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Volume 31, Issue 1

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The headlines are impossible to miss as havoc in the financial markets and the spiraling economic mess have unfolded. Daily, we hear of Fortune 500 companies that are struggling to stay afloat and many on Main Street that have already succumbed.

In a recent Fortune Small Business/Zogby International poll of business owners, many respondents said their businesses had gone downhill in the past four years. So how does this economic crisis threaten the stability of your organization’s supply chain? What happens when your stable corporation depends on a single essential supplier to keep your operations running?

And how do you best prepare for future supplier disruptions?

Oakland, in Northern California, is the headquarters of Kaiser Permanente. More than 60 years ago, Henry J. Kaiser and Dr. Sidney R. Garfield first articulated their commitment to total health and their vision for high-quality, affordable health care for working men, women, and their families.

Today, Kaiser Permanente is the nation’s largest not-for-profit integrated healthcare delivery system with 159,766 employees and 14,087 physicians.

One day during a casual conversation, a Kaiser Permanente employee learned of the deteriorating financial situation of a company we’ll call ABC Linen. Tightening market conditions had put pressure on ABC, and it was struggling to maintain cash-flow and remain liquid and viable. ABC was embroiled in bankruptcy proceedings within about 10 days of Kaiser Permanente learning of ABC’s financial situation.

Kaiser Permanente and ABC Linen had recently completed transition of 60 percent of Kaiser Permanente’s laundry needs from another linen services provider to ABC. The transition had gone smoothly, and ABC was ramped up to handle linen and laundry processing responsibility for more than 40 clinics and medical office buildings in Northern California.

Upon learning of ABC’s situation, Kaiser Permanente launched an immediate campaign to secure alternative linen service.

Kaiser Permanente’s Northern California Regional Emergency Operations Center was put on alert and remained poised to fully activate if the situation demanded more rigorous attention to allocating and redistributing of linen services throughout the organization.

Throughout the response, several key players including materials, laundry specialists, facilities staff, legal (internal/external), sourcing, and suppliers worked closely together to coordinate the Kaiser Permanente response. All actions were undertaken with a high degree of urgency to identify options, communicate, and mobilize, never losing sight of members and patients. The goal was to ensure that service would not be interrupted.

Luck is not a Strategy

A lucky tip-off immediately acted on allowed Kaiser Permanente to successfully respond and put a plan in motion. Without a pre-identified “plan B” no validated alternatives and no standard risk assessment plan to monitor the health of critical suppliers, Kaiser Permanente’s options in the marketplace were limited, and it was sent scurrying to find a solution with little time to assess the viability of our choices. But we were well ahead of other linen users in the region.

Kaiser Permanente has since designed a program to allow for systematic early warning. It is a way to identify alternative suppliers and assess their viability ahead of time utilizing up-to-date intelligence. They use a pre-set approach to assessing, ranking, and creating countermeasures to vendors’ and suppliers’ risks scenarios. Once a risk to a supplier is deemed real, a cross functional team will convene to flesh out a “plan B” a transition plan, dependencies, and a team to manage the process.

The objective is to ensure a flexibly resilient organization can respond in any number of situations when disaster or any event threatens operations. Preparation helps employees work collaboratively and efficiently. Well exercised methodologies and contingencies allow for rapid transition.

Ken Mudge is the executive director of non-medical sourcing within procurement and supply at Kaiser Permanente. Mudge’s team has responsibility to provide assurance of supply for a number of patient/member facing goods and services, including linen and laundry, among others.

Skip Skivington is the vice president of operations within procurement and supply at Kaiser Permanente. One of Skivington‘s chief responsibilities is to direct Kaiser Permanente’s healthcare continuity management program which ensures planning for and coordinated responses to disaster situations.

Cheryl LaTouche is the manager of business continuity management within procurement and supply at Kaiser Permanente. LaTouche and her team of business continuity consultants manage Kaiser Permanente’s national business continuity management program which ensures planning for and coordinated responses to disaster situations.

The Timeline

Oct. 6 to Oct. 13

  • Kaiser Permanente employee gets tip-off about ABC’s financial status. Kaiser Permanente requests auditors’ financial statements to independently verify suppliers’ status. This request was not fulfilled. Sourcing team contacts materials management and informs them of situation.
  • ABC attempts to redirect Kaiser Permanente payments from bank. Kaiser Permanente procurement and supply contacts legal.
  • Kaiser Permanente contacts a new linen services provider to review options.
  • ABC financials received.

Oct. 13 to Oct. 20

  • Kaiser Permanente procurement and supply meets with ABC leadership and are reassured of ABC’s financial health.
  • ABC files Chapter 11 in bankruptcy court.
  • Kaiser Permanente immediately engages outside bankruptcy counsel to help it to navigate through the complex bankruptcy issues.
  • Kaiser Permanente begins discussion with ABC’s creditors and Kaiser Permanente counsel.
  • Kaiser Permanente discusses transition plans with new provider.
  • Kaiser Permanente files paperwork in bankruptcy court and makes appearances. Judge gives Kaiser Permanente permission to pursue options.
  • Procurement and supply and legal negotiate an agreement with new provider.

Oct. 20 to Oct. 27

  • Linens ordered, shipped, and laundered by new provider.
  • Kaiser Permanente soiled linens begins to arrive at new provider.
  • Kaiser Permanente and new provider complete 90-day contract.
  • ABC ceases operation.

Oct. 27 to Nov. 3

  • Kaiser Permanente cuts over to laundry processing to new provider’s plants.

Anatomy of the Program

Kaiser Permanente

  • Nation’s Largest not-for-profit integrated healthcare delivery system
  • Would be ~ 60 on Fortune 500
  • Nine states and the District of Columbia
  • Nearly 8.7 million members
  • Labor management partnership
  • 35 medical centers
  • > 430 medical offices
  • > 14,000 physicians
  • > 159,000 employees
  • > 558,000 surgeries/year
  • > 91,000 deliveries/year
  • > 129 million prescriptions/year
  • > 36 million doctor office visits/year