Over the past decade, healthcare supply chain departments have experienced vast transformations. From being a demand-driven, financial-risk prone group that provided a basic clinical supply function, supply chain teams have evolved to become part of the executive leadership team within healthcare organizations, helping to drive decision-making best practices.
Supply chain teams have also steadily been integrating clinical staff into the decision-making process. The key to all of this is integration and visibility—with people, operational and clinical departments.
Because supply costs are the second largest operating expense for any healthcare organization—the first being labor—C-level executives now push supply chain logistics to the top of their priority lists, which means gaining total and real-time visibility into all aspects of the supply chain and the subsequent toll that this expense has on a hospital.
Hospitals have adopted this mindset as the foundational principle for their go-forward strategies and are building infrastructure to further support supply chain efficiencies and innovations.
Integrating supply chain technology into overall operations
Technology is the biggest priority for hospitals to grow for the future. This includes not only a robust supply chain application, but one that encompasses a total end-to-end technology platform to support operations.
Having complete visibility into operational data, from the supply chain to finance and even into HR, in one system is becoming a revolutionary change-maker for hospitals. This capability gives hospitals the opportunity to better support clinical practices, make faster decisions, and measure outcomes throughout the organization with business insights and intelligence across all areas.
Supply chain departments have been at the front of the pack because data encompasses all facets of their work, with everything from contract pricing information to pharmacy spend analytics. Having functionality that incorporates contract order monitoring to recall notifications based on actual purchase history instead of research and guess work are becoming hot demands.
Also, for the larger IDNs all over the country, the future discussion topic tends to revolve around self-distribution and whether operating a stand-alone, self-run distribution center will produce enough ROI. Being able to drive rebates and incentives with volume-based spend directly from manufacturers and being the hospital’s sole distributor has huge advantages if the volume is there. Many supply chain leaders self-fund the entire supply chain and its operations by adopting this practice and are running large warehouses and centralizing multiple support functions into one location.
Following is just one example to help bring this concept to life:
Greenville Health establishes supply distribution center, achieves ROI in 11 months
Greenville Health System (GHS), Greenville, S.C., was looking for the best way to achieve economies of scale and cost savings within its $60 million supply distribution system.
GHS also wanted to integrate pharmacy distribution into its supply chain to not only save money but also alleviate back orders that occur with high-demand pharmaceuticals. In the past, GHS had to wait, along with other organizations that used the same distributors, for back-ordered medications.
In establishing its own supply chain distribution center, GHS followed the example of the Intermountain Healthcare Supply Chain Organization, which sources, purchases and delivers supplies to its own hospitals and clinics. Today, linen services and, most recently, pharmacies, are now fully integrated into the GHS supply chain. GHS manages pharmacy supplies using the same pick-to-voice technology that is used for the entire supply chain, so pharmacy supplies are included in supply delivery. Through its own system and the ability to purchase directly, GHS has the power to negotiate discounts and tracing fees directly with vendors to enable its rapid, 11-month, return on investment.
This move has allowed GHS to save $5-$7 million annually by using its own supply management and distribution center. They also receive $4-$5 million in rebates from supply distributors and have reduced dependence on external distributors, going from $40 million down to $6 million in supply costs, or 4 truckloads per week down to one truckload a month.
Transporting the C-Suite to the supply room
At the same time it was revamping its distribution system, GHS made an intentional effort to directly involve physicians and other leaders across the system to support and create greater supply efficiencies. Creating awareness of supply costs among all levels of the organization, GHS reasoned, would ultimately help save money and motivate others to look for more efficiencies and savings.
Nobody better understands the importance of a lean, efficient and trusted supply chain than the CEO at GHS, who has a supply chain background and a Master’s degree in supply chain management. With the CEO coming to the table with an overall understanding of the complexity of the supply chain lifecycle, he could clearly delineate for other executives the visible and hidden costs of an inefficient supply chain and how the supply chain fit into GHS’s overall cost and budgeting strategy.
Most physicians—78 percent–at GHS are employed by the organization and incentivized through their pay structures to keep costs under control. The system engages physicians by providing system transparency, insight and analysis so they can monitor their costs, readmission and care quality. Physicians feel they have a voice in how supplies are managed, and GHS can avoid the level of supply hoarding that can occur when physicians and nurses do not have access to or feel they are getting what they need. By establishing physician supply chain “champions” and offering incentives, more trust and transparency now exists between the supply and clinical teams. In turn, by keeping staff focused on their job instead of supply management, patient care exponentially improves, which means value-based reimbursement penalties decline.
So, welcome to the supply chain of the future -- one with representation at the C-Suite table that works to shed light and integrate various aspects of the organization into one system, and works alongside clinical staff to make the best possible decisions. The supply chain of the future supports clinical practices, helps make faster decisions, and measures outcomes throughout the organization with business insights and intelligence across all areas.
Cory Turner is Infor's health supply chain's strategy director.
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