Doing Better in the Healthcare Supply Chain Top 25 by Adding an ESG Metric

By Eric O'Daffer | June 07, 2022 | 0 Comments

Supply ChainPower of the ProfessionSupply Chain Strategy, Leadership and Governance

Maya Angelou famously said, “Do the best you can until you know better. Then when you know better, do better.”

Her quote applies to a lot of things, but for purposes of this blog it applies to the healthcare supply chain and a change we are making in Gartner’s Healthcare Supply Chain Top 25 to “do better.” We are adding an environmental, social and governance (ESG) quantitative metric to the ranking for the first time.

The goal of this blog is to share the details of the change, and what you can do to align and give feedback to help shape our next steps.

As a refresher, last year we made the biggest change in the history of the Healthcare Supply Chain Top 25 by moving to an all-U.S. healthcare provider ranking. Previously, we had also included manufacturers, distributors and retail pharmacies.

This move reflected the growing supply chain maturity and scale of health systems, along with improved performance of life sciences manufacturers in Gartner’s global ranking across all industries. In making this change, we signaled that we would seek to add an ESG metric to the quantitative portion of our ranking.

How do ESG Metrics Improve Our Ranking?

Our healthcare ranking is a compilation of quantitative metrics and qualitative peer and analyst opinions. The new ESG metric will be weighted at 5% of the valuation for each health system, and will be based upon membership participation and active engagement in the not-for-profit organization Healthcare Anchor Network (HAN).

Founded in 2017, HAN is a national leader in promoting healthcare supply chain strategies that uplift local, diverse and employee-owned businesses and that encourage prime suppliers to create better quality jobs in high-need communities, creating a natural alignment with a need to account for ESG practices in our ranking methodology.

HAN has partnered with a leading national nonprofit focused on environmental sustainability, Practice Greenhealth, to produce an Impact Purchasing Commitment, a leadership pledge in which HAN members commit to aligning their purchasing power to buy from, and build capacity of, vendors that are minority- and women-owned, sustainable, employee-owned and local. We recognize the critical importance of ESG practices in supply chain and are proud to partner with HAN to improve our ranking system with this ESG metric.

Historically, ESG has taken a backseat to cost savings. Measuring and incorporating ESG practices into supply chain poses challenges. There are tradeoffs and costs to incorporating ESG best practices just like there are tradeoffs and costs to resiliency.

We know many health systems are working hard on DEI spend and sustainability. Leaders like Kaiser Permanente were recognized in Gartner’s Power of the Profession Supply Chain Awards in 2022 for their commitment in these spaces. While your CEO is (or should be) focused on these strategies, certain systems may need time to adapt to these changes. Therefore, the ESG metric will initially be weighted at 5%, with an intention to increase this weight to 15% or more over the next few years. Many health systems represent the largest employers in a geography and could be better aligned to ESG. We hope these methodology changes to our ranking will encourage further resources and investment in these areas.

The new makeup of the Healthcare Supply Chain Top 25 ranking components is detailed below. We are taking 2.5% from the peer and analyst opinion section and creating room for 5% allocation to the increasing commitment to HAN. Every health system can participate equally in this portion of the ranking — it is participation-based, and every health system has the chance to earn this 5%.

Below are the details on HAN levels and scoring to earn 5%.

We want to keep this simple with the three tiers of participation as highlighted in Figure 2 and outlined below:

  • Are you a member of HAN (like 72 other health systems are)?
  • Did you submit third-party Tier 1 supplier diversity data for procurement and construction to HAN as part of its annual data collection?
  • Is your health system a signatory of the Impact Purchasing Commitment, meaning you will double your DEI spend in the next five years, achieve at least four sustainability goals and commit to five-year goals for community wealth building?

Every health system in the United States can access points associated with this new metric, even in this first year. In September, HAN will be notifying us of which members have met the agreed-upon criteria this year for our ranking, which will be unveiled on Nov. 9, 2022.

Please join us in “doing better” by uplifting the critical importance of ESG in our healthcare supply chains. We are excited about this first step on the journey and look forward to collaborating with all of you on the next steps for the 2022 Healthcare Supply Chain Top 25 ranking.

If you have questions on our Healthcare Supply Chain Top 25 methodology and/or would like to be a peer voter this year, please contact me directly at eric.odaffer@gartner.com.

Eric O’Daffer
VP Analyst
Gartner Supply Chain
eric.odaffer@gartner.com

 

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