such as PPE. We support this shift in production and have helped them communicate their American-made offerings and advantages to our distributors.
As with consumer goods, I believe in the future there will continue to be buyers that are more priceconscious, for whom country-of-origin isn’t necessarily their top priority. But others will seek out goods that are produced domestically, knowing the product price may come at a premium.
Mark Henderson: We are seeing an increased demand for ‘Made in America’ products, especially PPE. For most customers, it is a desire to diversify sourcing and have an established domestic supply that can flex in situations when the globally sourced product becomes constrained. The additional cost of domestic products still seems to be a limitation to moving full categories, but the desire to build additional resiliency with domestic supply has increased significantly.
Repertoire: As a result of product shortages during the public health emergency, some PPE production has been shifted to the U.S. But what about other med/surg products, devices and equipment?
Laura Reline: For obvious reasons, there was a spotlight on PPE during the pandemic, and it is great that some production of masks and other PPE has shifted to the U.S. Having onshore or even near-shore production of other med/surg products would be welcomed, especially given current port and freight challenges. One of the continued concerns will be raw material availability. Even if the final product is made or assembled in the U.S, relying on imported raw materials does not help solve what is trying to be accomplished, that is, to gain better control of the supply chain in order to minimize potential future shortages.
Soumi Saha: Premier has been ringing the alarm bell on foreign manufacturing for years. We have spent more than a decade diversifying our portfolio. For more than a decade we have been talking about the critical nature of this issue for both pharmaceuticals and medical supplies, like PPE.
However, a lot depends on the regulatory process. PPE involves a relatively low degree of regulation, so moving production is easier. But medical devices involve more regulatory requirements. And pharmaceuticals are even more challenging. There’s also the time factor. Building a sterile facility to make infusion pumps, for example, is a three-to-five-year process. And you can’t build a pharmaceutical manufacturing facility overnight.
We also need to talk about committed purchasing. It’s one thing to bring manufacturing back to the U.S., but if no one is buying domestic products because of price, you won’t survive. At Premier, we have created committed purchasing programs in which hospitals commit to devoting a portion of their inventory to U.S.-made products for a certain number of years. Our partners include Prestige Ameritech, DeRoyal and Honeywell.
Made in America
Premier has also been advocating for a 30% tax credit for companies that invest in domestic manufacturing. That could help them get their facilities up and running, meet EPA requirements, etc.
Repertoire: Is “Made in America” realistic? What are the limits to how much production of healthcare supplies, devices and equipment can be brought back to the United States?
Laura Reline: It depends on a couple of factors. How cost-conscious are customers? Is buying American-made products a top priority for the office, health system or facility? The current administration has taken steps to support American manufacturing. In January, President Biden signed an executive order to launch a governmentwide initiative to increase the use of federal procurement to support American manufacturing.
At the end of July, the White House announced a proposed rule that aims to strengthen domestic supply chains for critical goods and increase the threshold for products to qualify as American-made, as part of the commitment to bolstering the number of products made in the U.S. Currently, 55% of the value of a product’s component parts must be manufactured in the U.S. to qualify. The proposed rule would raise that threshold to 60%, and then to 65% by 2024 and 75% by 2029. The rule would also extend enhanced price preferences to some critical products to support their development and expansion of domestic supply chains. The enhanced price preferences aim to provide a source of stable demand for domestically produced critical products, according to The Hill.
If the U.S. government continues to support these initiatives, then it will certainly assist efforts to bring manufacturing back to the United States.
Soumi Saha: Part of the challenge is that many of the raw materials used in medical products originate outside the United States. Prescription opioids, for example, are made from poppies, which are grown primarily in Afghanistan and Australia. Many computer chips are made in Asia. The same is true for many of the raw materials found in PPE. This is where our concept of developing near-shore partners comes into play. Our “All of the Americas” approach means we look to North, Central and South America for sources of supplies and products. Premier’s CEO Mike Alkire talks about what is needed to build a healthy supply chain – a combination of domestic, offshore and near-shore capabilities. What can we move on roads and railways, so we don’t need to rely on ocean vessels?
Linda Rouse O’Neill: HIDA supports expansion of domestic and near-shored manufacturing of critical products to augment global sources. Leveraging the strengths of each manufacturing location – U.S., regional and global – will result in the highest level of supply chain resilience at the lowest overall cost.
We recommend that the government use multiyear contracts and meaningful incentives to promote domestic manufacturing. Payment and trade policies can also be used to provide a consistent demand signal to the commercial market for long-term viability. Additionally, HIDA believes: ʯ The U.S. should have an idle manufacturing strategy to ensure that additional production lines can go live quickly during a crisis. ʯ Experienced companies should have priority to receive government support for on-shore production. ʯ A diversified global sourcing strategy is critical to reducing U.S. dependency on certain geographies and regions for key categories of medical supplies.
Mark Henderson: Manufacturing capabilities, cost of labor and access to raw materials could certainly limit the near-term movement of PPE to large-scale domestic
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Sources: 1 https://www.heart.org/en/health-topics/consumer-healthcare/what-is-cardiovascular-disease/african-americans-and-heart-disease-stroke 2 According to BIFMA standards, the 3rd percentile female popliteal (knee) height is 13.4” plus 1.2” shoe height
Made in America
manufacturing. That’s especially true in product categories like exam gloves, isolation gowns, etc. But if the demand is strong enough and there is a willingness to pay a premium, our manufacturing capabilities can rise to the challenge.
For some non-PPE products, we are seeing an increased demand for domestic products. However, we have not heard the same level of concern about domestic production of med device products, such as implantables or equipment, as we have with PPE and other medical supplies.
Repertoire: What other methods – beside domestic manufacturing – should be employed to prevent future shortages of healthcare products?
Linda Rouse O’Neill: It’s critical to build a bigger cushion of medical supplies to fulfill providers’ initial demand during a crisis, giving critical time to ramp up manufacturing. Providers’ first call for product is to their distributors, so product reserves should be dispersed at distribution warehouses across the country. We recommend that the federal government contract with or fund distributors to increase inventory levels for PPE and other critical supplies at their approximately 500 locations around the country. Distributors should be funded to carry up to 90 to 120 days’ supply of an agreed-upon critical supplies list. Distributors have the expertise and infrastructure to keep inventory current by monitoring expiration dates, rotating, and replenishing these buffer reserves as needed.
Laura Reline: A better Strategic National Stockpile (SNS) would certainly assist in preventing future shortages of critical healthcare products. Two major healthcare distributors have already been awarded contracts for PPE and COVID-related supplies to support the SNS. The SNS has also collaborated with HIDA to coordinate manufacturer and distributor efforts. This commitment and cooperation among all parties will enhance the availability of stockpiled product for future pandemics and disasters.
Soumi Saha: When it comes to stockpiling, a lot of the discussion is about on-hand quantities, and rightly so. Never during the pandemic did we have a firm grip on how much of a particular product category was on U.S. soil at any time, or where it was, specifically. We could have used that information to move product where it was most needed. As it was, when a manufacturer said, “I want to help,” we often didn’t know who needed that help the most.
But in addition to keeping track of on-hand quantities, we are also thinking in terms of “time in inventory.” It’s more of a “How do you ramp up for war?” scenario, or a virtual stockpile. In this case, you have a primary and second manufacturer contracted and ready to go when you say “go.” And you test the system periodically, as the federal government does.
Mark Henderson: I believe there will be a continued partnership between the government and private sector to build greater resiliency into the healthcare supply chain. This could include agreed-to stockpile programs for critical supplies. I see it as an active RFP/bid process or a fee-for-service program, as opposed to funding of all distributors to carry additional stockpiles. Creating stockpiles mitigates supply disruptions for a period of time, but it also creates risk and additional cost. Any efforts to help mitigate that risk will help support more action. Better visibility and communication among manufacturers, distributors and providers will also be key in reducing the need for stockpiles.
Repertoire: During HIDA’s Supply Chain Visibility Conference this summer, it was noted that some distributors are providing warehouse space and inventory management services to providers that want to expand their reserves. How widespread is this?
Mark Henderson: Concordance has been very active in working with providers to establish 3PL programs to allow them to purchase additional stockpiles of products and store them in Concordance facilities. These programs have played a critical role in ensuring the availability of much-needed supplies for providers that do not have the space and/or resources to accommodate them.
Made in America
Elizabeth Hilla: Many distributors are providing warehousing and inventory management services for providers that want to increase their reserves. These programs – sequestered inventories, pandemic reserves, etc. – aren’t new, but they are in much greater demand as organizations look to stockpile critical products without making enormous investments in infrastructure and expertise.
Laura Reline: We have definitely seen these offerings from NDC distributors. Typically regionally focused and acute-care-based, they enhance the traditional purchaseand-ship transaction. This is a huge benefit for health systems, as space for excess supplies is limited and expertise in inventory management is often lacking. Sometimes the inventory is consigned, meaning it is available but not paid for until needed. This helps the health system manage cash flow.
We also have had examples of distributors offering these services to healthcare facilities in remote areas. Large physician group practices, whose facilities are spread across the U.S., have also made use of it to consolidate inventory in one central location.
Repertoire: Recently, President Biden directed the Federal Maritime Commission and Surface Transportation Board to address consolidation and aggressive pricing practices among ocean shippers and railroads. From your perspective, does our country have some problems to work on related to ocean shippers, railroads and trucking firms?
Mark Henderson: Yes, the pandemic has exposed critical infrastructure issues related to the logistics of moving product from manufacturers to distributors. These challenges include cost increases for containers, delays at the ports, reliability and quality of carriers, access to labor, etc. We have seen a significant increase in delivery delays and damaged products to our distribution centers over the course of the pandemic. These problems can only be solved with strong collaboration, higher accountability and identification of the underlying breakdowns across all stakeholders.
Linda Rouse O’Neill: Challenges with shipping, port congestion, railroads and trucking are dramatically impacting the healthcare supply chain. Delays, rising costs and inconsistent delivery times can threaten suppliers’ ability to serve their healthcare customers. HIDA supports the development of programs and policies to prioritize transportation of critical medical supplies through the supply chain. In a pandemic, essential products like PPE should have priority access to port, rail, and truck transport. Creating a “fast pass” system to align ports, rails, trucking, and distribution centers so PPE in the U.S. is expedited in front of less critical cargo would help to ensure that healthcare providers have the products they need, even during an emergency.
Laura Reline: Inbound shipments from overseas have tripled in cost and many suppliers are experiencing double-digit increases from domestic freight carriers. Unfortunately, manufacturers and distributors cannot absorb these rising expenses and are often forced to raise product prices to offset the cost of transportation. In addition, there has been a shortage of truck drivers for many years, which can delay shipments and increase damage claims due to less experienced personnel. Our transportation and operations team works on a daily basis to mitigate these challenges.
GOJO Supports the Healthcare Sector with a Focus on Sustainable Value
By Dylan Beach, Sustainability Manager, GOJO Industries
Sustainability is a business imperative. The question that should be at the top of an organization’s mind is, how do we transition to an equitable, low carbon, circular economy? This is arguably the biggest business opportunity in history and refers to the three biggest trends in sustainability today. The companies that enable this transition and provide products and services that deliver a real social good will survive.
The healthcare sector can drive diversity, equity, and inclusion
The Diversity, Equity, and Inclusion movement in the U.S. continues to accelerate for many companies, including GOJO. We understand that sustainability is not just environmental, but also has interconnected social and economic elements. That’s why a low carbon, circular economy also needs to promote opportunities for people to bring their full and authentic selves to the work that they do.
According to the Bureau of Labor Statistics survey from 2020, the healthcare sector accounted for 12% of total U.S. employment1 and admitted 36,241,815 patients in 2019.2 In 2013, the average patient admission required $4,470 of supply expenses in U.S. hospitals.3 This sector can have a significant impact on promoting diversity, equity, and inclusion and suppliers to the sector can help in this effort.
In 2020, GOJO became certified by the Women’s Business Enterprise National Council (WBENC) as a Women’s Business Enterprise (WBE). Our WBENC certification is significant because GOJO can now help health systems achieve their supplier diversity goals and, in turn, formally demonstrate their commitment to fostering diversity and equity.
The healthcare sector can help transition to a low carbon future
The best science tells us that the world needs to reduce climate emissions by 50% by 2030 and become carbon neutral by 2050.4 The U.S. healthcare system has a role to play. It contributes an estimated 10% of the nation’s carbon emissions and 9% of harmful non-greenhouse air pollutants.5
Many health systems are adopting strong climate goals, such as the UK National Health System, Kaiser Permanente, and NYU Langone Health System. To seriously tackle carbon emissions, health systems will increasingly look at how to reduce select Scope 3 emissions (emissions from sources it does not directly own or control). A health system may ask its group purchasing organization to source low carbon products from
suppliers that can show evidence of carbon reduction.
Between 2010 and 2015, GOJO reduced its carbon intensity by 46% per product use, and from 2015 to 2020, we reduced carbon intensity by an additional 49% per product use. Furthering this goal, our Cradle to Cradle Certified® Gold PURELL®
hand sanitizers and soaps are manufactured with 50% renewable energy.
Circular design can help hospitals ease reliance on disposable plastic
Plastic use has grown exponentially since 1950. Approximately 40% of plastics are used to produce packaging, which is often single-use, meaning it is not designed to be refilled and has a life of less than 6 months.6 In hospitals, medical waste and singleuse plastics was already high, but the COVID-19 pandemic caused a surge in consumption.7 As we emerge from this pandemic, there is an opportunity to examine how health systems can reduce their reliance on disposable plastics, while of course addressing public health concerns regarding the spread of pathogens.
Circular design principles have been integrated into upcoming innovations in our pipeline, which will help our health system and distributor partners meet waste reduction and packaging sustainability goals. In the meantime, our breakthrough Energy-on-the-Refill Technology on the PURELL® ES8 dispensing system represents a 68% reduction in battery waste and a 15% reduction in greenhouse gas emissions8 when compared to leading touch-free systems on the market.9
Safe, then Circular
GOJO was founded in 1946 on a safer way to clean hands, and we carry that design ethos forward with us today. From 2015 to 2020, we have been advancing a sustainable chemistry strategy underpinned by two goals. First, to reduce chemicals of concern in our portfolio by 50% per product use and second, to double the percent of global sales from third-party certified products.
The NGO-led Chemical Footprint Project (CFP) began in 2014 with the mission to transform global chemical use by measuring and disclosing data on business progress to safer chemicals. Many healthcare organizations are signatories of the initiative, including Kaiser Permanente and Vizient. GOJO was a founding participant of CFP and the first company to declare a public, quantitative target to reduce chemicals of concern. Through CFP, we have publicly disclosed our progress since 2014, and at the end of 2020 we had reduced chemicals of concern in our portfolio by 64% per product use.
Third-party certifications make it easier to evaluate the health, safety, and environmental performance of products and help organizations buy green products with confidence. Significantly, certifications meet environmentally preferable purchasing guidelines of government contracts and green building standards such as LEED and WELL.
Some significant third-party certifiers in the infection control space are the Cradle to Cradle Certified™ Products Program, Ecologo and Green Seal. GOJO was the first company in our industry to certify a hand soap to a third-party standard in 2006 and a hand sanitizer in 2010. In 2020, many PURELL® products achieved Cradle to Cradle Certified™ Gold with a Platinum level Material Health rating, the highest material health rating possible. The Cradle to Cradle Certified™ Products Program is the world’s most advanced standard for safe, circular and responsible materials and products.
GOJO uses the Chemical Footprint Chemicals of High Concern list and third-party certification standards as minimum benchmarks for product development. We know that providing products that are increasingly safe, effective and good for you and the planet helps deliver on our GOJO Purpose of Saving Lives and Making Life Better through Well-being Solutions, while helping to meet the needs of our customers.
1 Bureau of Labor Statistics, State Occupational Employment Statistics Survey, May 2020. 2 Fast Facts on U.S. Hospitals, 2021. AHA Hospital Statistics. 3 Abdulsalam, Y. and E.S. Schneller. Hospital supply expenses: An important ingredient in health services research. Medical Care Research and
Review. 2017. 1–13. http://journals.sagepub.com/doi/10.1177/1077558717719928 4 IPCC, 2019: Summary for Policymakers. In: Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems. 5 Eckelman, M.J., and Sherman, J.D. Estimated Global Disease Burden From US Health Care Sector Greenhouse Gas Emissions. American Journal of
Public Health. 2018. 108: S120-S122. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5922190/ 6 Geyer, R. et al. Production, use, and fate of all plastics ever made. Science Advances. 2017. 3, 7. DOI: 10.1126/sciadv.1700782. 7 Silva, A. L., P., et. al. Increased plastic pollution due to COVID-19 pandemic: Challenges and recommendations. Chemical engineering journal. 2021. 405. https://doi.org/10.1016/j.cej.2020.126683. 8 Based on a 1200mL refill with an assumed usage rate of 2.35 refills per dispenser per year and a 6-year dispenser lifetime. 9 2017 Healthcare Sanitizer Market Sales provided by Definitive Healthcare, LLC.
