Meet the Healthcare Supply Chain Top 25 for 2011. Value chain leadership, in a range of foundational and collaborative capabilities, has allowed these organizations to make great strides in enabling high-quality patient care at optimal economic cost.
Gartner unveils the third annual Healthcare Supply Chain Top 25. Similar to our previous publications, this research focuses on the healthcare value chain's pursuit of high-quality patient care at optimal economic cost. We remained consistent with last year's methodology to produce a Top 25 ranking for 2011 that strives to identify organizations that use their supply chains to improve the patient care experience.
Cardinal Health unseats Owens & Minor in the No. 1 slot, with commendable financials, and tremendous peer and solid analyst recognition.
In the top five every year of the ranking, Mercy, which is supported by its supply chain division ROi, moves up one from last year to take the No. 2 spot.
BD, Mayo Clinic and Owens & Minor round out the top five, respectively.
Competition between life science manufacturers tightened this year, with the segment, as a whole, improving its inventory performance.
Three new health systems broke onto the list, giving us our largest number to date (eight total): Cleveland Clinic, UPMC and Kaiser Permanente.
All five members of the newly formed Healthcare Transformation Group (Geisinger, Kaiser Permanente, Intermountain Healthcare, Mayo Foundation and Mercy) made the list, due to strong peer scores reflective of their collective leadership in driving standardization across the value chain.
Overall, the industry is rewarding the organizations that it feels are working most collaboratively toward common goals in care and cost improvement.
Ensure that you have all the foundational supply chain capabilities in place to effectively position your supply chain for success in driving more collaborative opportunities with key trading partners.
Seek out trading partners that have the supply chain competencies and internal leadership capabilities to support these collaborative and oftentimes inefficiency-reducing opportunities.
Build a supply chain vision and strategy that connects your current and aspirational supply chain capabilities to the pursuit of high-quality, cost-effective patient care. Moreover, develop a practical road map that establishes a realistic execution plan to achieve this vision.
Ensure that your organization can sustain the journey to more patient-centric value chain strategies by establishing the execution discipline and governance to maintain consistent momentum for your change initiatives.
Wherever you sit in the value chain, begin to collect and assess data on how your customers experience your supply chain, and map out and categorize any process disconnections.
Table of Contents
- Inside the Numbers
A Time for Leaders
- The Healthcare Supply Chain Top 25 Methodology
- Figure 1. Healthcare Value Chain Capabilities Model
- Figure 2. Peer Opinion Panel Composition: Value Chain Segment
- Figure 3. Peer Opinion Panel Composition: Role
- Figure 4. Peer Opinion Panel Composition: Revenue
This document was revised on 9 August 2012. The document you are viewing is the corrected version. For more information, see the Corrections page on gartner.com.
Is the healthcare industry different than other industries? This is a debate we often have with individuals who are passionate about both supply chain and healthcare. While we often caution against using "uniqueness" as an argument against making fundamental supply chain improvements, the truth is that the healthcare industry does have unique aspects. Losing sight of the customer, in most industries, results in frustrated "tweets," and blog posts about a product or service that may lead to lost sales opportunities. Losing sight of the patient, however, can reduce the quality of life for particular patients and, in the worst case, can lead to the loss of life. Moreover, the political, economical, personal and oftentimes moral barbwire lacing through nearly all discussions about improving care and reducing costs testifies to healthcare's different playing field. Healthcare certainly can — and must — learn from other industries, but it is not like other industries.
The Healthcare Supply Chain Top 25 ranking has been Gartner's mechanism to recognize excellence in the healthcare value chain, and the role it plays in enabling cost and quality enhancements in healthcare. This year, we see commonality between the strategies that supply chain organizations from across the different segments are pursuing. Supply chain and customer segmentation, working capital optimization, resiliency, talent management, standardization (both data and processes) and, of course, collaboration are mentioned in nearly every strategic supply chain document we've reviewed. Healthcare can learn about these capabilities from other industries, but ensuring success in execution depends on the experience and expertise of leadership within the industry. The Healthcare Supply Chain Top 25 recognizes the organizations that the industry confidently feels can execute against these strategies, while improving the quality and cost of healthcare.
For several years, Gartner has advocated the importance of joint value creation as the force that can lead to the adoption of "patient-based moments of truth" and a more cost-effective, quality-driven value chain. Although this messaging is sometimes met with skepticism by practitioners who struggle to quantify the benefits of joint value creation, our ranking also highlights the leaders pursuing these goals and reaping the benefits from them. Analyzing our list this year, we see a ranking that demonstrates the importance of maintaining focus on both internal and external collaboration as the vehicle to drive industrywide change. Here, the leaders are persistent in applying smart and thoughtful pressure to persuade their organizations to adopt processes and metrics that will ultimately lead to cost and quality enhancements for the patient. Leaders are continually findings way to innovate and collaborate to define the future for an industry that lacks the heft of a Wal-Mart Stores (see Table 1).
Source: Gartner (November 2011)
Cardinal Health has captured the No. 1 spot this year. A complex combination of connected businesses, it combines the varied strengths of a medical-surgical distributor, a pharmaceutical wholesaler and a large manufacturer. Its financials, relative to peers, remain impressive, even though its return on assets (ROA) dropped this year and its inventory turn performance remained essentially the same. Cardinal Health made enormous gains in the opinion component of the poll, a reflection of the credibility it has established with healthcare providers, manufacturers and the analyst community. It has the closest thing to a "one-stop shop" in serving providers, and gets credit for having a unique ability to support its trading partners. Additionally, Cardinal Health's recent move into China sends a compelling signal to its manufacturing partners, leaving the door open to more global opportunities for collaboration.
Mercy (No. 2) has moved up one spot from last year on the strength of its opinion score, and remains the highest-ranked health system for the third year in a row. Mercy's laserlike focus on supply chain excellence, as well as the credibility it has achieved with its clinical and business leadership, is admirable by any industry's standards. In June 2011, Mercy lost a 273-bed hospital in Joplin, Missouri, to an F5 tornado. Within one week, it had sourced and opened a temporary 60-bed hospital to support the critical healthcare needs of the surrounding population. Mercy passed this test of resiliency, showing that an investment in supply chain capabilities and talent provides a buffer against daily challenges and potential disasters, too. Mercy's respect in the industry overcame a relatively low-quality-of-care score compared to its peers in the Top 25. We expect to see this number systematically rise as Mercy implements initiatives such as its new value analysis approach, which filters all decisions through a chief quality officer.
BD (No. 3) moved into the top five for the first time in our ranking. Consistent financial performance in ROA and inventory turns, along with a strong surge in peer recognition, particularly from healthcare providers, fueled its move up the ladder. BD continues to do pioneering work with trading partners to create end-to-end visibility, with the goal of harnessing this visibility to make profitable trade-off decisions. Its capabilities in data standards, supply chain sustainability, supply chain talent development and management, and understanding the trade-offs in driving toward perfect orders have helped drive BD to the top of our ranking. Its supply chain team is pursuing all opportunities to understand the supply chain needs of its health system customers by attending and actively contributing to wider industry forums.
Mayo Foundation (No. 4) moved up from No. 8 in last year's ranking on the strength of its quantitative metrics, as well as a large increase in recognition from peers and the analyst community. Mayo continues to relentlessly focus on supply chain excellence and standardization across all its facilities. Additionally, it's developing a robust supplier management process to track and evaluate the relationship it has with key suppliers. Since its move from decentralized operations to a fully integrated shared service for the enterprise across five states, Mayo's supply chain credibility has only increased, and it's now a core component for any due diligence efforts for merger and acquisition (M&A) activity or joint partnerships with other providers looking to leverage Mayo's capabilities. Mayo's sustained leadership with the Upper Midwest Consolidated Service Center continues to pay dividends as well: It's a nationally recognized model for regional contracting efforts.
Owens & Minor (No. 5) rounds out the top five of our ranking. Loss of the top spot is driven more by the relative strength of the four companies before it than any specific weakness at Owens & Minor. Its drop can be primarily attributed to a slight decrease in inventory turns and a larger drop in peer recognition during the previous year. However, recognition from analysts increased over the prior year. Owens & Minor continues to pioneer new distribution options for medical device manufacturers, such as its pilot in the Northwest with Cook Medical. Owens & Minor has also been building a larger consulting practice during the past few years to add value to its customers in ways outside pure distribution.
Johnson & Johnson takes the No. 6 slot this year. It's in the midst of fundamental supply chain transformation, involving closer integration across all three of its business sectors, and has a strong supply chain vision in place. The quality and compliance issues of its consumer business continues to stress the organization, but its healthcare value chain peers still recognize Johnson & Johnson as having a commendable supply chain that continues to drive internal excellence and external value chain collaboration. Johnson & Johnson's financial performance remained similar to last year, even as its peer recognition dropped slightly. However, its analyst recognition continues to be very strong, based on the common platform it is developing for product supply and governance.
Intermountain Healthcare (No. 7) has maintained its spot from last year in the top 10, and it continues to leverage supply chain as a key differentiator for its system. It improved its quantitative measures and peer recognition. Intermountain Healthcare is one of only a few health systems that have hired talent from other industries, and, in doing so, it has changed the culture and expanded the scope of its supply chain to include most functional departments. Intermountain Healthcare has also broken ground on the largest and most ambitious consolidated service center we are aware of, with a project cost of $40 million. This new facility will serve its segmented markets of acute, medical office, and homecare under one roof, and will include many services outside the traditional responsibilities of a distribution center.
Abbott (No. 8) broke into the top 10 with the highest peer vote score of any organization in our ranking. In particular, Abbott did exceptionally well with healthcare systems: A total of eight health systems voted Abbott into the top five, which is a testament to efficient management of the supply chains within its diagnostics business. Abbott's sales and operations planning (S&OP) process continues to impress, and it has made great progress building from its voice of the customer initiative to understand the supply chain and product needs of its primary customers and patients.
Novartis came in at No. 9 this year. Although its ROA performance dropped, peer recognition and inventory turns improved over last year. Moreover, the analyst community at Gartner continues to recognize Novartis as a life science leader in implementing a patient-driven supply chain strategy. Its Drive for 5 initiative, which is a multipronged set of initiatives to reduce inventory to five months on hand through six interconnected work streams, is a model for the industry. It received the highest vote total from Gartner analysts, due to the strength of its S&OP process and the commitment of senior leadership to sustaining the transformation of its product supply organization. Novartis continues to be the gold standard in an industry that struggles with change management initiatives.
Geisinger (No. 10) has moved up dramatically this year, based on improvements across all components of the ranking. Geisinger continues to mature in its position as a hybrid payer/provider organization, and is respected across the industry for its goal of integrating supply chain into the patient care life cycle. Its supply chain is at the forefront of reducing variation in processes and product selection across all elements of its health system, from clinical to supply and logistics management. Additionally, Geisinger was the winner of this year's Association for Healthcare Resource & Materials Management's (AHRMM) Healthcare Supply Chain Innovation award for its work in balancing patient care with cost.
Cleveland Clinic (No. 11) returned to the Top 25 ranking after falling off in 2010. It skyrocketed back up the ranking due to increased recognition from peers, as well as stronger quantitative scores. Cleveland Clinic has excelled in many areas, and has generously shared its journey with the industry in 2011. Major improvements have come in procure to pay and in its physician preference item selection process, which was led by the physicians themselves and enabled by supply chain.
AmerisourceBergen (No. 12) moved up one notch, based on its continued dominance in inventory turn performance, as well as a generous increase in peer recognition, due to its management of traditional pharmaceutical and specialty product supply chains.
Boston Scientific (No. 13) jumped three spots this year, based on a significant increase in peer recognition. Even as it struggles to improve its ROA number, Boston Scientific is one of a few medical device manufacturers committed to collaborating with its trading partners, while continuing to have some of the strongest operational excellence capabilities in the industry. Additionally, supply chain at Boston Scientific has been recognized by its commercial organization as a competitive differentiator, rather than just a mechanism to reduce cost and maintain quality. Additionally, its supply chain executives remain heavily involved in wider industry forums that focus on its health system customers.
McKesson came in at No. 14 this year. Another complex business that includes pharmaceutical wholesaling, medical product distribution to physician offices and a large IT business, McKesson's value is different, depending on which constituents it supports. Its purchase of US Oncology has driven the organization closer to the patient in one growing area of its business. In others areas, McKesson is looking for ways to help the overall healthcare value chain by enabling better medication adherence by patients, which, consequently, should improve care and reduce costs overall.
Bristol-Myers Squibb rounds off the middle of our ranking, as it rose dramatically to capture the No. 15 spot. It continues to manage the complex transition from traditional small molecule to large molecule supply chains by integrating supply chain and technology architectures. Bristol-Myers Squibb remains laser-focused on supply chain performance management, as well as on improving its S&OP process and product launch capabilities.
One health system, a retail pharmacy, and three biopharmaceutical manufacturers make up No. 16 to No. 20 of our ranking. BJC Healthcare (No. 16) has quantitative scores near the top in both of the metrics that we measure, and continues to receive strong recognition by its peers for its willingness to collaborate with trading partners to eliminate supply chain inefficiencies. CVS Caremark (No. 17) is the only retail pharmacy to place on the Top 25 this year. Although it experienced a drop in inventory turns and analyst opinion, its peer opinion rose, reflecting increased credibility with its trading partners, based on its utilization and sharing of demand information with pharmaceutical suppliers. Baxter (No. 18) is new to our list, earning its spot by improving the opinion component of the score. At No. 19, Pfizer is building innovative capabilities to serve emerging markets, and is focused on improving its ability to share best practices among its thousands of supply chain practitioners. AstraZeneca (No. 20) is continuing to build from its foundational supply chain capabilities to create a more patient-focused supply organization.
The last segment of our ranking is composed of two health systems and three manufacturers. UPMC (No. 21) is a rising star in the health system world. Its leadership brought in experienced supply chain talent from outside the industry to transform its supply chain. UPMC is driving innovative supply chain segmentation strategies and large-scale value analysis processes, which should allow the organization to continue to succeed. Alcon (No. 22) delivered the second-highest ROA out of any organization on the Top 25. It's in the midst of integrating its portfolio of eye care products into the Novartis organization, and, therefore, will no longer be eligible for the ranking, since it will not publish separate financial statements in the future. GlaxoSmithKline (No. 23) lost ground in the ranking this year, but is poised for success as it continues to drive working capital efforts and implement a more integrated, end-to-end supply chain. Amgen (No. 24) continues to receive strong peer and analyst recognition for its management of long cycle time manufacturing processes and its exploration of different distribution models. Lastly, Kaiser Permanente finishes off the list at No. 25, with strong peer recognition. It's recognized for its leadership with the Healthcare Transformation Group, along with improvements in the quality-of-care component of the score, which is consistent with the supply chain organization's alignment with its medical staff.
For the Healthcare Supply Chain Top 25 for 2011, we maintained our model for value in healthcare, which means high-quality patient care at optimal cost, driven by the following core set of capabilities:
Source: Gartner (November 2011)
Patient focus — An "outside-in" focus on patient outcomes and "patient-back" strategies impacts all strategies, from product development to partner collaboration.
Collaboration — Trading partners must enter into sustainable, collaborative relationships with a shared vision and transparent set of mutual goals to create win-win situations.
Network visibility — Trading partners must create bidirectional visibility to key information, such as inventory, demand, compliance and outcomes.
Dynamic supply — Because high-quality outcomes aren't static targets, all organizations must create agile, value-added supply chain responses tailored to multiple customer and channel segments.
Change management — Value in healthcare is a journey, and organizations must have the vision, strategy, execution discipline, and strong governance to sustain change.
Foundational excellence — To drive toward higher-level capabilities, organizations need to optimize their operational excellence and business process harmonization initiatives. Moreover, they need to ensure that their systems are capable of supplying credible data on which to build business cases for the development of higher-level capabilities.
The organizations that received the most recognition have established a strong and credible foundation, have an innovative vision for future success, or are already pursuing and realizing benefits from collaborative initiatives with trading partners. Although our model cannot ensure success in execution, the industry overall recognizes that the path toward a future healthcare system, one that is cost-efficient and focused on patient outcomes, is based on the principles captured in our model. Wherever a company sits in the value chain, and wherever one falls on this year's ranking, this model can be used to frame and set parameters to supply chain goals. At the same time, it will be important to create leaders with the skill sets most conducive to executing against initiatives that involve an end-to-end understanding of processes and can look at their supply chain from the perspective of their customers.
Consistent with our Top 25 research methodologies, the Healthcare Supply Chain Top 25 ranking is derived from two main analyses: quantitative measures and opinion. Quantitative measures provide a view into how companies have performed in the past, and establish proxy connections between financial health, performance, and supply chain excellence. The opinion component offers an eye to supply chain leadership and demonstrated value chain collaboration — crucial characteristics of our Top 25 ranking. These two components are combined into a total composite score.
Health systems have vastly different operating models. Access to common, public financial data is not easily captured, compared to publicly traded manufacturers, distributors and pharmacies. Therefore, we utilized different assessment methodologies for these two major segments of the healthcare value chain.
The first step in our Top 25 methodology was to identify a population of companies to include in the analysis. Consistent with last year's methodology, we derived a 2011 master list of manufacturers, distributors/wholesalers and retail pharmacies from a combination of sources. Compared to the methodology for our global cross-industry Supply Chain Top 25, we decreased the annual revenue thresholds required for inclusion to ensure that we cast as wide a net as possible. However, one factor remained constant: All companies must publish audited financials specific to a healthcare business to be included in the Healthcare Supply Chain Top 25.
The second step in our methodology was to determine the quantitative measures to utilize in our analysis. Consistent with last year's methodology, we utilized ROA and inventory turns for operating and supply chain effectiveness, respectively. Publicly available, audited financial data was collected for each company for the years 2008 through 2010. This data was used to calculate a three-year weighted average for ROA and a 2010 end-of-year measure of inventory turns.
The third step in our methodology was to determine the weighting applied to the quantitative measures versus the opinion score. We strongly believe that the collective wisdom of the healthcare crowd points the way to supply chain excellence and successful trading partner collaboration. We also believe that repeated, bidirectional and genuine collaboration between trading partners is a crucial ingredient to achieving value in healthcare. So, consistent with last year's methodology, we applied a 40% weighting to the quantitative measures and a 60% weighting to the opinion score.
In 2010, we made some significant improvements to the methodology used to select and rank health systems. We were pleased with these improvements. As a result, we kept the primary components of our methodology in place for 2011.
To review, our list of eligible health systems was developed based on two factors. Since there are 280 health systems in the U.S., we chose to down-select health systems, utilizing one main criterion consistent with our overarching goal for the healthcare supply chain: quality of patient care.
As we did last year, we partnered with Thomson Reuters on two components of the process: to determine a meaningful group of health systems to analyze, and to determine a quality-of-care score for the health systems.
Thomson Reuters has collected quantifiable public data in 10 key areas of patient care for the last 19 years. The results are published in its 100 Top Hospitals report on patient care. This percentile score is based on publicly available data across 10 measurements of patient care performance, including mortality, complications, patient safety, core measures, 30-day patient readmits, 30-day mortality, average length of stay (ALOS), expense, operating profit margin and Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS).
As previously mentioned, we used the Thomson Reuters report for two purposes. First, we used Thomson Reuters' Top Quintile list of health systems as the base population eligible for our ranking. To be consistent with our previous Top 25 rankings, we added in 12 systems that scored high in the peer and analyst voting during "The Healthcare Supply Chain Top 25 for 2010." Second, we used the percentile score from the 10 Top Health Systems report from Thomson Reuters to develop a force-ranked score for the quality of patient care for each hospital system.
As we did last year, we chose bond rating as a proxy for operational efficiency at the health system level. Although a bond rating is not a perfect proxy of operational efficiency, it does reflect the financial discipline and management effectiveness of a health system. We used ratings from Standard & Poor's (S&P), Moody's and Fitch to develop an aggregate bond-rating composite score. For consistency purposes, we mapped all bond ratings to the S&P scale, which is reflected in Table 1.
In 2010, we showed the combined bond rating and Thomson Reuters score in Table 1, but decided to show more granular data this year to create more visibility to our process and methodology. We believe that supply chain influences patient care, and that quality of care should be reflected in our ranking of health systems this year.
The last step in our health system methodology was to decide how to balance our quantitative measures and opinion scores. To maintain consistency with last year's methodology, we applied a 30% weighting to the quantitative measures and a 70% weighting to the opinion score. Here, once again, the wisdom of the collective healthcare crowd should prevail.
The goal of the opinion component is to draw on the extensive knowledge of the professionals who interact and have direct experience with the organizations being ranked. Any supply chain leader from a manufacturer, distributor, pharmacy or health system is eligible to vote. However, only one vote is accepted per company.
This year, we received peer votes from 60 supply chain leaders, a 13% increase over last year. Voters came from the most senior levels of supply chain organizations from across the value chain. The voting composition was more balanced between manufacturers and providers, with 25 manufacturers and 23 providers casting votes. The other 20% of votes came from distributors and third-party logistics (3PL) providers, contract manufacturing organizations and suppliers, and external industry experts.
There were also 15 Gartner analysts representing various industry and functional specialties that cast an analyst opinion vote. Each of these analysts drew on his or her primary field research and work with healthcare value chain companies when casting a vote.
Source: Gartner (November 2011)
Source: Gartner (November 2011)
Source: Gartner (November 2011)
Peer panel polling was conducted during late September 2011 and October 2011 via a Web-based, structured voting process identical to previous years. Voters were taken through a four-page system to identify their final selection of leaders.
Here's a breakdown of the four-page system:
The first page provided instructions and a description of our model for value in healthcare. Specifically, they were asked to consider the following:
Which organizations are developing and implementing strategies to support the delivery of high-quality patient care at optimal costs?
Which organizations are building and implementing foundational supply chain capabilities for the consistent, efficient and effective delivery of goods and services?
The second page solicited demographic information from voters.
The third page provided panelists with a complete list of the organizations to be considered. We asked them to choose 30 to 50 that, in their opinion, most closely achieved the ideal of value in healthcare.
After the subset of leaders was chosen, the panelists were then asked to force-rank the companies from No. 1 to No. 25.
Individual votes were tallied across the entire panel, with 25 points earned for a No. 1 ranking, 24 points for a No. 2 ranking and so on. The analyst panel and the peer panel used the exact same polling procedure.
By definition, each person's expertise is deep in some areas and limited in others. Despite that, voters weren't expected to conduct external research to place their votes. The polling system is designed to accommodate differences in knowledge, relying on what author James Surowiecki calls the "wisdom of crowds" to provide the mechanism that taps into each person's core kernel of knowledge and aggregates it into a larger whole.
All this information — that is, the quantitative measures and opinion votes — is normalized onto a 10-point scale and then aggregated using the aforementioned weighting into a total composite score. The composite scores are then sorted in descending order to arrive at the final Top 25 ranking.
Gartner recognizes the role of the Healthcare Supply Chain Top 25 in highlighting excellence across the entire value chain. We will continue to provide a platform for demonstrating the importance of supply chain in optimizing patient care and costs. Our goal is to ensure that innovative companies are driven to stay on top and that contenders will strive to improve. The real rewards of our ranking involve the collaboration and transformation that happens by pioneers driven to change the industry. We applaud the Healthcare Supply Chain Top 25 for 2011, and look forward to a future of continued and accelerating innovation in our industry.
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