Provider Post: improving supply chain performance

Choosing your innovation pathway

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For the health care supply chain, the time is right to manage and control non-labor expenses.

Three paths to innovation

Initiatives to improve the supply chain process take one or more of the following paths, depending on how much money an organization needs to save. Each path targets a specific aspect of the supply chain to uncover potential savings.

  • Product/service category management. The provider organization may target, for example, orthopedic products. Beginning with end-user clinical requirements, the multidisciplinary supply chain team will evaluate suitable alternatives, research published clinical data and evaluate the economic impact on the organization.
  • Departmental point solutions. The organization may choose to focus on specific supply-intensive departments, such as respiratory therapy. Evaluating total cost improvement opportunities across the continuum of services and care this department provides, the supply chain team will factor in product selection and use dependencies, achieving a simultaneous, concurrent evaluation of cost reduction opportunities that optimize patient care.
  • Supply chain functional efforts. The organization may evaluate specific supply-chain-oriented operations. For example, many progressive organizations are bridging the transactional gap between purchasing, receiving and accounts payable by implementing an integrated approach to procure-to-pay cycle management.

Goals of supply chain management approaches

Reduce costs of products and services
  • Supplies, pharmaceuticals, services, capital assets
  • Pricing, standardization, utilization
Goal: A 5%–10% reduction in annual non-labor expenses, annual spend compression and containment; optimized utilization and consumption
Market maturity: Mature, ongoing, mandatory to control spend
Time to goal: 4–15 months
Reduce costs of supply chain operations
  • Processes and service levels
  • Technology development
  • Total costs-to-serve
  • Control procedures
  • Mentoring and development
Goal: A 5%–10% reduction in annual supply chain management operating expenses, enhancing management control and supply chain operation performance
Market maturity: Mature; a must-have to ensure efficiency
Time to goal: 3–12 months
Take a strategic approach to supply chain management
  • Sourcing and procurement
  • Consolidated support service operations
  • Outsourcing
Goal: A 5%–15% reduction in annual non-labor spend, enhanced compliance, reduced duplication of services, greater control of total supply and service spend
Market maturity: Emerging leaders are adopting now
Time to goal: 6–18 months

Source: EY, 2011.

Each of these supply chain paths will typically lead to:

  • Reducing non-labor costs, such as the cost and standardization of key products
  • Reducing supply chain operating costs, such as efficiencies gained from executing processes consistently and achieving high service levels
  • Taking a strategic approach, such as participating in a regional cooperative for supply chain services

    Benchmarking process

    Leading health care providers are applying best practices from other industries to the health care supply chain.

    Where does your organization stand in the next evolution of supply chain management?

    The questions in the chart below serve as a starting point for assessing supply chain strategies and charting your future course.

    Gauging your current state and charting your future

    1. What are your recent supplies and services cost trends?
    2. Do you have detailed supplies and services cost visibility?
    3. How much of your operating expenses are committed to supply chain operations — across the enterprise and within each major department?
    4. Are all purchases for supplies and services centrally managed and controlled?
    5. How does your organization manage sourcing and procurement for purchases outside of your GPO contracts?
    6. Has your organization fully implemented supply chain management information technology and processes, and is the information integrated within your other financial and clinical systems?
    1. Do you have visibility into inventory, including values, turns, obsolescence, and control procedures for all major inventory locations?
    2. Have you evaluated supply chain collaboration opportunities with other provider organizations?
    3. Do you have a comprehensive supplier relationship management program?
    4. Are you considering enhancements in your relationships with your GPO or prime distributors?

    Source: EY, 2011.


    For the health care supply chain, the time is right to manage and control non-labor expenses.

    Looking at how supplies are ordered, received, inventoried and distributed throughout the provider enterprise can reduce direct operating expenses, improve product service reliability levels to caregivers, reduce caregiver time in managing supplies, and, ultimately, enhance patient care and safety.