Healthcare Supply Chain: Everything You Need to Know

The healthcare supply chain, or Healthcare Supply Chain Management (SCM), involves the transport of medical equipment and legal medication from manufacturers to healthcare institutions. Healthcare SCM involves procuring and distributing medical products and services from a wholesaler to a patient while being both financially as well as logistically efficient. 

The primary focus of creating a supply chain is to provide the necessary medical requirements to the institutions like hospitals, clinics, or pharmacies as quickly as possible. One may be tempted to think that the Healthcare SCM simply involves sending in an order for a list of equipment like medication, protective gear, and other medical paraphernalia. However, this supply chain happens to go beyond this and focuses on getting the best resources for the individuals at the end of the chain, the patients. 

Key Players in a Typical Healthcare Supply Chain

The structure of a healthcare supply chain is primarily based upon a typical supply chain. In this case, the “consumers” would be the patients in need of treatment. They are the ultimate beneficiaries in the supply chain. At present, the supply chain can be divided into three parts. They are: 

  • Source 

The healthcare supply chain always begins with the manufacturer, who will use raw materials to develop and create products. The manufacturer will then either directly transport the goods to the institution or work through a mediator. 

  • Mediator 

The mediator, in this case, can be distributors or group purchasing organizations. A group purchasing organization is an organization that functions to create contracts between vendors and stakeholders in an effort to reduce the overall cost of purchasing goods. They exclusively cater to the healthcare sector in procuring goods and services. 

  • Stakeholder 

Finally, the products and services are delivered to the stakeholders. In this case, the medical establishments like hospitals, nursing homes, and other places that treat the patients. Here is where the invoicing and payments will take place. That is, the shareholders will compensate all the parties in the supply chain. 

The supply chain is also monitored by regulatory bodies like Food and Drug Administration and other insurance companies like Medicare that check if the goods being used are safe for use. 

The Complexity of the Healthcare Supply Chain

According to experts, a supply chain is said to be complex not because of the factors or constraints that it possesses. Rather, it is said to be complex if the relationships or connections can drastically change if one of the factors undergoes changes in the supply chain. 

Although the structure of the supply chain is similar to any other, it is still said to be one of the more complex supply chains in the world. In addition to this, it can also have a great impact on the revenue of the establishments and, in turn, the patients as well. 

The biggest problem that this supply chain faces is the disparity of interests between the medical staff and the financial management team of the same hospital. This complexity is not applicable only to the healthcare supply chain but is found in other sectors as well. The doctors may prefer to use certain products on their patients to boost their recovery, but it may not sit well with the management. 

This is because the management’s main aim is to provide the essential goods at a price that will yield the highest profits. In essence, this difficulty can be attributed to the fact that the supply chain goals may not always align with that of the staff. In conclusion, the healthcare supply chain has also become a victim of a misalignment in the incentives and friction in the goals set by different participants in the healthcare industry. 

Challenges Faced in the Current Supply Chain 

In addition to the already complex state of the supply chain, the healthcare industry is also plagued by several problems. The Cardinal Health survey, which was conducted in 2018 in an attempt to determine how much the healthcare supply chain management needs to alter its operations, showed the following statistics.

A significant 40% of staff and key distributors state that surgeries have been canceled due to inadequate medical supplies. In addition to this, 27% of the staff have reported that they have seen or heard cases where patients were administered expired medicines.

The reason for this mismanagement can be attributed to a variety of problems faced by all the parties involved in the supply chain. The reasons for these challenges that plague the present healthcare SCM process is: 

  • Mismanagement of Inventory

Hospitals can sometimes struggle with ensuring that the right sections of the hospital are receiving the required amount of inventory. It may also have problems with expiring items as well, especially when it comes to drugs and invectives. This mismanagement can drastically affect the revenue of the hospital while also hurting the profit margins. 

Decision-makers in the supply chain can potentially eradicate this problem of mismanagement should create a “synergy” between the healthcare establishment and the supplier.  

  • Preferences

Another challenge that might surface is the difference in the preference of the healthcare professionals and the products being delivered. That is, there may be some friction between the financial managers and the medical staff working in the establishment. 

  • Unethical Practices

There have been several cases where internal factors have sabotaged the efficiency of the supply chain. These cases include hoarding by the establishment of an individual, pilferage, or even selling it illegally to a third party. This type of practice is a silent but significant source of loss for the hospital as well as the patients. It can result in cost variance and off-contract spending, both of which are hard to detect. This can, in turn, lead to an overall loss in revenue. 

  • Poor Product Standardization

There is a high degree of variation in the healthcare supply chain, which can be detrimental to the patient experience. This lack of product standardization can involve providing lower quality products to the patients just because it proved to be more profitable or a cheaper option at the time. Therefore, the patients will not have access to the treatment that can cure them. 

  • No Automation

Most of the tasks with respect to inventory management take place by manual methods. That is, certain tasks like data entry and accounting for all the items were recorded by hand. This was a highly inefficient method that meant that a large portion of the staff could not give their attention to the patients. Lack of automation was the primary reason for this problem. In fact, this deficit is also seen in other areas of the healthcare SCM. For example, there is a lack of communication between all the parties involved in the supply chain. 

  • Increasing Regulations 

As the years go by, the regulations for protective equipment become increasingly stringent. Regulatory bodies require establishments to possess an array of equipment, causing more financial disarray. Although these regulations are necessary, they can put a hospital in a bad position as their hands are tied in this case. 

  • Risk-Taking

There is a general disconnect between the vendors and the organizations that buy products. This is especially evident when the medical establishments are not in direct contact with the vendors as they utilize a distributor to obtain their inventory. Therefore, this can lead to the organizations becoming victim to fraud, conflicts of interest, or even a violation of the CMS stark laws. 

How to Optimize the Management of a Supply Chain 

The process of optimizing a Healthcare supply chain can be an interesting prospect for both patients and the medical establishment. The primary reason being that these establishments could save around $11 million annually per hospital if they look to optimize their supply chain processes, as per research. As for the patients, the streamlining of this supply chain would mean that they could receive life-saving treatment at a reduced cost. 

Since this optimization ensures so many benefits, here are a few ways in which the SCM process can be improved:

  • Evaluating Suppliers

Since this is the beginning of the supply chain, it will be a good place to start with. This step will basically involve determining if the current supplier is providing good quality products at a reasonable price. It also involves improving the management of the purchase of goods and services. 

The suppliers will include manufacturers, raw-material providers, storage providers, and logistics service providers or LSPs. This step draws up contracts that will favor both parties. 

  • Increasing Visibility

Steve Kiewiet, a leading member of the SCM operations at BJC healthcare, a major problem is the lack of visibility of the use of goods being transported along the supply chain. That is, information regarding how much product is delivered and used will be tracked. Thus, the hospital will attain visibility regarding its inventory. 

  • Hiring A GPO 

The use of GPOs can be a convenient option for establishments. They can help a hospital attain the best deal for the purchase of goods and services from the vendors. In addition to this, some GPO’s may also be capable of obtaining discounts during the purchase. Although there are cases where the hospital will carry out a purchase without a GPO, the price can be much higher. This is known as GPO price-fixing. 

  • Price Transparency

There are several cases where the price of the goods or services was different depending on the location of a patient. This discrepancy was an unethical practice which the government inhibited by putting forward the price transparency law. This was partly because of the lack of standardization among all the healthcare establishments. As per this law, the patient has to receive all the details regarding the price, and the information regarding the out-of-pocket expenses should be available to the patient. 

  • Achieving Synergy

The difference in opinions between various groups in the supply chain can be harmful to the flow of goods. For example, friction between key players in the healthcare supply chain can lead to a decrease in the productivity of the medical staff or the vendors. Therefore, optimizing the supply chain would involve ensuring that there is synergy between the organizations, distributors, and vendors. 

  • Centralizing Inventory Control 

Most logistic networks that are found in the supply chain have several levels to them. Thus, managing so many levels at the same time can become a challenge. Therefore, the use of optimization software can drastically reduce the complexity of a multi-layer network by centralizing the control of the inventory. Therefore, there is no chance of information being lost in translation while the inventory undergoes delivery and distribution to various parts of the organization. 

To better understand how the supply chain can be optimized in the healthcare sector, visit this website

The Role of Technology in Healthcare SCM

In a recent survey involving numerous medical establishments, 98% of respondents state that the optimization of the supply chain can drastically improve the margins of the establishment. 

In addition to this, a large portion (69%) of the managers that deal with healthcare information technology says that the supply chain is the topmost valuable asset for data mining. 

These statistics encourage the supply chain to become more technology-friendly. The price of the goods and services provided by distributors or vendors can differentiate depending on the type of systems they used to manage their inventory. At present, two systems are in use. 

  • Enterprise Resource Planning System (ERP) 

The first system is known as the Enterprise Resource Planning system. This system is common among many sectors. As per this system, the use of a software suite is implemented in an effort to gather data regarding several aspects of supply chain management. The data collection involves information from the manufacturing to accounting for the inventory received to distributing it. 

However, ERP systems are rigid and cannot undergo customization to fit the workflow of a medical institution. In addition to this, the systems only cater to large-scale businesses that conduct business on an international level. 

  • Niche System 

Due to the inflexible nature of the ERP system, the Niche System proved to be more effective. This system refers to the use of software to focus on managing the supply chain in compartments. As such, the system will manage inventory in different departments like surgery, urgent care, and other departments separately. 

This disparity between the departments makes it possible for the establishment to cut down expenses drastically. This is because inventory can be easily collected and distributed as per the needs of each compartment. The system has proved to be so effective and flexible that it is now a common solution for managing the supply chain in the healthcare industry. 

In addition to this, the niche system puts the patients first and functions to cater to their every need while also being affordable for the institution. 

Benefits of Incorporating Technology in Healthcare Supply Chain Management 

The implementation of technology is beneficial in any industry and its supply chain. However, the healthcare supply chain can benefit more than others. The most recent technological innovations that underwent implementation are: 

  • Automation 

As mentioned above, the decreased automation seen in this supply chain saw much medical staff doing monotonous and unnecessary manual work. Therefore, the implementation of automation software to account for the incoming and outgoing inventory can vastly reduce the time they spend away from the patients. 

In addition to this, automation allows an establishment to receive invoices as a result of complete automation. This allows one to keep track of all the vendors that were selling products to the establishment. Automation also has a place away from the supply chain as well since the software can be used to take a patient’s history and pull up medical records fairly quickly. 

  • Data Analytics 

The ability to analyze not only the storage of the goods coming in but also view the use of said goods during a specific period of time is possible with the help of technology. Therefore, the implementation of software can increase the visibility of the inventory as well as plan the distribution of equipment as per the needs of each department. 

  • Communication 

Communication is an essential component in any supply chain. Technology can help to alleviate risks as the organizations can form more credible relationships with the vendors and distributors. In addition to this, the establishments will receive information regarding possible delays in shipment and logistical errors during transport. This will allow the hospitals to prepare and brace for a shortage in supplies. 

  • Efficient Workflow

The possibility of errors taking place due to the involvement of humans in the supply chain is quite high. The use of the technology can drastically reduce these errors and thus make the workflow much more efficient. In addition to this, the patients can now receive undivided attention from the medical staff. 

  • Maintaining a Standard 

The use of technology in the supply chain can also provide hospitals with the ability to improve price transparency by setting a standard for all the goods coming in along the chain. The implementation of software can help to streamline orders from providers making it possible to order inventory quickly and seamlessly. 

How the Healthcare Supply Chain Management System Evolved 

The management of supplies in the healthcare sector has seen its fair share of ups and downs. The first model of the supply chain in the healthcare industry was primarily based on attaining the highest profit possible. This approach did not involve the opinions or needs of the patients or their doctors. As a result, the patients were unable to access the best treatment for their condition.

As stated above, the COVID-19 pandemic that ripped through the world led to a drastic change in the healthcare supply chain and its management. Barely two to three months into the pandemic, several states in the USA were running out of protective gear and simple requirements like hand sanitizer. The shortage was mainly due to the equipment that came from foreign countries for a lower price. 

Therefore, the situation was merely a reflection of how unstable the supply chain encouraged hospitals to cut corners instead of taking temporary losses for a long-term goal. The following video dives deeper into the impact of the pandemic on the healthcare SCM process.

The process of implementing technology in managing supply chains was not given very serious thought until hospitals began to run out of essential items. Therefore, a significant number of organizations have decided to use state-of-the-art digital solutions to set optimal inventory levels and even plan out redistribution of goods to specific warehouses or departments within the organization itself. This will drastically improve the flow of goods to the regions that require them. 

The implementation of digital solutions can predict incoming demands to a certain degree. In addition to this, the supply chain consultants can use this software to create a full inventory plan that includes optimum stock levels, cycle stock, and cycle times. 

At Procurement Partners, the ordering of supplies and management of the supply chain is fairly easy. The vendors and distributors are always credible and can be reached on the platform itself. Therefore, organizations can now put their inventory and healthcare SCM woes behind them with Procurement Partners.

Looking to Reduce Your Annual Spend?

Procurement Partners helps customers reduce their annual spend by 10% or more with an easy-to-use portal where users can place orders and process invoices for all vendors. Procurement Partners is the leading spend management system for Post-Acute Care and Senior living and has helped companies achieve 40% time savings and 95% contract compliance through automating the procure-to-pay process.