The Post-EHCR Supply Chain

Edition: October 2001 - Vol 9 Number 10
Article#: 1089
Author: Lynn James Everard, C.P.M., A.P.P. Contributing Ed

Recently, the Association for Healthcare Resource & Materials Management (AHRMM) reported that the organizations who co-founded EHCR™ (Efficient Healthcare Consumer Response) announced that they had voted to discontinue further operations. Those organizations include AHRMM, Health Industry Distributors Association (HIDA), Healthcare Distribution Management Association (formerly the National Wholesale Druggists' Association), Health Industry Business Communications Council, Laboratory Products Association, and Uniform Code Council.

The announcement went on to say that the founders felt that since they had identified the savings potential of streamlining the supply chain, EHCR had achieved its intended purpose. The associations stated that they had resolved to work collaboratively and with their members and constituents to facilitate progress toward achieving the savings EHCR identified.

So now that EHCR has been seemingly officially relegated to the back burner, it is time to evaluate what it accomplished, what it did not, and what might be next in efforts to bring efficiency to the health care supply chain.

Raised Industry's Awareness

From a broad industry perspective perhaps the greatest value of EHCR was to identify what might be the most quoted statistic in the history of the health care supply chain: the $11 billion dollar efficiency savings opportunity. Unfortunately, actually saving those dollars has been elusive at best. They have been sighted (and cited) more times than Elvis with only slightly better results in delivering some kind of proof. Dozens of dot.coms left the gate taking credit for producing the long-sought-after $11 billion in savings only to find that their efforts to make that savings a reality were just as futile as their efforts to create a value proposition for their e-commerce offerings.

Many people devoted a great deal of time and effort advancing the EHCR agenda. One of these, Suzanne Lord, a member of the EHCR Strategic Operating Committee and currently working with Metametrics in the area of business development, provides her perspective. ''EHCR created industry awareness for the first time that there are definite problems and challenges that need to be addressed.''

Such a large undertaking brought with it enormous challenges, some of which certainly slowed the initiative's progress, she says. ''People counted on the initial momentum to carry it through to completion. It needed constant participation of all groups to make it truly successful. Interest and involvement ebbed and flowed.'' Given the fact that all of the participants had full time responsibilities in their regular jobs, it is understandable that the level of participation required to attain success was difficult to achieve on a consistent basis.

EHCR was instrumental in bringing activity-based costing and activity-based management to the health care supply chain. Perhaps more than any other industry segment, distributors – led by HIDA – seized the opportunity to quantify their costs of doing business. Many converted that knowledge into business process changes that actually lowered their cost of doing business. Participating distributors and HIDA are to be commended for their efforts in trying to make EHCR a reality in their organizations. S. Wayne Kay, who served as HIDA's president during those years, enthusiastically championed the initiative and his name became almost synonymous with EHCR.

Looking Beyond the Silos

Tom Pryor, President of ICMS and an expert on activity-based management, taught and coached distributors through the process of implementing the concept in their organizations. He still does. As he looks back on EHCR he says, ''There were successes in the silos but the initiative was not successful in linking the supply chain partners. Unless your vision is larger than your opposition, your initiative will fail.'' Some of the opposition Pryor refers to includes some long held beliefs in the industry, such as:

•''This is how we do it.''

•''I don't trust them.''

•''I don't want to change.''

''The vision started much larger,'' he continues. ''But after the launch of EHCR, too many people turned the telescope around and looked in the wrong end. This was especially true when it came to activity-based management.''

In maximizing their own internal efficiencies, many distributors learned the hard lessons that a single company or link does not a supply chain make, and that any distributor is only as efficient as their least efficient customer. Try as they might, distributors were largely unsuccessful at translating their own newfound efficiencies into quantifiable value for their customers. As a result, very few hospitals and other health care providers adopted the practices espoused by EHCR. Now those same customers, who almost completely missed the value opportunity that lay within EHCR, seem more compelled than ever to continue to extract product price reductions from their suppliers.

The promise of EHCR was offered to every link in the chain, yet as we have seen, distributors seemed to make the best use of the opportunity. Clearly, most of the benefits of EHCR lay within the silos of individual companies. Yet, it is in the relationships between customers and suppliers, i.e., the things that span across the silos, that the bulk of the inefficiency now resides. As surely as product moves down the chain, inefficiency at the end of the chain can just as easily move up it.

Inefficiency Moves Both Ways

For years, suppliers have had little choice but to work even harder to try to overcome the inefficiencies of their customers, making the suppliers' own efforts to increase efficiency much more difficult to achieve. Today, few distributors can find any more big-dollar savings by improving their internal efficiency, yet most clearly need to improve their efficiency to compete. This is the challenge for the future, and it is precisely why distributors must remain undeterred in their efforts to push beyond the bounds of their own silos and make sure that their efficiency reaches their customers. In order for distributors to become more efficient, they must assist their customers in improving their efficiency. Only when customers see the monetary impact of their inefficiencies can they be motivated to change. Rather than simply living with their customers' inefficiency, distributors must use what they have learned to encourage their customers to refine their processes and eliminate waste.

The lesson to be learned from EHCR is this: It is difficult, if not impossible, to try to align an industry's practices without first aligning the purposes of its many constituents. While EHCR did not succeed in changing the industry, it did for the first time attach dollars to the inefficiency that everyone already knew existed. Unfortunately, it is one thing to get a patient to accept the fact that he is sick, and quite another to convince him to follow a certain treatment regimen. We have an illness (inefficiency); and we may in fact have a cure (supply chain initiatives, including activity-based management and supply chain education). Now we must convince the patient that the cure will not be as painful or as costly as the illness.

There is an old saying that goes ''What you don't know can't hurt you.'' But it is precisely what their customers don't know that can hurt distributors. You cannot change how your customers act until you change how they think. If you want your customers to embrace increased efficiency, you must teach them why and then how.

EHCR is not dead. It is simply a flag waiting for someone to pick it up and move it forward. Don't worry about the burden of changing the world all by yourself. Change yourself. Change your business. Teach your customer. Help your customer. Then pause and remember the world… the way it was… before you changed it.

You can reach Lynn James Everard by e-mail at