Sufficiency in the Midst of Uncertainty | E. 101

Tom (00:00):

The more you fudge, the more you hedge, the less honest you are. You end up with what a lot of people in supply chain refer to as the bullwhip effect. You make a slight quick motion with your wrist on the handle and, on a really long whip, the tip of it is going to break the sound barrier. You can have that dramatic effect on a really long supply chain as the amplification, and again, technology amplifies and accelerates that.

Introduction (00:29):

Welcome to the Healthcare Leadership Experience podcast, hosted by, Lisa Miller and Jim Cagliostro. Lisa is the founder of VIE Healthcare Consulting and now Managing Director at SpendMend. Lisa and her team has generated over $1 billion in financial improvements for VIE clients since 1999. 

Since 2007, Jim, has been a registered nurse working in critical care, perioperative services and outpatient settings at nationally recognized medical facilities across three states. You'll hear conversations on relevant and trending topics in healthcare and much more. 

Now here's your hosts, Lisa and Jim.

Jim (01:09):

Hi, this is Jim Cagliostro and you're listening to The Healthcare Leadership Experience. Today's guest is Tom Pierce, president of Integrated Information Systems Incorporated, which provides business, technical, analytical, and software solutions to enhance the ability of clients to understand and manage their work. 

So today, we're focused, we're discussing supply chain, and more specifically, the desire for sufficiency in the midst of uncertainty, and we all know how uncertain the healthcare supply chain is, especially if it's not handled with care, but even if it is handled with care, we know how uncertain just the supply chain can be in healthcare. 

So, Tom, I want to thank you for giving us your time today and sharing your expertise. Welcome.

Tom (01:50):

It's my pleasure, I appreciate it. I've enjoyed our chats by email, on LinkedIn, and look forward to the conversation. Thanks for having me on.

Jim (01:57):

Same here, absolutely. So I know I shared a very general introduction to Integrated Information Systems, but can you give us a little more background as to what you do and how the supply chain impacts the work that you do?

Tom (02:09):

Certainly, I'll try to put it in a very brief, brevity is not my strong suit. Context, I'm a problem solver just by nature, I mean, going all the way back to grade school, and then I became a math major out of my problem solving love. And I like to use math to solve problems and then that very quickly became... Once computers made their appearance, and yes, I am so old that I learned how to use a slide rule and the calculator was in advance, so I'm that old, but as computers came on the scene, the only reason I was interested in them was because they could help me do things to solve problems quicker, more efficiently, all of that. So I've grown up with the introduction of technology into previously very human, very brute force, mental math, pencil and paper, problem solving, but it's very hard to condense 40 years of what technology has done to the ways we solve problems and the ways we create new ones. Everything we did humanly good and bad has been accelerated and amplified by technology.

Jim (03:21):

That's a good point. Yeah.

Tom (03:23):

So I started off... It was actually during my seminary education that I got contacted by somebody I had worked with during my four years in the Army, and it was in the Army that I learned how to use an ancient desktop computer, hammer and chisel type, to help the Army do logistics modeling. Ended up creating an ammunition logistics package for the army, and then when I got out, I thought I was done with all that and I was living on minimum wage and had a food stamp application on my kitchen counter. A friend of a friend contacted me and said, "Would you do some consulting for us?" And so I got back into the program and the consulting and the analysis, and we did some more logistics modeling for the army.

(04:07):

And then that led to somebody that was implementing a manufacturing software system in a Navy depot. It was US Navy and then became private, and so for the last 30 years, I've been using whatever background and skillset I have in logistics, math, business, analytics, and I'll be honest with you, the seminary education was more useful in running a business than it ever was in pastoring a church, but-

Jim (04:35):

Okay. Yeah, interesting.

Tom (04:36):

... both, but all of that background on the psychology and the sociology and the organizational behavior, it's rather amazing, going back to the accelerated and amplifying human behaviors, it's rather amazing how much our computers have been created in our own image and have exemplify manifest the same flaws that we, as people, exhibit when relating to each other, but it's less inhibited. People can get really angry at their computers and the computer's not going to punch back — yet. I'm not sure where that's headed. So, certainly, if you're going to get involved in manufacturing, and even in my Army days, the army was beginning to learn... And Army travels on its belly. You have to have the beans, bullets, and band-aids. A multimillion dollar tank without ammunition is a very expensive walkie-talkie. You have to get things moving from source to destination, and beginning in my Army career back when, believe it or not, in the '80s, we were modeling a war scenario in the Middle East.

(05:48):

I don't know who was that farsighted, but you're talking about the distances involved and the complexity involved, and here I was, naive. All I knew was how to use a computer in basic programming and simple math. Well, to me, math major, but I was using the simple part of my math major to model distribution problems at seven or eight levels. It's just phenomenal how that has remained unchanged. The problems really don't change, they move constantly and they get new names, I think, every six months, but the problems of bottlenecks and short-sightedness and inaccurate forecasting, and even... One of the things that I think belongs in every conversation about supply chain and logistics, the problem of truth telling. The invitation to deception, the incentive to deception, overstatement, understatement really makes trustworthiness of information a major hurdle, and I... Sorry, fondly love the people that think AI is going to solve that problem, because AI is, of course, by its nature, altruistic and righteous. I think it makes stuff up, it lies just like the people it learned from. We get into parenting and grandparenting and, oh, my God.

Jim (07:13):

That's a whole ‘nother podcast.

Tom (07:15):

Shoot, from me. That hurts, so yeah. Army career led to consulting career of seven years, got frustrated with the bureaucracy of the company I worked for, figured I could do it better myself, won my first Navy contract, got privatized, and have just evolved. If you will, with the changing dynamic of what was essentially the same job description, we're just accomplishing that job in significantly different ways now and are currently supporting one of the world's largest defense contractors as well as two or three of bigger sub-tiers, so we're supporting some small businesses and one very large business, and we began contracting directly with DOD. So I've seen it at many levels, and when you see problems like... One of the contracts I ended up working on, I wrote the statement of work while I was still in the Army, so I was on both sides of that contract.

(08:11):

Then I had to live on the requirements that I myself had written. It's like, "Shoot, that's a punishment," right? So when you get that perspective, that broad interdisciplinary cross-functional perspective, you start seeing things that are hard to capture, but imagine we'll cover a few of those today.

Jim (08:30):

Yeah, and I appreciate you sharing that, in terms of... I mean, you gave us a lot, really, to think about and to really roll around in our minds, but you mentioned that distribution problems, they're the same. They might look different, they might go by a different name, but we face those today very similarly like we did 50 years ago, and even across different industries. So I know, in our previous communication, you've talked about two different types of organizations, cost risk versus schedule risk, or I guess two different approaches, if I could put it that way. And I know that we can get into the just in time versus just in case, and you talk about this conflict or this tension that exists. I don't know if you could really break down for me and for our listeners why an organization might lean towards one over the other.

Tom (09:17):

I kind of love the way you said it at first, even though you attempted to correct yourself. It really is different organizations whose charter founding incentives, skill sets, are focused on one or the other. There are very few people who, in career orientation and in career progression, are incentivized to care about both. One of the things that's happened very broadly with the whole privatization of an awful lot of the defense industrial base, particularly when it becomes overseas, offshoring, is that you leave yourself open to more and more elements in your industrial base, in your supply chain that are almost purely motivated by cost.

Jim (10:07):

Okay.

Tom (10:08):

Sort of famously infamously, whichever one, I think it was Donald Rumsfeld that said, "You go to the war with the army you have, not the one you wish you had," and he got blasted for that, and yet, it's a tropology, it's absolutely true. We can do all the planning we want if supply was treated as unconstrained.

Jim (10:28):

Sure.

Tom (10:28):

"This is what we would do if we had everything we want." Well, that's a fun, entertaining conversation. It has no value. What do you do in a constrained environment? So cost-cutting is a fundamental feature of organizations that are primarily incentive by their net worth, by their share price, by attracting investors and an awful lot of people. The healthcare industry itself, I'm old enough to remember when it was dominated by nonprofits, and I do not necessarily mean righteous and altruistic nonprofits. Nevertheless, on paper, their primary incentive was not profit and then it became dominated by people that were very clearly motivated by profit. I don't think that's a bad thing. I think people should be rewarded financially, fairly compensated for their investment in technology, and people that do well should be rewarded for doing well.

(11:30):

I got no problem with that, but there becomes a short-sightedness if your financial incentive is time-based. Part of the wisdom of ancient literature, ancient scripture, is to look beyond your own lifetime. Yeah, I had a chaplain in college that said, "Plant sequoias, invest yourself in things that are going to outlive you."

Jim (11:56):

I like that.

Tom (11:57):

I don't know if you've ever been to the Redwood Forest or anything, but it's just phenomenal. I remember just walking around General Sherman and thinking, "This tree has been in this place for 3000 years." We tend not to think that way in business, and the larger the business, the more complex the business, the less we think that way. I remember hearing the stories about when Howard Hughes founded Hughes Aircraft. When that got taken over, he was altruistic, he had tons of money, he didn't care how much money was wasted, he wanted to achieve things. I think Elon Musk is in a similar position.

(12:34):

He has goals he wants to achieve, he's making a lot of money, but that's not a major concern to him, it appears, but so many in the defense industry, healthcare, a lot of complex industries, the guy at the helm is only going to be there for a couple of years and he wants to be able to show positive results every single quarter that he's there, so when you talk to him about an investment that will pay off seven years from now, complete lost interest, "Don't want to do things now that are going to make my successors look good." So when you get extremely cost-focused, well, one of the things that does is, absolutely, do not buy more than you need, right? The elimination of waste gets perverted into a, "If you're not sure you need it, don't buy it yet."

Jim (13:25):

Sure.

Tom (13:26):

Well, if it's not broke, don't fix it. Well, that doesn't mean don't have spare batteries. When my flashlight goes out in the middle of the night, I want to be able to go into my pantry or my workshop and get more batteries, but that's not lean unless you can predict exactly having batteries you're going to need and then the ideal becomes, "Well, we'll just have an Amazon ready to deliver to batteries same day," and just reduce and reduce and reduce the carrying cost of your inventory, and I blame the Walmarts and the Targets of the world for doing just that. They leaned out their own cost by offloading those costs to their suppliers, so the just-in-case part, right? In case of disaster, well, that's your vendor's problem, because your big and powerful and you can insist, if you want to do business with us, then you've got to maintain stockage objectives and you've got to reply 24/7 replenishing my shelves, because I don't want to maintain a big warehouse. I just want to move parts through.

(14:39):

I think that's a big part of why a lot of manufacturing ended up getting offshore, and I imagine... I think this is very true of the healthcare industry as well, that sometimes that risk gets moved offshore and what was once major manufacturers are now just major final assemblers. They have all the difficult components and all the risk elsewhere and then gathered up, and then all you got to do is put it together and sell it and make a profit, and if your only motivation is profit, that's a really good business model for a finance person. It's not a great business model if what you're really trying to do is continuously improve your product and your service and the delivery times and customer lead times, all that, so the whole balance of just in time versus just in case, are you trying to prepare for emergencies? Yes, indeed. I was a boy scout, I was a boy scout leader.

(15:35):

"Be prepared" is ingrained in my understanding. There was a presentation in one of the Institute of Business forecasting in Chicago, best practices, a guy about my age that was just talking about how a lot of people seem to believe that the pandemic is what broke the supply chain globally, and he disagreed strongly. He said the 2008 recession broke it, the pandemic revealed how broken it was, because when money got really tight, people leaned out, got rid of their buffers, and kept only enough to survive.

Jim (16:12):

You mentioned this kind of hyperfocus on cost, when that becomes an issue, and our listeners know. In healthcare, the operating margins are very slim, and so there is a big focus on cost, but then you brought about the importance of delivering, whether it's product or service, and in healthcare, it's both. It's the products, the medical equipment, the supplies that are necessary for care, and also that service. Are we able to provide that service? I appreciate that you said, "What about finding a balance?" And I know, in healthcare, it really does come down to, "What is some of this lifesaving equipment that we absolutely need to have on hand? We need to have an inventory buffer, if you want to say an emergency inventory, versus other items that, okay, that's easier to replace, but you mentioned something about when we put the risk to vendors and you mentioned about, yes, healthcare has moved a lot of their supply chain overseas. Yes, it moves the risk, but also the cost. I mean, it was just cheaper to do it, for a lot of supplies to obtain from overseas.

(17:15):

If you're just tuning in, you're listening to the Healthcare Leadership Experience and I'm your host, Jim Cagliostro. This show is sponsored by VIE Healthcare Consulting, a SpendMend company, which provides leading edge financial and operational consulting for hospitals, healthcare institutions, and other providers of patient care. 

Since 1999, VIE has been a recognized leader in healthcare costs, hospital purchase services, healthcare benchmarking, supply chain management, and performance improvement. 

You can learn more about VIE Healthcare Consulting at viehealthcare.com. 

So, Tom, I do want to jump into a question and, man, I feel like we could talk for an hour, and for the sake of the podcast, I really want to dig into this, and I know I kind of mentioned it to you leading up to this. Are you able to talk about how top-tier organizations, and again, this can apply to all industries, but I'm thinking specifically healthcare, but how top-tier organizations can use their influence, can use their power to transfer that risk to their suppliers? And then, what effect does this have on the supply chain? You already touched on that a little bit.

Tom (18:16):

Exactly. The first symptom to me, like the dead giveaway that it's happening is when you lose the honesty and transparency in the communication between buyer and seller. If you cultivate an organization of deception, a culture of misguiding each other, hiding from each other... I think I told you earlier that some of my clients are suppliers to another one of my clients, so I see that dynamic from both ends and I've got non-disclosures with both, so all I can really say publicly is that they lie to each other consistently, and I know they're lying to each other and there's not anything I can do except try to promote honesty in the two legs of the triangle that I'm a part of, but when you get the deception... You know the old song; this happens even in teenage years. He's always 15 minutes late, so you have to lie to him that the meeting starts 15 minutes early until he catches on and says, "Okay, now you got to tell him 30."

(19:18):

Well, okay, I need to know when my parts are going to arrive and I need you, as my supplier, to meet that date, because I'm counting on it, but I'm not going to tell you that I'm fudging the date a little bit, because I want to build myself a little cushion, because I'm telling my boss it's going to be here by February, so I'm telling you I need it by January, and you've got sub-tiers and if it goes seven levers down, now you've got people running around like mad people trying to do things six months earlier than they're really needed. And if you're good and successful, it goes through the chain and it ends up on somebody's shelf six months earlier than it was really needed, and now you've got a hoarding situation. Even with the residential commercial toilet paper problem.

(20:10):

When the demand shifted so quickly and everybody had hedged their bets and over-buffered, the supermarket doesn't want to stock six months’ worth of toilet paper on their shelves, they want you to respond immediately, so now you had this overload of commercial toilet paper on everybody's pipeline and on everybody's shelves, and yet they actually had to get rid of some of it to make room for what you really need.

Jim (20:42):

I remember hearing that, yeah.

Tom (20:42):

The more you fudge, the more you hedge, the less honest you are, you end up with what a lot of people in supply chain refer to as the bullwhip effect, right? You make a slight quick motion with your wrist on the handle and on a really long whip, the tip of it is going to break the sound barrier. You can have that dramatic effect on a really long supply chain as the amplification, and again, technology amplifies and accelerates that.

Jim (21:14):

Sure.

Tom (21:14):

We can now lie to you really quickly and really often, we can change our need dates every day and expect you to respond to that. One of my smaller clients, two of them actually, are in constant turmoil, because they signed a contract that says, "I will deliver these parts by these days," and then they get daily, weekly phone calls, emails, "I need you to expedite this, because I really didn't know what I needed when I told my buyer and the buyer hedged their bets and gave themselves more," and all this. So my real demand and my official demand aren't the same, and I'll go ahead and speak, because I've worked directly for the Army and the Navy, they lie too. They've got their own stockpiles in various state theaters, some of which they don't want anybody to know about, so it's very difficult to know the real demand. Another one of these things that came out of the Chicago conference that I thought was a brilliant insight is that the most invisible supply of all is what's already in the homes of your consumers, because when they hear...

(22:24):

You're not old enough to remember Johnny Carson, but one time, Johnny Carson joked that he had heard there was a great toilet paper shortage. The next day, there was, because people believed him and panicked and hoarded. So if you don't know how much your own retailers or end-users are hoarding, then you can't predict when their next demand's going to be, so the more transparency you can get, the more that you can make it work. So to the degree that you feel like you're dealing with trustworthy information, now you can do statistics on the cost versus the risk based on... I'll go ahead and throw out coefficients of variance. How forecastable is your demand? How forecastable is your supply? If you are highly confident and don't ever tell me "100%," I'll know you're a liar.

Jim (23:18):

Yeah.

Tom (23:19):

Maybe you're 100% confident the sun will come up tomorrow, I'll give you that one, but you may not be alive to see it, but if you are highly confident that you can be resupplied in a week, then you don't need to carry any more than a week, but just because a vendor promised a lead time of one week, doesn't mean they're not backlogged, and if they're not telling you what their backlog is and you think, "Gee, the last time I ordered from them, it took six months, so I'm going to plan on six months the next time," so now you're ordering six months earlier than you really need and you got... Have you ever... In the Army, when you're marched in formation, there's this accordion effect.

Jim (24:01):

Okay, yeah.

Tom (24:02):

Very large formation, it's almost impossible to keep everybody marching in the same rhythm. Big traffic jams, I was driving home from California to Alabama, and around St. Louis, I got in this traffic pattern that was so dense and so thick that, when some group decided we're all going to drive 80, you better drive 80, you're going to get run over until you get the crunch and you're back down to 30, and that's what happens throughout the supply chain, smooth is better. So getting a pace, getting a delivery pace, a pipeline. This is such a common practice, this is another flow of the just in time. I have done great modeling with just genius experts and AI has told me that I'm going to need to order exactly 5,723 of this part, and I want it delivered on February 12th, and then my next order I want delivered on April 6th.

(24:57):

Level that out. How many do you need per week, per month? Even the utility companies, your use of water and electricity. They offer you the ability to level out your payment and they would like very much to attach devices to your feed, so that they can level out the supply.

Jim (25:19):

Sure.

Tom (25:19):

Level is more predictable when you're forecastability, your coefficient of variance, ratio of standard deviation to mean is... Well, one expert that I trust highly says, "When it's greater than 20%, you're into an area, a quadrant, that they would call unforecastable," so at that point, go to your humans that have the most experience, who can't tell you how they know, but they know and ask them how much to stop, because your computer models are useless. When you get into high uncertainty, the only way to buffer schedule list risk is by spending a lot of money, and there you have to have the mindset of, "Do I want to go ahead and spend a lot of money now? Do we have shelf life considerations? Are things going to expire? Are there alternative ways we can dump the excess stock to some useful at reduced cost? The clearance sale at your department store."

(26:16):

What is your tolerance for buying too much as opposed to buying too little? And that is as much a psychological question, a sociological question, for the culture of a company, and if it's only the finance people making the decision, they'll miss too much. My son laughs at me sometimes, because math major analytics, that's the only thing that my mind does when I'm trying to get to sleep, and yet, I've learned through the years that the most important things in life are the things I can't measure, and it's also true in business. The most important things in running a business are the things that are immeasurable, so pay attention to the ghosts.

Jim (27:00):

And I'm glad you mentioned that uncertainty, and I really appreciate your insight there in terms of leveling out things. And the pace is so important, I think sometimes we forget that. 

At VIE and at SpendMend, we're big on data, having good data, and so we talk about our ability... I like what you said, I think I'm going to repeat it correctly. Our technology amplifies or accelerates what we've always been able to do, and so that's a great thing, that there's so much potential there, but I also appreciate you bring out the importance of honesty and transparency, and we recognize that as well. There's still human connections and relationships that need to be made in order for these things to operate efficiently, and so I really appreciate that. With the supply chain, it's not just the numbers and, "Okay, we still need..." We talk about C-suite, we talk about supply chain leaders in the hospital, the clinical teams. They all need to be part of the process of, "Okay, what's the most efficient way of doing this?"

Tom (28:00):

Are you fluent in some of the tech speak? I'm actually not, I'm not-

Jim (28:05):

No, no. I'm not one. I mean, my parents might say so, but no, not-

Tom (28:09):

There's a metaphor implicit in the language, that language changes in technology. When I was younger, everyone was talking about databases and the power of databases. Now that language has changed, more people talk about data lakes. Well, what's the difference? Well, in a very bizarre metaphor, the difference is, when I was a young kid and went to the mountains, I could just dip a cup into the mountain stream and drink the most pure water available. Something has happened and that's no longer true, and so now you have to filter, boil, charcoal filter your water before you can drink it, right? If you've got a lake, it's water, water everywhere, but not a drop to drink. You have to filter your water. Data lakes are not fit for human consumption. Data has been gathered from all over the world, some of it's true.

(29:02):

It reminds me of one of my favorite stories from a medical school commencement address where the speaker began with, "I have bad news for you. Half of what you have learned here is wrong. The worst news is we don't know which half." An awful lot of the data that's been gathered and processed and disseminated, an awful lot of it is wrong, and it was wrong at the source when somebody entered a typo. We signed a contract yesterday, somebody had typoed the value of the contract, it was only off by $800,000. Okay, I'd like to correct that typo, but it's very different.

(29:41):

Humans can recognize mistakes so quickly when they are familiar, but when it's just data moving through fiber, the error correction is another one of those risks that gets moved, and it's actually gotten moved all the way to, "Let the buyer beware." The consumer of data is now responsible for ensuring the data quality, which that just grieves my soul. That pit of despair for me. There's got to be a lot of people along the way watching it. Another metaphor quickly.

Jim (30:16):

Please.

Tom (30:17):

I talked about the human processes where, when I was a young man, we were figuring out ways to insert technology into predominantly human processes. The roles have reversed. What we're now trying to figure out is how to insert human intelligence into primarily digital technologies. Where are the right places for humans to review and correct and edit and audit? It's going to slow things down, but speed isn't everything. Pace is good.

Jim (30:44):

That's a great point and, Tom, I have to say, I really appreciate your analogies, the metaphors. I think it does help. It helps me to understand how you think through these, and I think some very healthy ways to view the supply chain, and it's a challenge. Like we said, the supply chain in healthcare is extremely complex and there are many people involved, there's many hands involved, there's a lot of data to go through, so I appreciate what you've shared. And I know we talked about this before. Even though you're not specifically in the healthcare field, what you have... We always talk about we need to learn from other industries. How can we do this better? And I believe there's so much to learn. And we see hospitals and health systems that are doing that, so I appreciate everything that you've shared, and unfortunately, our time has flown, but I do want to give you an opportunity, Tom.

(31:30):

I like to ask all of our guests, if there's one thing you could leave our audience with, even in terms of leadership or supply chain, and it can be a one-liner or it can be a few thoughts, but anything you want to leave our audience with, in terms of something you've learned throughout your career or something that's carried you through, please.

Tom (31:48):

I'll go as quickly as I can from a core philosophical principle to a brand application. There's a lot of theological debates about the nature of humans. Is it blank slate, tabula rasa? Are we, by nature, evil? By nature, good? How does that work out? When you apply that in a leadership environment, I think the default position has to be trust. "I will trust you until you give me not just one, maybe two or three reasons not to trust you." Maybe the answer should be seven or 70 times seven, but my default position is going to be in trust until I have a reason not to trust you. I believe well-informed leaders make better decisions, so there's way too many people that are afraid to tell the boss the truth, to tell the shareholders the truth, to tell the clients the truth, to tell the well-informed people throughout your living experience perform better.

(32:49):

Even the guy that's always 15 minutes late, tell him when the party starts. If he wants to show up 15 minutes late, let him or don't invite him. Just end the deception, inform people as well as you can, and trust that that at least enables them to make better decisions.

Jim (33:09):

That's great, Tom. I love it. Perfect way to end this conversation. Thank you for being on the show today and thank you for our listeners for spending time with us. 

If you have any questions about VIE Healthcare Consulting, a SpendMend company, or if you want to reach out to me or Lisa Miller, you can find us on LinkedIn. Tom is also on LinkedIn. 

We at SpendMend love helping hospitals save money and enhance the patient experience, and we're hoping that today's episode gave you some new insights to consider and use in your career and your own healthcare organization. Tom, once again, thank you for being on the show today.

Tom (33:41):

Thank you, Jim. It's been a pleasure.

Speaker (33:45):

Thanks for listening to the Healthcare Leadership Experience podcast, we hope you've enjoyed this episode. If you're interested in learning new strategies, best practices and ideas to utilize in your career and healthcare organization. Check out our website at the healthcareleadershipexperience.com. 

And oh yeah, don't forget to rate and review us and be sure to join Lisa and Jim, next time on the Healthcare Leadership Experience podcast. Thanks again for listening.