5 Ways To...

Matthew J. Rowan

Healthcare reform demands that hospitals invest in improving both patient outcomes and patient satisfaction. A high-performing hospital supply chain supports these goals while minimizing the outlay of cash and capital. Here are five ways to enhance supply chain performance.

Align capital investment with strategic priorities. In a value-based business environment, hospitals and integrated delivery systems are driving capital toward their core mission: improving outcomes for patients. Minimizing capital tied up in the supply chain increases hospitals' flexibility to make clinical improvements. Hospitals should steer away from supply chain decisions that do not support the organization's core mission or that require long-term fixed investments.

Enforce standardization of supplies. Purchasing discipline is the first step toward strategic cost reduction. The average hospital uses 60 to 100 different types of gloves; top performers use half as many. A robust value analysis is the foundation of standardization. To support compliance, hospitals should use ordering technologies that provide visibility only for products determined to offer the best value with the best outcomes.

Control how much the organization purchases. Owning and handling products drives cost. The goal of top-performing hospital supply chains is to own as little inventory as possible while maintaining optimum service levels. That is why the use of logical-unit-of-measure processes is growing so quickly in health care. Under logical unit of measure, inventory is purchased just before it is consumed. Orders are delivered in smaller, ready-to-use quantities. In top-performing supply chains across industries, most product handling happens before the customer buys the product to focus resources in core strategic areas.

Focus labor resources on patients. Supply chain processes should require a minimum of staff time for both clinicians and materials management staff. It's not uncommon for a product to be touched 10 times before being used with a patient. These touch points waste staff time and increase the risk of errors. A recent PwC study found that hospitals using just-in-time logistics gain significant labor savings. The nonprice cost per purchase order line received was just 3 cents for hospitals using JIT logistics, compared with 15 cents for non-JIT orders with a distributor and 22 cents for manufacturer-direct orders, according to PwC.

Choose do-it-yourself projects carefully. I handle some home repairs myself. Sometimes they pay off and I save a few dollars. Sometimes they don't, and I end up paying a professional to fix my "home improvement." I've learned to ask myself, "Is this task truly within my core competence?" Hospitals should apply the same questioning when considering do-it-yourself supply chain solutions. Self-contracting often makes sense: A value analysis committee and a strategic sourcing group that focuses on reducing the use of expensive preference items can produce up to 7:1 returns. On the other hand, building a warehouse and adopting do-it-yourself logistics requires time and money-and such initiatives are usually breakeven propositions.

Matthew J. Rowan is president and CEO, Health Industry Distributors Association, Alexandria, Va. (rowan@hida.org).


Publication Date: Monday, December 03, 2012

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