Healthcare providers are becoming increasingly aware of the opportunities that exist to streamline the materials flow into their operations. Materials spend accounts for up to 30% of operating costs and analysts estimate that this is as much as 50% when time spent by clinical resources managing materials is taken into account.
Supply Chain Imperative
Healthcare budgets are constantly under pressure.
Healthcare funding models are inadequate to meet demand.
Aging populations will increase costs over time.
Supply spend more than 30% total budget and up to 50% if you include clinical time.
Dimishing returns from traditional procurement initiatives.
Need to support more community based care.
Integrated supply chain models yielding significant savings where applied.
Healthcare Supply Chain Opportunity
True healthcare supply chain transformation requires a move beyond traditional GPO / central procurement and distributor led logistics models to an integrated supply chain approach.
This is typically an enterprise wide initiative which requires senior management commitment and close collaboration with clinical stakeholders and supply chain partners.
Progress can be made however towards this transformation by taking targeted steps to manage inbound materials procurement and supply.
Research has been undertaken by PerformanSC Supply Chain in conjunction with partners, into health systems that have successfully implemented such a change. This research provides valuable insights into the clinical, logistics and contracting value drivers that feed into each other, to provide step function improvements and provide a platform for further improvements.
Common elements of successful implementations include the following:
- Clinically led standardisation of products to achieve improved reliability, patient outcomes and procurement leverage.
- Streamlined flow of materials inbound from direct and indirect manufacturers.
- Centralised distribution centre(s) to create logistics and transportation efficiencies.
- Robust operational capability that includes contingency provisions to ensure continuity of supply.
- Technology enabled order mechanism at points of care to minimise administrative burden on clinical resources.
- Focused warehouse management, planning, transportation management and analytics technology investments to enable planning and operational efficiencies.
- Adoption of supply chain best practices from outside of healthcare through the involvement of experienced resources and retraining of existing materials management personnel.
- Revised contract arrangements with direct and indirect suppliers to reflect the concentration of spend and supply chain efficiencies that they experience through the integrated supply chain.
The financial benefits of this model derive from both logistics and contracting activities and include reductions in materials spend, reductions in system wide inventory holding and greater control and insights linking materials spend to patient outcomes.
Like any supply chain transformation it also provides the platform from which further optimisation and improvement is made possible.