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The Added Value of Supply Chain Management

By CME on Jan 16, 2016 3:00:00 PM

DistributionManager.jpgWith most healthcare organizations spending as much as 38% of their budget on supply chain activities, effective supply chain management is an absolute must in the healthcare industry.  Supply chain activities are the second largest and fastest growing expense for medical facilities, second only to labor costs.  Effective supply chain management is thus an extremely important added value to any healthcare organization's overall operations.

The healthcare industry is undergoing huge changes regarding patient-care and budget dynamics that create new challenges for supply chain managers.  This is especially true now that the Affordable Care Act requires that reimbursements for healthcare services start moving more toward a value-based, rather than volume-based, payment model.

For example, think of Medicare reimbursements being the seat on a three-legged stool with those legs being:

  1. Clinical outcomes,

  2. Cost savings, and

  3. Patient satisfaction

The greater the legs are, the higher the seat goes; or, more properly, the shorter the legs, the lower the reimbursements.

With supply chain activities being such a big part of the overall budget, effective supply chain management is increasingly more important.  When we think of "supply chain" we often think of the processes of requisitioning, ordering, purchasing and receiving consumable medical supplies.  However, it is all of that and more.  The supply chain also refers to all of the activities and entities involved from planning, to obtaining, receiving and installing the durable and capital equipment items needed for facility expansions, new construction and/or remodeling projects.

Consider the following ways in which supply chain management can be utilized to add value and reduce the rising costs within the healthcare industry:

  • Automating Manual Processes.  The automation of processes like requisitions, purchase orders, inventory controls, and invoices removes manual and error-prone processes from the supply chain that are frequently linked to higher costs and shipping delays.  Incorrectly entered information can lead to shipping and delivery errors.  Healthcare facilities cannot afford to waste material and human resources, particularly when the errors are avoidable with effective automation.

  • Working with Efficient and Reliable Trading Partners.  Effective supply chain management creates a durable and working relationship among the various manufacturers, distributors, group purchasing organizations (GPOs), involved physicians and hospital departments themselves.  Each party performing a specified role that contributes to the most efficient movement of equipment, supplies, information, or services to the real end-user, the patient.  The relationships with distributors is an important added value provided by supply chain management as such alliances help keep down:

    • purchasing costs,

    • shipping costs,

    • warehousing and storage costs,

    • end delivery costs,

    • set up costs, and

    • packing material removal costs

  • Streamlining the Procurement Phases.  Delivery scheduling and multiple product deliveries are two of the more challenging issues when new equipment is due for a new construction, expansion or remodeling project.  Balancing when the ordered equipment and supplies can be delivered is often frustrating as working directly with manufacturers generally means that items will be shipped according to their shipping calendar regardless of the facility's workflow or construction schedule.  However, with effective supply chain management, the delivery timeline can be put in the hands of the facility.  Supply chain management can work with a dedicated medical equipment distributor to receive all of the items within a given order at the distributor's warehouse, thereby eliminating long-term storage costs.  Once all items are received and inspected for compliance and order correctness, only then are they shipped to the hospital or medical office space.

As we noted is a previous blog, McKinsey & Company states that, healthcare companies "need to increase the transparency of their costs".  Automation, open trading relationships, and coherent data collection through a streamlined procurement phase are all key factors that create this more transparent cost system.  And it's all due to implementing effective supply chain management.

At CME, we are committed to helping healthcare providers make informed and effective decisions at every level of the healthcare project planning, purchasing, and receiving process.  We work with large and small facilities as well as the government.  Contact us to learn more.

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Image courtesy via: Stuart Miles/freedigitalphotos.net

Topics: supply chain, Supply Chain Management, medical equipment distributors

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