In healthcare, we tend to stick with old hospital supply chain systems and processes because they seem to work, at least on the surface. The traditional model of contracting with a group purchasing organization (GPO), procuring products from a distributor and using an enterprise resource planning (ERP) system for all things healthcare supply chain is still commonplace today.
The COVID-19 pandemic and subsequent ongoing product shortages shook the very foundation of that model, exposing the cracks and vulnerabilities and forcing healthcare organizations to rethink supply procurement and management.
To gain greater control over their supply chains, health systems are stepping outside the box they’ve been contained within and building new models independent of third parties. Direct bulk buys from manufacturers, inventory managed within consolidated service centers (CSC), self-distribution to facilities and even custom pack production are some of the strategies hospitals are pursuing as part of today’s hospital supply chain system revolution.
As they evolve, healthcare organizations are realizing that while their ERP systems store contracts and facilitate ordering of general medical/surgical supplies, which supports the traditional GPO/distributor supply chain model, these limited capabilities do not allow for expansion outside of that box. An ERP is not a hospital supply chain system, and it was never designed for this purpose.
Therefore, the true cost of using your ERP to act as your hospital supply chain system is the restrictions it places on your ability to improve.
What’s needed to support the areas of supply chain modernization that healthcare organizations are embracing today is a true hospital supply chain management system that works in partnership with the ERP and electronic health record (EHR) systems. A supply chain management (SCM) system provides the enterprise-wide level of visibility and control that these hospitals require when assuming responsibility for their end-to-end supply chains.
Let’s look at how a hospital supply chain management system paves the way for hospitals and health systems to modernize their supply chains and achieve improved operational, financial and clinical performance.
Self-distribution
Self-distribution via a CSC has grown in adoption among hospitals in response to not having what they needed for supplies during the pandemic. Hospitals that have established CSCs have achieved:
- Up to a 60% reduction in backorders.
- Up to a 30% reduction in logistics and handling costs.
- Up to a 20% reduction in spend through better purchase prices.
Movement to self-distribution via a CSC presents the opportunity for a healthcare organization to centralize not only supplies, but also inventory management processes and data.
ERP systems lack the capabilities to support this. An ERP system can’t tell you what’s in your CSC inventory, other storage locations and in clinical departments, nor can it track when and where these supplies are moved or document when they are used in patient care.
An SCM system can do all this and much more. When integrated with your ERP and EHR, it facilitates automated and electronic item tracking throughout your hospital supply chain system: receiving, storage, picking/packing, distribution to facilities, movement of supplies within a facility, all the way through to the point of use (POU).
Informed Bulk Buys
Healthcare organizations are looking for price point improvements on supplies and one way they are doing it is through direct from manufacturer bulk buys. They are negotiating their own prices with manufacturers for bulk purchases, which can provide tremendous savings over GPO and distributor pricing.
Those organizations that have established CSCs have the space to store high volumes of items delivered direct from the manufacturing plant. The challenge they face is matching supply to demand. Purchasing a huge quantity of one item may save money on the front end, but it will lead to financial losses if those supplies go unused and sit expiring on shelves.
While your ERP system doesn’t offer analytics and reports on supply inventory status to drive informed decision-making, a hospital supply chain management system provides the data you need to perform accurate demand planning and forecasting, such as buying patterns over previous years.
Controlling the Costliest Supplies
Supplies in procedural areas (e.g., perioperative, cath/IR labs) are some of the costliest and require the highest level of tracking and documentation. The same goes for pharmaceuticals, biologics and human tissue products.
Healthcare organizations have turned their sights on these supply categories in recent years, but those relying on their ERP system for inventory management find their hands tied because they are not contained within the item master. And the ERP system does not feature expiry logic, which is critical to the management of these items.
A hospital supply chain management system, on the other hand, has the flexibility to extend across consignment and drug inventories, consolidating management of these items along with general medical/surgical supplies. With it, you can track lot and serial numbers and UDIs for compliance with regulations and to manage recalls, and expiry dates to reduce the risk that an expired product will be used on a patient.
Custom Surgical Packs
To reduce costs and waste, healthcare organizations are also pursuing opportunities to assemble their own packs containing medical/surgical supplies for common procedures. Traditionally they purchase these packs from a distributor, which charges the item prices plus the labor to build them.
To take this step further, the healthcare organization needs material requirements planning capabilities, such as a bill of materials for the packs, to determine which items to include. While the ERP system does not contain this level of information, a hospital supply chain management system does.
Where to Start
Hospital supply chain system transformation is a journey – most healthcare organizations don’t have the financial or staff resources to do everything they want to do at once. Start with the implementation of an enterprise-wide SCM system integrated with the ERP and EHR as the foundation for your modernization efforts.
