Provider Post: improving supply chain performance

Three stages of supply chain innovation

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The consumer products and high tech/electronics industries are closest to the health care supply chain.

Fundamentals, extended services and advanced services

As provider care organizations focus on developing their enterprise supply chains, they will move through three stages of innovation.

Supply chain innovation

EY - Supply chain innovation

Source: EY, 2011.

Stage 1. The fundamentals

The fundamental services involve those "compulsory" activities in which every provider organization must function with consistency, efficiency and seamless execution:

  1. Spend management: targeting price and standardization
  2. Direct contracting: securing contracts strategically for all spend
  3. Logistics services: optimizing product flows
  4. Inventory management: perpetually managing major departmental inventories and establishing efficient inventory deployment as the "points of use"
  5. Information management: fully deploying supply chain leading technology and continuously managing content of master files

These are building blocks for supply chain excellence. They can serve as a starting point for assessing organizational readiness for assertively managing the supply chain.

Most organizations have been involved with these service activities for several years, and many still have efforts ongoing as their supply chain operations gain in maturity and strategic direction.

These supply chain elements are woven into the fabric of the organization and are standards of practice throughout the enterprise.

Stage 2. Extended services

Extended services build on the fundamentals and penetrate deeper within the organization's supply chain activities. They also leverage enhanced relationships with channel partners, including manufacturers, distributors and GPOs. Extended services include:

  1. Industry data standards: participating in and adopting current industry data standards
  2. Enterprise value analysis: broadening the value analysis process to include all enterprise product and service spend
  3. Enterprise sourcing: centralizing all sourcing and procurement activities
  4. Procurement: establishing enterprise procurement with category management focus
  5. Utilization: targeting the "significant few" products and categories to explore efficiency and effectiveness of use

Engaging channel partners and involving medical staff is essential for effective supply chain decision-making.

In the post-healthcare reform environment, with payment hinged on patient outcomes, physicians and caregivers will need to be actively involved with management in the value analysis process — evaluating product selection and use with an eye on improving not only financial, but clinical, goals.

Stage 3. Advanced services

Advanced supply chain services for health care provider organizations borrow from the innovation and operating best practices of other industries.

The consumer products and high tech/electronics industries are closest to the health care supply chain. Those industries pioneered supply chain initiatives that address challenges similar to those in health care.

Continuing the advancement in provider supply chain competencies, advanced services should be applied after the provider has successfully mastered the fundamentals and made progress in executing extended supply chain services.

Advanced services include:

  1. Supplier synchronization: implementing strategic programs, blurring traditional roles to lower total cost for both parties
  2. Product assembly: exploring the self-assembly and packaging of supplies and pharmaceuticals
  3. Regional cooperatives: affiliating with other provider organizations, through common supply chain programs
  4. Procure-to-pay: consolidating the cycle management from purchase order to payables
  5. Shared services: establishing a central operation for all enterprise supply chain activities