Editor's Note: This article is part of a series on healthcare supply chains, which can be found in full here.
Many of the registered nurses who walk into my class do so with trepidation and nervousness. They may be participants of a graduate nursing program for administrators, educators and practitioners, but most have never taken a business course. Healthcare, to them, is the art and science of patient care – not a business.
But the reality of healthcare management is far different, and perhaps that’s why my course is a required one. In my class – called Managing Operations, Finance and Risk – the students are exposed to common business themes such as logistics, inventory management, staffing, process management, return on investment and risk. For their final project, they must review a clinical process, map its current state and recommend changes to make it more efficient, cost effective and patient centric.
At the end of the day, the patient-focused supply chain runs like most others. There is a focus on customer service, process improvement, strong relationships, communication and cost management.
Healthcare may be unique in its patient-centric focus, but the fundamentals of supply chains remain the same regardless of the industry. Below, a few strategies taken from the retail, manufacturing and service industries that can help turn cost-cutting drives into a competitive advantage:
Logistics has a direct result on patient outcomes
A stock out in the supermarket may force the customer to buy another brand of egg noodles. A stock out in the factory may delay a production schedule and initiate a prickly call to the supplier. But a stock out in the hospital may have life and death consequences.
In the healthcare supply chain, supplier performance has a direct impact on patient treatment and care.
Consider a family member needing a special heart stent that is sitting on the truck caught in a traffic jam on the way to a delivery at the hospital. Might this be an over dramatic example? Not really. UPS offers a specialty service in healthcare logistics, where they focus on specialized healthcare capabilities of shipping and compliance, storage and distribution, cold chain, and integrated supply chain and fulfillment services. Their focus is on the importance of the patient, noting reliability, scalability and security. FedEx expands healthcare logistics to include medical devices, pharmaceutical and biotech, diagnostics, equipment, and clinical trials.
At the end of the day, the patient-focused supply chain runs like most others.
Supply Chain Dive
Both providers seem to understand the importance of their role in the patient centric supply chain.
In any industry, working with suppliers who understand the unique needs of your business makes managing the supplier chain easier. They understand the cost and performance issues, speak the common language, and provide the specialized products and services needed to support end user customers.
Suppliers in the healthcare supply chain, or those who have segments of their business focusing on healthcare, also understand their unique roles in impacting patient care. Buyers don’t need to convince them as to the importance of excellent customer service, flawless materials, and tightly managed supply chains. Their role in patient care is implicit.
Cost pressures result in process improvements
Lean fundamentals have also found theirway into the healthcare environment.
The Virginia Mason Institute, part of the Seattle based Virginia Mason Medical Center, are experts in lean healthcare, working with hospitals, medical centers, and healthcare professionals in incorporating lean concepts to improve business operations. This results in lower costs and positive impacts on patient care. Using the lean concepts developed in the Toyota Production System (TPS), lean healthcare works to eliminate waste, improve flow and add value, all from the from patient’s perspective.
Lean healthcare, as advocated by the Virginia Mason Institute, provides a culture of continuous improvement, implementing processes that are value-added to the patient and eliminating those that are not. It aligns leaders and staff around a shared vision, empowers frontline staff to drive improvement efforts, and performs root cause analysis to get to core of problems.
The associated cost reduction and efficiency improvements are important in an industry under constant pressure to deliver cost reductions and improved patient outcomes.
The healthcare landscape is undergoing massive changes. Hospitals and medical centers are merging trying to create greater economies of scale, pharmacy and insurance companies are combining in an effort to leverage retail delivery of healthcare services, medical device companies are under manufacturing related cost pressures and big pharma is battling recent tax legislation around the funding of drug research.
Supply chain professionals will be under increasing pressure to lower costs through improved operations throughout the supply chain. Process improvements like lean certainly help, but they are only part of the solution.
Aggregating spend through GPOs provides leverage
Group purchasing organizations (GPOs) are entities that help healthcare providers to aggregate demand from multiple sites and organizations to create leveraged procurement opportunities with manufacturers and distributors.
According to the Healthcare Supply Chain Association (HSCA), members of GPOs include hospitals, ambulatory care facilities, nursing homes, and home health agencies. GPOs do not purchase any products, but negotiate contracts their members can use when making their own purchases. The GPO member still makes the final decision as their purchasing process, supplier selection and needs. The leverage provided by the GPOs may provide competitive support for their non-GPO related purchases.
Efficiency improvements are important in an industry under constant pressure to deliver cost reductions.
Supply Chain Dive
The HSCA notes hospitals and other health care providers are increasingly relying on GPOs to help manage their procurement process, lower costs, and improve efficiencies. Some GPOs offer e-commerce applications to help their members manage the procurement process. Additional services include product standardization, clinician education, and as a clearinghouse for new products and services. GPOs vary in size and scope, with some being owned by hospitals and others servicing only specific healthcare segments.
Up to 98% of hospitals in the United States utilize GPO contracts for procurement, according to the HSCA. They see areas of growth in the healthcare segment to include long-term care, ambulatory care, home care, and physician practices.
While operational improvements like lean healthcare and improved logistics can help in overall cost management, many of the cost savings will be found through better buying decisions. An expanded use of GPOs to aggregate spend is one way to leverage suppliers.
Pressures on buyers are well known, but the pressure on suppliers to find new and profitable customers, spurred by consolidation, is also building. And no one knows what will happen as Amazon enters the healthcare market.
At some point we are all customers
The nurses in the classroom described at the start of this article are dedicated healthcare professionals aspiring to leadership roles in their hospitals, clinics, or practices.
They notice operational issues like bottlenecks, surplus inventory or empty shelves, broken equipment, wait times, waste, work-arounds and poor communication, leading to potential patient issues. A pallet of stainless steel blanks piling up in front of a milling machine is fundamentally the same as patients stacked up in the hallway in front of radiology.
Both are examples of a bottleneck and a broken process. By understanding the concepts of logistics, procurement, inventory management, fulfillment, flow and continuous improvement, they can improve processes, increase efficiencies, and positively impact patient care. After all, that’s why they chose medicine.
