Case-Oaktreehealthsystems

Jerry Nelson switched off his cell phone as he sat in another traffic jam on I-285 outside Atlanta. He was concerned about getting a call from his boss, CEO Jack Stafford. Jack had been pressuring him for an early look at the supply chain strategy he was developing, and Jerry was not in a position to do that yet. He needed more information and more time, but Jack didn't want to hear that.

Jerry had been hired as the Chief Supply Chain Officer (CSCO) for OakTree Health Systems, a $4B network of hospitals, clinics and medical practices located in Georgia, Florida and the Carolinas. Headquartered in Atlanta, OHS had grown from a single hospital system to a regional medical powerhouse through aggressive acquisitions of its competitors. As it grew, OHS left each hospital or practice to operate using its own systems. Corporate in Atlanta was content to merge the financial results from across the OHS network to produce financial statements. The process was chaotic every month-end, but experienced controllers in each hospital group ran their operations well for the most part and rarely reported any big surprises. Sales and earnings had grown steadily until the last two years, when the combination of a soft economy, declining Medicare and private insurance reimbursements, and increasing demands for indigent care had caused earnings to "flatline". Recognizing the problem as a trend (not a fluke), Jack Stafford had promised his Board of Directors a plan to increase earnings through a combination of selected geographic expansions and across-the-board cost controls. At the core of the cost management program was a transformation of OakTree's supply chain, which Jack knew could deliver millions to the company's bottom line. After a national search, Jack had hired Jerry to champion the transformation project.

Jerry had been excited about the new job, but after his arrival he discovered the true extent of the challenge he faced. The Supply Chain Department existed only in name. Although the SC executives at each hospital reported to Jerry, each one was effectively an independent group. Each hospital had their own Purchasing group, their own inventory management, and their own accounts payable groups. Each hospital ran on a different legacy system, supported by a local IT department, running on its own servers in its own data center. Each of the SC executives was accustomed to operating independently and took pride in the uniqueness of their processes and organizations. They were decidedly not excited about the prospect of reporting to a new executive with a public mandate to make large-scale changes to the status quo.

Since he had been hired, Jerry had requested information from each of the SC executives on their total spend. The response he received reports from each of the executives that he had to combine and analyze. What he found did not surprise him: each separate Purchasing group was buying the same materials