6 minute read 1 Apr 2021
EY - Female nurse in medical supply room

How to build a more resilient health care supply chain

By EY Americas

Multidisciplinary professional services organization

6 minute read 1 Apr 2021

Show resources

  • Building a more resilient healthcare supply chain: perspectives from a pandemic (pdf)

Route disruptions, rising costs, eroding margins and scarce critical items have contributed to supply chain resiliency being an imperative.

In brief

  • Supply chain is increasingly seen as a strategic function.
  • Many health systems are beginning to look at enabling technologies to automate and alleviate the transactional and administrative burden on their workforce.

To better understand how health systems are advancing the supply function amid the COVID-19 pandemic, in fall 2020 we surveyed 39 large US health providers, primarily nonprofits ranging in patient population and geography.

Their responses offer insights into how to reinvent the health supply chain. Several themes emerged in the areas of strategy, integrated planning, procurement, performance and risk management, and efficiency:

  • Supply chain is increasingly seen as a strategic function of health systems, likely as a result of the COVID-19 experience; nevertheless, there is still room for improvement. Only 23% of the hospital systems in the US report that an integrated supply chain strategy has been developed and aligned with the corporate strategy.
  • Many participants do not have a holistic integrated planning program with real-time data forecasting. Ninety-five percent of US health systems surveyed want to increase demand planning. More than half do not use any system for planning.
  • Increased costs came at a time when health systems were cash-strapped and margins had been decimated. Most participant are considering a shift in their relationships and risk management with respect to group purchasing organizations (GPOs), distributors and suppliers.
  • Health care systems and payers are shifting to an outcome-based model. More than 50% of the survey respondents tie patient outcomes to supply chain initiatives.
  • There is a definite need for more efficiency in the supply chain, which can be supported through automation and other technology. More than 74% of the survey respondents have implemented lean continuous improvement programs, but few have seen gains worth the effort.
(Chapter breaker)

Chapter 1

Supply chain strategy

A more strategic function in the new normal

Only about one-third of the respondents connected their supply chain strategy to the overall corporate strategy.

  • Continue to strive to align with the vision of the health system
  • Collaborate toward a common purpose
Graph showing Strategic supply chain decision-making authority bodies distribution

Governance and decision-making

  • Success is usually determined by clear governance, standardized processes, designated roles and responsibilities, and regular two-way communication.
  • 57% of survey participants use a blended decision-making model that is both centralized at the corporate level and federated within each hospital.
  • This model may enable collaboration and increase buy-in across the enterprise; however, health systems should be concerned about whether hospitals operating at the individual entity level are performing as well as if they had leveraged the system as a whole.

Looking ahead

  • Advance the supply chain function from a core cost center to a revenue-generating function
  • Leverage increased attention and need for advancement as a way to garner support for much-needed investment, development and innovation
(Chapter breaker)

Chapter 2

Integrated planning

The need for true integrated planning among health systems

Demand planning


see a need to increase their health system’s demand planning capabilities, with a few organizations looking to begin demand planning.

  • Planning is an instrumental lever to deliver risk management and resiliency within the supply chain.
  • Few participants have a holistic integrated planning program with real-time data forecasting and modeling systems.
  • COVID-19 disruptions in the supply chain will place a new emphasis on demand planning programs and require more established analytical technology.
  • The majority of respondents indicated that they have no formal demand planning system but instead are using historical data to predict demand.
  • Responses indicate a gap in demand sensing techniques, which can be used to identify short-term fluctuations and adjust short-term demand.
Kinds pf data utilized to determine the demand to support forecasts.

Looking ahead

  • Develop a multi-echelon inventory network that provides visibility across the supply chain for more accurate ordering and planning
  • Establish true integrated planning programs with the necessary data tools and analytics with the goal of becoming less reliant on data from distributors, GPOs and suppliers
(Chapter breaker)

Chapter 3

Procurement in health care supply chain

Experiencing increased costs when health systems are in need of margin recovery

  • When providers have access to data about the cost and outcomes of the supplies they use, the impact on supply use and cost is prompt and measurable.
  • Consider “localization” or “onshoring” to better manage risk, which would likely be done between more local suppliers directly working with health systems, while excluding GPOs or distributors — but only do so with a robust supplier risk and relationship management program in place.
Graph showing opinion on whether health system will use GPOs to change as a result of COVID-19 pandemic

GPO constraints

  • Most survey participants see a necessary shift in the relationships and risk management of their GPOs and suppliers.
  • One-third said they would decrease their use of GPOs.
  • This decrease may be driven by the fact that the GPO model tends to limit a diverse and expansive array of suppliers.

Looking ahead

  • Health systems may shift away from GPO and distributor reliance to provide better risk management. What remains to be seen is the extent of this migration as it will likely increase costs at a time when there is a greater focus on margin and cost reduction, not to mention that it will open the organization to risk.
  • Cost reduction efforts should be focused on the utilization of supplies, variation in the use of supplies by physician and by procedure, and value sharing with key supplies.
(Chapter breaker)

Chapter 4

Performance and risk management

A focus on supplier report card and risk management

  • 28% of survey respondents use outcome-based scorecards to measure supplier performance.
  • As outcome-based care models continue to grow in the health care community, having a robust supplier report card, including data about outcomes and costs, is essential.
Graph showing the extent to which patient outcomes are measured to track the impact of supply chain initiatives

Looking ahead

  • Although most health systems track health outcomes to some degree, over half of respondents said they are not using this data to track the impact of supply chain initiatives, including supplier performance.
  • Many health systems are unable to measure outcome-based performance of suppliers due to system constraints and the supply chain being siloed from the clinical side of the operation.
  • As more health care systems and payers shift to an outcome-based model, it will become significantly more important to align suppliers to the same methodology to increase the cost-quality-outcomes capability across the health system.
(Chapter breaker)

Chapter 5

Supply chain efficiency

Enabling technologies and continuous improvement

Graph showing percentages pf advanced technologies that supply chain functions have implemented
  • The real-time availability of data and information will enable better decision-making to drive efficiency, risk management and improved patient care.
  • Over 74% of survey participants have implemented lean continuous improvement programs, but few have been able to see the efficiency gains they expected from these efforts.
  • 44% see a strong need for enabling technologies within their supply chains, but few have implemented such technologies on a wide scale.

Looking ahead

  • Operating models should be designed to remove organizational complexity, streamline processes and shift from a transactional supply chain to a strategic supply chain.
  • Some of the key levers to do this are through intelligent automation, including robotic process automation, virtual agents, cognitive automation and artificial intelligence.

Co-authored by:

  • Beth Gutweiler-Jarlock, Principal, Ernst & Young LLP
  • Ryan Siemers, Managing Director, Ernst & Young LLP
  • Jon Lange, Principal, Ernst & Young LLP


Enabling streamlined supply chain processes will require focused investments and the integration of enhanced digital capabilities and core operational technologies.

About this article

By EY Americas

Multidisciplinary professional services organization