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Supply Chain Disruption Brings Senior Living Woes, Kendal Launches Quantum GPO

Consumers shopping online are encountering “out of stock” messages far more frequently, automakers and retailers are curtailing holiday advertising due to product shortages, and headlines warn of a Thanksgiving without turkeys.

Snarled and disrupted global supply chains are a major factor behind all these issues, and senior living providers are feeling the effects of these problems as well.

“I think across all providers, especially on the food front, the major players in the industry are struggling with delivering what we need on a real-time basis,” Brandon Ribar, COO of Sonida Senior Living (formerly Capital Senior Living), told Senior Housing News.

The issues are leading to expense pressures even as providers already are facing margin erosion due to elevated labor, insurance and other costs.

And, supply chain woes mean that providers have to adjust their operational practices to deal with shortages and longer lead times on orders.

Kennett Square, Pennsylvania-based Kendal Corp. is going even further. The nonprofit, with a portfolio that includes 13 affiliated communities, launched a group purchasing organization (GPO) called Quantum, with plans to invite other senior living organizations to join as well.

Quantum is designed to serve Kendal differently than a typical GPO, in order to simplify and improve operations and save money for each affiliate, Kendal VP of Culinary Services & Procurement Ben Butler told SHN.

Worsening supply chain pain

Supply chain disruption has been an ongoing problem since the onset of Covid-19 in 2020. In the pandemic’s early weeks and months, senior living operators scrambled to obtain necessary personal protective equipment (PPE) and other clinical supplies, but also encountered challenges in obtaining culinary and other products.

In response, senior living providers banded together to purchase supplies in bulk, relied on help from real estate investment trusts (REITs) and other ownership groups with access to products, and even by manufactured hand sanitizer and other goods themselves.

As the pandemic stretched on, PPE stockpiles grew, and providers began to adapt to the continued supply chain pressures. For instance, Maxwell Group — the parent company of Senior Living Communities (SLC) — began ordering products from golf carts to light bulbs in bulk, and earlier than was customary.

More recently, supply chain issues again worsened, due to several factors. Consumer demand is spiking, while the so-called “great resignation” saw a massive number of workers leave their jobs in the summer and early fall, with industries like trucking hit hard. Meanwhile, Covid-19 protocols are still in place to varying degrees. 

“With supply chains, we’re definitely impacted,” Charter Senior Living CEO Keven Bennema said during a recent SHN+ TALKS interview. “We have delays on some things as simple as appliances. Model rooms that have some appliance needs, we’ve had to go out and just buy floor models because it’s going to take another three weeks before we get particular appliances.”

Lead times are also as long as three months for certain technology, including resident e-call and pager systems, he added.

True Connection Communities, which operates active adult and independent living communities, has not been hit too hard by supply chain issues, but is experiencing delays related to tech, particularly computers, CEO Jim Pusateri said this week in an SHN+ TALKS appearance.

True Connection is paying close attention to where and when new employees are coming on board and carefully forecasting turnover and hiring, to ensure that laptops are available, Pusateri said.

Food is another pain point for True Connection, Charter and Kendal. Food purveyors have been hit both by global supply chain issues and also are facing their own staffing crunches, sometimes struggling to hire drivers for their own trucks, Bennema and Butler observed.

“From a community level, we have to be more crafty in what we’re doing,” Christian Ramsey, director of hospitality at Kendal affiliate Collington, told SHN.

The team at Collington increased to twice-weekly consultations with their food partner Sysco, both to stay current on what products are available and to communicate the senior living community’s needs.

That same approach has extended across Kendal’s affiliates, Butler explained.

“For Thanksgiving, I sent an email early in September to say, let’s get our ordering going now so that Sysco can meet our needs,” he said.

With shortages becoming commonplace, prices have gone up, contributing to what real estate investment trust Welltower (NYSE: WELL) CEO Shankh Mitra described as a “perfect storm” hitting the senior living expense stack in the third quarter.

The CEO of another REIT, Ventas (NYSE: VTR), observed that the supply chain issues are being caused in part by increasing demand, which is also benefiting senior living in the form of increased occupancy.

“Demand has sprung back not just in our business, but broadly speaking it has surged, and the supply chain and the labor force are still adapting and adjusting and haven’t caught up yet,” Ventas CEO Debra Cafaro said. “And over time, those things will get more in balance.”

Kendal launches Quantum

Cafaro’s comments suggest that senior living providers — and other businesses — will have to exercise patience while the supply chain normalizes. And the federal government is taking steps, such as keeping busy ports open around the clock, intended to ease the pain.

While they will have to wait out the macro issues at play, there are steps that providers can and should take to lessen the supply chain woes; Kendal took particularly dramatic action by forming its GPO, Quantum. The origins of Quantum trace back to the start of the pandemic.

“At the beginning of the pandemic, we realized how fragile the supply chain is and how reliant we were on our group purchasing partner to connect us with vendors,” Butler said. “We didn’t have direct relationships in many cases with vendors.”

Furthermore, GPOs can be great resources when called upon, but often there is not “a lot of back and forth,” he said. And Kendal saw potential misalignments between GPOs and its affiliates.

“Their ‘why’ is really to make money for their GPO, our ‘why’ is to save money for our members,” he said.

Under Quantum, Kendal affiliates still make purchasing decisions locally, but they are now receiving more education about how to make those decisions by exercising inventory controls, engaging in contract negotiations, and using just-in-time ordering and other practices.

“Many purchasing decisions are made based on relationships and are too subjective rather than focused on bringing true value to the organization overall — our goal is to drive real value,” Butler said.

Helping lead this effort is Sarah Moore, Kendal’s recently named director, procurement and special projects. She is working with affiliates so that they understand and know how to leverage Quantum, achieving savings by strategically selecting vendors, understanding the terms of agreements and taking advantage of savings related to rebates and other provisions. Going forward, a goal is to create a simple portal to allow for easier communication with vendors.

And Quantum is sharing savings back with Kendal affiliates in a way that a typical GPO would not.

“If we have an affiliate say their food budget went down 10% because of our food contracts with Quantum, that’s a win for us, versus for a typical GPO, they want to increase how much you’re spending on the contracts,” Butler said.

This financial model works in part because the overhead for Quantum is minimal from a capital perspective and mainly involves time being dedicated by people within the Kendal organization, Butler said.

Quantum has been in place for affiliates since the start of 2021, and Kendal is targeting the first quarter of 2022 to bring in additional nonprofit senior living providers as members.

Overall, Butler is pleased with how Quantum is working, and he believes that the attention on supply chain ultimately will benefit Kendal — and the senior living sector as a whole — by showcasing the impact that better procurement practices can have financially and operationally.

“If you ask C-suite leaders what’s keeping them up, it’s labor, occupancy and costs; but they don’t say procurement, and really that’s at the center of costs,” he said. “We can really help communities manage their bottom line.”

The post Supply Chain Disruption Brings Senior Living Woes, Kendal Launches Quantum GPO appeared first on Senior Housing News.

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