Evolution of the Hospital Supply Chain - Part 1
Tue Mar 29 13:00:00 CDT 2016
Director of Health Sector Supply Chain Research Consortium, CAPS Research (HSRC-ASU)
How healthcare systems have come to see supply chain prowess as a core competency
Supply chain management in healthcare is not a new idea, but it’s certainly one whose time has arrived.
The supply chain is a complex, interrelated system, with numerous players and moving parts. Understanding that interrelatedness — inside and outside the hospital walls — will best serve healthcare organizations in the years to come.
Healthcare supply chains haven’t always been the sophisticated organizations they are today. In the past, supply chains were highly transactional, and employees saw their role as fulfilling orders to meet physician and patient needs at the point of care.
As group purchasing organizations (GPOs) evolved, hospitals relied on intermediary organizations for purchasing but didn’t employ a lot of business strategy in the supply chain function. As hospital systems grew, several factors came into play:
- They began to recognize the opportunities in supply chain. It’s well known that physician-preference items are big cost drivers; streamlining and systematizing those purchasing decisions became crucial to cost savings.
- Huge increases in the number of supplies and escalating cost increases — in every corner of the organization — weighed heavily on the bottom line. Today, 17 to 30 percent of the organization’s spend is for supplies.
- Over time, hospitals and growing systems began to realize they needed to become proactive in managing supply costs. A more professional approach, some borrowing largely on big corporations, became common practice. Hospitals recognized their own purchasing power and ability to engage many suppliers to provide them with added value. This led to “in-sourcing” of many processes associated with procurement and distribution.
Today, some systems have fully integrated their supply chain functions — even to the point of manufacturing or assembling some supplies on their own. Large systems have come to see supply chain prowess as a core competency.
Some complex systems have evolved toward a consolidated service center model with self-distribution. This shows potential for streamlining a hospital’s supply chain to achieve high levels of performance and innovation.
While it’s not for everyone, this model speaks to the higher level of sophistication and standardization that the marketplace — and the modern supply chain function — now demands. Supply chain intermediaries have recognized this evolution and, in many cases, adjusted their offerings to provide new kinds of value to their customers. Eugene Schneller is the Director of Health Sector Supply Chain Research Consortium at CAPS
Research (HSRC-ASU) and Professor of Supply Chain Management at the W.P. Carey School of Business at Arizona State University. He is passionate about the ways the health sector can learn from other industries that have embraced the value of big data and trusted buyer-seller relationships.
Eugene Schneller is the director of Health Sector Supply Chain Research Consortium at CAPS Research (HSRC-ASU) and professor of Supply Chain Management at the W.P. Carey School of Business at Arizona State University. He is passionate about the ways the health sector can learn from other industries that have embraced the value of big data and trusted buyer-seller relationships.