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Supply Chain and the Healthcare Industry –What’s the drill?

Supply Chain and the Healthcare Industry –What’s the drill?

Suggested Thumbnail – Credit: Piron Guillaume

It’s an age of competition; an age of curbing expenses and looking for a better way to do things. It’s not about thinking outside the box anymore; there is no box to begin with. And this particularly applies for the health care industry, which is witnessing sharp rise in price in almost all its products and services.

Where supply chain is responsible for most costs, it’s only logical to see it grab all the attention from the different parties involved. And t’s not only a cost matter. Emerging economies want more affordable products. Quality and compliance issues are rising because products are more complex and regulatory scrutiny is stricter. And the number of drug recalls is increasing.

Yet the supply chain remains shattered, showing its weak spots even putting patients at risk, costing hugely and jeopardizing the whole sector from end to end.

For healthcare providers and patients alike, there is a bright side of the gloomy picture. Many companies and organizations across the healthcare value chain are making it their mission to demonstrate leadership in improving human life at sustainable costs. In these regards, Gartner compiled and published a great Top 25 List for 2017  with Intermountain Healthcare on the very top with an impressive combined score of 8.88.

Besides, there are even competitions in the US that recognize the efforts made by healthcare providers in pushing the limits of what we know about Supply Chain in healthcare. The news just came today (April 23rd, 2018) from the ECRI Institute  after announcing the winners of 2018 Healthcare Supply Chain Achievement Award.

The prestigious award honors healthcare organizations that demonstrate excellence in overall spend management and in adopting best practice solutions in their supply chain processes. The list includes:

  • Albany Medical Center ─ Albany, NY

  • Cambridge Health Alliance ─ Cambridge, MA

  • Dartmouth-Hitchcock Medical Center ─ Lebanon, NH

  • Dignity Health ─ San Francisco, CA

  • Hawaii Pacific Health ─ Honolulu, HI

  • Jefferson Health ─ Philadelphia, PA

  • OhioHealth ─ Columbus, OH

  • Owensboro Health ─ Owensboro, KY

  • University of Miami Health System ─ Miami, FL

  • WellStar Health System ─ Marietta, GA

  • Wheeling Hospital ─ Wheeling, WV


The ECRI argues that the evaluation process was based on a study and analysis of each organization's purchase order history and supply chain initiatives. This included ongoing and consistent spend management and market analytics efforts for all medical devices, such as medical equipment, supplies, physician preference items, service contracts, reagents, and others.


But what is the meaning of these lists and numbers if we are not to reap the benefits of an affordable, top quality medicine? How does supply chain work in healthcare? And how will it improve the overall healthcare value chain?

An Ongoing Breakthrough?

A closer look to the Gartner’s List  might pinpoint an ongoing breakthrough. However, for the sake of accuracy, supply chain has a long way to go in healthcare. This is due to the fact that healthcare is utterly unique from a supply chain perspective. The forces acting upon it are complex and are likely to send off blurred signals. Take demand for instance, it is rarely discretionary to say the least knowing that healthcare is a matter of life and death, not a privilege. The same goes for payers and patients, which are more often than not different parties.

The Growing Cost of Medical Supplies

The growing cost of medical supplies seems to “catalyze” the supply chain movement. Clearly, hospitals and clinics spend a lot of money on the medical supplies, both used and discarded.

A study by Abdulsalam, Y., and E.S. Schneller 2017 found that $3.8 million were spent per hospital on medical supplies in 2013. This accounts for 15% of total expenses. Some hospitals attributed as much as 40% of their expenses to supplies, according to research published in Medical Care Research and Review in 2016.

Supply expenses are second only to labor for hospital spending. And the costs have been rising, according to research in Health Affairs from July 2016. Intermediate costs for goods and services at hospitals also exploded between 1997 and 2012 by a little over 100. Medical supply costs specifically grew more rapidly that other supply costs from 2007 to 2012. Obviously, we are facing a clear problem in the value chain of medical supplies. It’s a supply chain failure by all means.

Education, Logistics, and Big Data to Curb Spending and Optimize the Supply Chain

It’s fair to say that most hospitals have tried their best to cut these costs. Beginning with training and informing the medical staff, often than not unaware of the costs of the supplies they are using — or cheaper alternatives.

From a logistics standpoint, it’s not a hit and miss game to say the least. Given that a stock out in the hospital may have life and death consequences, the supplier performance has a direct impact on the patient’s health. And this is where technology weighs in. It’s big data that holds the keys to an optimized supply chain.

In fact, many supply chain teams are already capturing product data that is subsequently used for a variety of purposes (inventory, KPIs, etc.).  This data can be used to help realize important objectives, such as efficient patient cost-to-serve, pinpoint critical times and points of failure in the value chain and proactively maintain flawless logistics for flawless quality patient care.  

To make use of such data, supply chain professionals within the healthcare system need to establish a process in order to both manage the data effectively but also ensure that the data is as accurate as possible. Part of that process is assessing the tools they’ll need in place to manage the data and get it clean. That’s not a one-time event, but rather an ongoing process of maintaining the integrity of the data.

The final step is using the data to prioritize where they can have the biggest impact on process efficiency resulting in cost savings and improved quality of care. That’s actionable data and that’s the trend that needs to dominate the 2018 supply chain.



Pictures: Unsplash

Tags:Healthcare, Supply Chain, Value Chain

Copyright: I, Mehdi Mezni, release the materials herewith, including graphics for commercial use.

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