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July 22, 2017
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The Great Coordinator

Kaiser Permanente's Laurel Junk is leading the transformation of the health-care giant's operation from a group of locally autonomous sites to a centralized, professional supply chain organization with standardized roles and processes.
Laurel Junk

Laurel Junk, chief supply chain and procurement officer at Kaiser Permanente, the California-based health-care provider and not-for-profit health-care plan, presides over a sprawling, bicoastal supply chain. Kaiser Permanente currently serves nearly 12 million members across the country in California, Colorado, Georgia, Hawaii, Maryland, Oregon, Virginia, Washington, and the District of Columbia. Founded in 1945, the organization encompasses 38 hospitals, more than 660 medical offices, and more than 200,000 employees.

For years, supply chain decisions, technology, and operations were managed regionally or locally, a situation that continued as Kaiser Permanente acquired health-care providers beyond its home state of California. Moreover, as is common in medical environments, inventory control partly resided with individual doctors and nurses. Junk (pronounced "Yunk") saw a need for a first-class supply chain organization that would turn a highly decentralized operation into a cohesive, centralized whole. The goal was not just to reduce costs and improve efficiency, but to also help Kaiser Permanente provide better care to patients. That challenging and ambitious initiative, started almost five years ago, has exceeded its promised deliverables by a wide margin.

As chief supply chain and procurement officer, Junk leads the "Buy to Pay" process. In this role, she oversees sourcing, procurement, supplier relationship management, supplier diversity, supply chain sustainability, purchasing, supply chain management, logistics and warehousing, accounts payable, and travel and expenses for the integrated health-care organization. In 2015, she received a "Global Supply Chain Excellence Award" from the University of Southern California Marshall School of Business.

Supply Chain Quarterly Editor Toby Gooley spoke with Junk about her career path, using the supply chain to do good in the community, and Kaiser Permanente's supply chain transformation, including why the initiative was implemented, what it's achieved to date, and where it might go in the future.

NAME: Laurel Junk
TITLE: Chief supply chain and procurement officer
ORGANIZATION: Kaiser Permanente
EDUCATION: Bachelor of Science in computer science, University of Minnesota; Master of Business Administration in marketing and finance, Duke University
PREVIOUS EXPERIENCE: Eli Lilly & Co., Amgen, Johnson & Johnson, IVAC Medical Systems

How did you get involved in supply chain management?
I liked math and had a great math teacher in high school, and I've always liked technology, so I studied computer science as an undergrad at the University of Minnesota. In my first job I worked for Eli Lilly & Co. as a computer analyst. I quickly realized that I loved technology and analytics, but I enjoyed the business side much more, so I got an MBA at Duke University majoring in marketing and finance. Then I worked at a Lilly subsidiary doing market research and later finance. Eventually I got a general manager position for an acquisition and was tasked with integrating that into the company.

After that, I somewhat serendipitously ended up as head of materials management there. That's where I really learned to love what ultimately has become supply chain management. In supply chain you don't oversee anything end-to-end directly. With inventory, for example, you don't manage everything yourself; you have to work with marketing, finance, research and development, customer service, and so on. That's what I loved: bringing parts of an organization together to do something well. Whether you're in logistics or customer service or procurement, you have to like to work with people, and you have to be curious about how they all financially interrelate.

Has your educational background helped you in your supply chain career?
Having a computer science background is especially helpful in supply chain; technology is radically changing everything about supply chain management. Then there's marketing and finance; being able to talk the language and understand these perspectives allows you to be even more business-oriented in supply chain. Finance is one of the key languages of a company—how you quantify what you do and get people to understand what the impact is. Having those other perspectives and being able to bring it all together by being fluent in finance is really important, especially as you advance in your career to more and more responsibility.

You're involved in the supply chain coalition known as the Healthcare Transformation Group. What is that group's mission?
When I joined Kaiser Permanente as vice president, supply chain in 2009, it was my first time on the provider side of health care. I had always been in medical/pharmaceutical manufacturing, so I did what you would normally do when entering a new part of the industry: I made the rounds of various trade groups to understand what the issues were. I soon came to realize that there were a lot of issues facing health care where we needed someone to take the lead. An issue that was hot at the time was data standardization and GS1 standards adoption. Supply chain folks understand that being able to communicate across functions and external partners is critically important, but health care was one of the last industries to address that. Suppliers, distributors, health-care providers—we were all waiting for someone else to make a major move on data.

I thought that we, as health-care providers and the ultimate customers in the supply chain, could take the lead and wondered if we could bring some of the more progressive health-care systems together, would that help us get some breakthroughs on these issues. So I approached the head of supply chain at the Mayo Clinic, Intermountain Healthcare, Mercy, and Geisinger Health System and asked if they thought we might be stronger together. Thankfully they all said yes, let's work together. That was six years ago, and now the five of us and our teams get together to share what we're learning and to identify where we could make an impact.

One of our first subjects was data standardization under GS1 standards. We created an annual supplier summit, where we bring together our top 30 suppliers, many of whom work with all five of us. We push, cajole, and even penalize them—whatever it takes to get them to adopt GS1 standards like readable bar codes at the point of use. We are now moving into things like predictive analytics and AI (artificial intelligence), and looking at whether we can learn faster together and how we might improve contracting and other processes in our industry. We want to change, innovate, and disrupt—all in the spirit of driving higher-quality, more affordable care for our members.

One thing I really like about being a health-care provider is that there isn't the same kind of fierce competition supply chain-wise you might see in other industries; there's more collaboration because we have similar missions, goals, and cultures. We compete on care delivery.

What was the supply chain organization like when you joined Kaiser Permanente?
Previously there had been a vice president of supply chain, but the position was held by someone with a lot of other responsibilities. When I came in, I was the first supply chain executive who had a real supply chain background, and I was also the only national supply chain resource. I had two direct reports: one was the Northern California director of operations, and the other was the same for Southern California. They were responsible for regional support functions like the warehouses where patient records were stored. A true supply chain function should manage getting products and services to clinicians from start to finish, but few of the existing roles or processes focused on that. Much of the supply chain activity was happening in the clinical settings, largely by clinicians. There was no national oversight or coordination; supply chain management was very decentralized, and there were no reporting relationships to national. For example, many of the materials management directors at the individual medical centers rarely worked together with other directors, and pretty much never across regions. We had to change.

What does Kaiser Permanente's supply chain organization look like now?
We realized that we needed to change the organization and centralize it—really do a reset and create a full strategy. We also needed the company to recognize supply chain as a discipline and a profession, which was not the case before. So we developed a five-year plan that looked at organizational structure, process, metrics, and technology.

There were supply chain directors and supply chain managers at each site. Most had been at Kaiser Permanente for a long time. They were good, very dedicated people, but there had not been a lot of investment in their education and training in regard to supply chain. So we rewrote their job descriptions and made them all the same to start. Then we recruited talent into those roles and centralized their reporting. In California alone there were about 100 of those positions, and 80 to 85 percent of the people we hired came from outside Kaiser Permanente, and most of those were from outside health care, something historically not done.

We created a national team, including a head of demand planning and of inventory management. Kaiser Permanente had never managed inventory centrally before. We connected all the sites and their inventory together and brought in a head of supply chain operations. All supply chain directors now report to that position. We brought in a head of warehousing and logistics. We had over 1,000 vehicles, and now for the first time we could move inventory from one site to another. We also developed and implemented standard processes for activities like receiving, ordering, and cycle counting, and we standardized those across all sites.

We started with four "proof of concept" sites. Knowing that everyone did everything a little differently, we picked two in Northern California and two in Southern California and said we're going to define standardized processes. They had never really talked to each other before. They defined what their existing processes were, and then we set up metrics for things like inventory reduction. When we standardized their processes, we blew those measures out of the water. The improvement in service levels, cycle time, and inventory reduction gave us credibility with leadership.

We have now done that across all sites in California. By the end of this year we will have a centralized supply chain organization in all regions, and we'll have standardized what they do. That includes technology; we now have a single instance ERP (enterprise resource planning) system—we used to have seven or eight—and we have a single item master. Our electronic medical record system is now integrated with our ERP system, so clinicians scan items as they use them, connecting usage with patients and outcomes. We then use the product usage to manage our inventories by statistically setting our safety-stock levels and decrementing actual inventory. What we are building is an overall national shared service that encompasses the execution of what we call "buy to pay"— everything from sourcing to supply chain execution and all the way to accounts payable.

We now have almost 2,700 people in the supply chain organization, and we are growing. We are still educating people internally about what supply chain management is. And we're still trying to change the old beliefs that it's just ordering—people would think, how difficult is that?—and that supply chain professionals are just people who bring you stuff. We do so much more.

Were there barriers you had to overcome to get the supply chain organization where it is today?
In any transformation, most of the barriers are rooted in the company's culture. Culture doesn't change in a year or even five. We've made some major shifts for sure; as you bring new people in, it takes time for the old ways of thinking to fully change and for folks to give up control they were used to having.

One of the biggest barriers involved inventory. Clinicians at the sites thought, I'll just take care of it myself. They were ordering products, and safety stocks were being set by nurses. Our research found that they were spending 15 to 40 percent of their time doing what I call "hunting and gathering" for supplies. We had to take that back and convince them that they would get reliability and accountability from us in exchange. In the past they couldn't always count on that, so they were hoarding and stuff was stored everywhere. I believed we needed to own the supply chain from the point of care all the way back to our suppliers in order to make sure clinicians always have what they need. They should not have to worry about that. If it's not available, that should be our problem. But for them to give that control back, we had to build credibility. We explained that other industries do this all the time, and we brought in experts from those industries. I think that has made a real difference.

Our challenges now are more about wanting to do more, especially in advanced analytics to support care variation reductions and to really bring positive impact wherever we can, even directly into the communities we serve.

What were some of the human resources implications of the initiative?
The supply chain organization needs to support the company's priorities and create the most value for the company. So it was imperative that we get all local, regional, and national supply chain leaders to see themselves as business leaders. That's what we hired for: we have to be engaged in the business of that medical center, and we have to support Kaiser Permanente's mission to provide high-quality, affordable health-care services and improve the health of our members and the communities we serve.

So, we brought in good people who know supply chain management and know how to work in a supply chain organization, but also passionately believe in the mission of Kaiser Permanente. In particular, we hire for three things. First, we want the passion—about what they do and about Kaiser Permanente's mission. What we look for is intellectual curiosity. We want people who focus not just on what they're doing right now but who also are constantly looking at how we can apply new ideas and innovations to health care. Second, we need people who are persistent. It's not easy to change things, and you have to persist in moving forward because you believe in the value of what you're doing and won't take "no" for an answer. And finally, we hire for patience. Sometimes the difference between moving an idea ahead or not is just timing. You can't give up on a good idea, but sometimes you have to wait for the right moment for it to be accepted.

Now the real challenge is to retain all these great people. The competition for supply chain talent is fierce in health care. It's not easy to attract the right talent, but we believe it's absolutely critical to our long-term success.

What do you consider to be the "new and improved" supply chain organization's most important achievements so far?
The biggest is that we are on track to triple the return we committed to in our five-year business plan, showing the credibility and value of supply chain management and getting it recognized as a profession. Our service levels have gone up, and we have given nurses and physicians more time to spend on care and education. We have shown that there is true value in investing in supply chain professionals, and we've demonstrated the critical role supply chain can play in support of the company's overall mission. The whole transformation has been challenging, but I believe we did the right things.

What we are setting our eyes on now is real innovation. Under the leadership of our CEO, Bernard Tyson, we invest billions of dollars a year in community health. Our target goal is for all functions to bring the $70 billion power of Kaiser Permanente to bear on the question of how to address a community's total health, including social and economic. We in supply chain are being held out as a leader in this space. That wouldn't have happened five years ago when we were just doing tactical things. Our success is opening a lot of strategic doors for us. We're being seen as more of a strategic asset now, and not simply as order takers and box movers. We believe we can be very intentional in our spend, particularly where it lands, to bring more jobs to communities who need them most.

What are some objectives you hope to achieve in the future?
Our overall industry is ripe for disruptive change. I think next the next five to 10 years could be amazing, and we need to change. Health care is not affordable for the average person and is too complicated. I believe that is going to change with us or without us. We have people with outside experience who look at what other industries are doing and are seriously thinking about how we can apply those concepts to health care. For example, AI is just starting to be applied in our industry. Think of the kind of change that could drive! We have tons of data, but we haven't figured out how to make the right connections.

We're now collecting a lot of product usage information along with other information that we want to link to clinical outcomes. By using inventory data, we can show what products and supplies Dr. A is using and what Dr. B is using, and then compare Dr. A's and Dr. B's costs and care outcomes. We think that with this information we can have a beneficial impact on the quality of care as well as on cost. We're really getting that flywheel going now. I think that's where the real value is going to come from—it will be based on reducing unwarranted variability that we'll achieve through the power of predictive analytics. That will allow us to find patterns we would probably never see otherwise, not just in terms of care but also in the logistics of when and how our products get to where they need to be.

Another area we're thinking about is how technology and consumerism is pushing more health care to the home. I think we in supply chain can be an accelerator behind that.

We're excited about being able to help doctors improve care in other ways. When you look at all determinants of an individual's health, you see that the actual care they get in a medical center is just a small percentage of the overall determinants, and that many other factors affect your ability to be healthy. Your five-digit ZIP code is a better predictor of health than your entire genetic code right now! Where you live, whether you have access to healthy food and a safe place to exercise, and whether you can get a job or not are big indicators of how healthy you might be. Just short distances between communities can mean life expectancies can differ tremendously, even when the same medical center is supporting those patients. Income insecurity is the biggest issue we repeatedly hear about when we ask our members about the challenges facing their health. So we're now thinking about whether we can take some of Kaiser Permanente's $20 billion annual spend and be much more intentional about where that spend lands. Can we work with more minority suppliers and create more jobs in those areas that need it most?

I recently held a number of CPO (chief purchasing officer) summits and asked, what if we collectively put our purchasing power together so we can support more jobs and economic growth in communities that need it? We have tools now that can help estimate the economic impact, in terms of job creation and tax revenue increases. We all have a desire to support small and diverse suppliers, but then we make it hard for them to do business with us by doing things like requiring them to get certified, provide all kinds of information, and have information systems in place that create a burden for them just to get paid. I wondered if we could work together to create some sort of shared infrastructure; for example, could we get to a standardized certification process that we would all use, so these suppliers don't have to go through 20 different certification processes? Is there a way to establish a clearinghouse to pay them faster, so they're not having to deal with each big organization directly?

These issues are all connected. If we can help support the creation of more jobs, it helps the small business engine that affects the overall health of the U.S. economy. If they thrive, that will create more purchasers of products and services. And if we can help reduce the cost of health care, that creates more economic stability for those purchasers. We're focusing our efforts to try to figure this out in four cities right now: Baltimore, Atlanta, Los Angeles, and Oakland. It won't be easy. How do we do this on a small enough scale that we can track and measure it, and create something that's financially valid so we can prove that it makes a difference? A significant number of companies in those communities, along with a myriad of community leaders, are truly willing to engage and figure out some of these things.

You consider yourself to be a business leader, not just a supply chain executive. Did that require a change in your thinking about your role?
That has always been who I am. I love supply chain because I get excited about how we can support what the business does, but this is not about building a supply chain "empire." It's about using the power of supply chain management to get the maximum benefit for the entire company, and in our case, the absolute maximum benefit for our members and the communities we serve.

Toby Gooley is Editor of CSCMP's Supply Chain Quarterly.

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