Healthcare Supply Chain

Supply chain is a term many people have been hearing quite a lot about since 2020. A supply chain is the network of individuals, companies, resources, activities, and technologies used to make and sell a product or service.[1]

Healthcare is an area where the supply chain was hit particularly hard. Since the start of the pandemic in 2019, nearly every hospital across the country has reported supply chain issues. Four out of five experienced supply shortages, putting strain on an already taxed system.

Since then, a call has gone out to improve the resilience of supply chains to mitigate the risks of a situation like this occurring again.

What is the Healthcare Supply Chain?

The healthcare supply chain encompasses the management of three different flows within a given institution. These are:

1. Product or supplies
2. Information often related to but not exclusive to the products
3. Money or the financials across multiple trading partners

You can see from the illustration below (fig. 1) how these flows occur in a healthcare environment.

Why Healthcare Supply Chain Matters

Supply chain matters because it is an area where significant value can be created in a healthcare institution. Establishing value can come through the cost of providing care for individuals aimed at achieving the best possible outcome, which supports the desired financial results of patient outcomes.

Supply Chain creates significant value through:

• Cost reduction
• Increased revenue
• Improved service
• Reduced risk
• Improved clinical outcomes
• Improved productivity
• Incubates innovation

According to the American Hospital Association, the supply chain can be responsible for over 41% of a hospital’s non-payroll expenditures.

Healthcare Supply Chain Management

Supply chain management (SCM) is the planning and management of all activities involved in:

• Sourcing and procurement
• Conversion, all logistics management activities
• Coordination and collaboration with channel partners

Healthcare Supply Chain Functions

Strategic Sourcing

The process of determining the products to buy, where to buy them, and from whom. Strategic sourcing focuses on:

• Improvement, re-evaluating suppliers
• Establishing purchasing budgets
• Negotiation with suppliers
• Periodic assessments or audits of transactions
• Evaluating and selecting suppliers that meet the combined needs of the buying organization

Sourcing is the Hub in the decision-making process for the supply chain. They lead the supplier selection and product selection process while helping the organization set priorities in their focus areas.

Strategic sourcing is also responsible for engaging all stakeholders across clinical, legal/compliance, IT, payor, supply chain, finance, etc. They bring facts and data to eliminate bias amongst stakeholders and to:

• Facilitate debate among stakeholders
• Educate on TCO [Total Cost of Ownership]
• Empower others to sign contracts
• Enable contract lifecycle management
• Enable supplier collaboration

Buying/Purchasing

After sourcing, selecting a supplier, and entering the contract into the system, buying or purchasing is the next function step. Buyers are responsible for the acquisition of the required materials, services, and equipment that have been sourced in the previous function.

1. Requisition PO Processing
2. Supplier scheduling
3. Receipt processing
4. Item master/content management
5. Catalog management
6. Contract master management

Receiving/Logistics

Receiving and logistics is the process that plans, implements, and controls the flow of goods and services between the point of origin and point of consumption to meet the customer’s requirements

Payment

It is pretty straightforward here: Accounts Payable processes invoices that come in from suppliers for goods and services.

Program Management

The last component of the supply chain is program management. Simply put, this defines which programs within an organization the supply chain is tasked to manage.

Healthcare Supply Chain Framework

Alignment

In order for any supply chain to be successful, there needs to be an alignment in vision amongst several areas of the hospital. These four infrastructure elements need to be in sync:

• C-suite – Vision, mission, values
• Service Delivery Model – Governance
• Planning – Goal alignment
• Policies, procedures, and guidelines

Talent

To create a reliable and robust supply chain, you must have leaders on your team who will attract, develop, and retain your organization’s best talent.

Risk Management

Supply chain visibility is the overarching key to success in risk management. Visibility into the inner workings will allow for better:

• Business continuity
• Supply chain risk management
• Emergency preparedness
• Supply chain resiliency

One of the ways to increase visibility and reduce risk is through the use of technology platforms that help you manage the business:

• ERP
• P2P Suites
• Analytics
• Supplier management
• Travel and expenses
• Forecasting
• Budget

Continuous Improvement

Synonymous with process, continuous improvement simply means always improving. Processes are documented, continuously improving these processes, adding value-added rigor, and eliminating wasteful activities over time.

This can be an employee-led, ongoing effort to promote incremental improvements, frequently referred to as Kaizen. While it requires a commitment to building a culture, it applies to processes, products, services, and technology.

Change Management

The importance of leading change cannot be understated. It may take time and effort, but with the right methodology, you can help others see the need for change and the importance of acting immediately.

John Kottler’s Leading Change Model is one example of this. The eight steps are as follows:

1. Create a sense of urgency
2. Build a guiding coalition
3. Form a strategic vision and initiative
4. Enlist a volunteer army
5. Enable action by removing barriers
6. Generate short-term wins
7. Sustain acceleration
8. Institute change