Health Care & Supply Chain

Health Care & Supply Chain Management Strategy

Summary

• Health care, a current and hot topic

• Industry undergoing a transformation

• The way it rebuilds itself will determine its future

• Supply chain will have a new strategic role, self-distribution

In Health care there are two types of routine inventory:

Stock {purchased and stored in central location,

accounted until is dispersed to departments}

Non Stock {purchased for specific location/department,

expense is recognize upon receipt,

not on a perpetual inventory}

Industry Transformation

Traditionally the focus for operation was on stand-alone hospitals, but over the last 20 or 30 years they have moved into affiliated systems, whom are managed individually, but take advantage of the large volume discounts received by the system while ordering supplies. In the other hand you have the hospital corporations (HCS), where supporting activities are centralized by the main administration of the corporation.

The trend is to Self-Distribution, where models from other businesses/industries are being useful in redefining supply chain management in health care. Based on the “Health Systems: Consolidated Services and Logistics” report from the Firestone-Callahan & Associates, there are 3 models that can be customized to optimize inventory and customer satisfaction:

1) Central Distribution Plan -> own and run by a HC System (i.e. Providence Health System, Oregon)

2) Third Party Logistics (3PL) or Medical Supply Distributor -> 100% outsourced operation (i.e. Iowa Health Systems using Owens & Minors)

3) Collaborative Effort  operates central distributions center with join-venture agreements (i.e. Swedish Medical Center, Seattle, which partnered with Providence Health Services of Renton, Multi-Care Health Systems of Tacoma, and the Washington Hospital of Wenatchee)

The main goal for all these models is to reduce expenses and it can be attain by centralizing the point of purchase = Increased volume and Increase Negotiation power.

Other considerations of potential cost reductions are:

• Cost of issuing a purchase order (P.O)

• Product standardization: Obsolesce, up front cost, space storage/warehouse

• Freight + Logistics  turning to inbound freight to produce significant savings

CONCLUSION:

Link major business functions Maximize Value-added activities

GOAL

managing supply chain costs Reduce/eliminate waste

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