1st February 2024
Supply chain is a network of resources, organization, people, information and a working set of activities involved in production, distribution and management of goods and services from the origin of the source to the end consumer. Encompassing the various stages such as procurement, manufacturing, transporting, retailing and to achieving the goal of efficiently delivering the product to meet the consumers latest demand. Further in Supply Chain Management (SCM) it comprises a range of functions including procurement, logistics, inventory management, and collaboration with distributors and suppliers to optimization efficiency, reduce of cost, and to reach betterment of overall performance in the entire supply chain, from the acquisition of the raw material to the delivery of the final product to the consumer.
In the dynamic landscape of healthcare, supply chains play a crucial role in facilitating the smooth movement of medical products, equipment, and services. As we navigate the future, it’s essential to delve into emerging trends and predictions that will define the success of healthcare supply chains. The impactful influence of technology, data-driven decision-making, collaboration, sustainability, and regulatory compliance is reshaping the healthcare supply chain, fostering resilience and efficiency. Embrace the possibilities of tomorrow to revolutionize healthcare supply chains for unprecedented success. In the quest for building a resilient healthcare system, the industry pioneers are turning to technology as the key driver of innovation. This comprehensive examination of existing challenges and forthcoming trends delves into how AI, value-based care, diversity, equity, inclusion (DEI), and sustainability will shape the future landscape of healthcare supply chain.
1. Innovation Towards Medical Devices
In the past ten years, there has been a slowdown in new developments in many aspects of heart care, partly because hospitals and payers are focusing more on controlling costs. Certain types of heart implants have become less expensive, especially bare-metal stents, which are now overshadowed by drug-coated stents. However, the introduction of pricier biodegradable stents has increased overall costs. Exploring the differences between commonly available products and those where doctors have varying opinions on the best choice might help explain differences in prices. Future research should look into pricing and technology adoption in other medical device categories like orthopedics and spine, considering what practitioners prefer. It's essential to recognize that it's not just about the cost but also about innovations that make procedures less invasive, potentially changing how healthcare is delivered and affecting both the patient experience and the prices of these innovations.
2. Preferences and Incentives of Clinicians
Physicians, especially those in supply-intensive fields like cardiology and orthopedics, are often seen as stand-ins for buyers. They use their expertise to choose medical products for hospitals and patients. While physicians prioritize selecting the right devices and recognize the importance of cost, they typically have limited knowledge about prices in their decision-making process. Tensions between procurement and clinical aspects in healthcare arise from physicians' limited education and lack of information transparency about supply chain management during their training and practice. Research using AHA survey data suggests that being in a highly integrated system might encourage physicians to consider the cost of their product selections. Our findings indicate that participating in gainsharing and other incentives could strongly influence physicians to be mindful of the costs associated with medical products.
3. Exploring Value Analysis and Comparative Effectiveness Research in Healthcare
Healthcare organizations are becoming more thorough in evaluating new products and variations. However, there's a notable absence of research on equivalent products within a category and a lack of transparency regarding prices. Despite this, research on the performance of implantable devices, like stents, is growing, potentially demonstrating product equivalencies. This could empower buyers to enter the market with high-volume commitments, giving them leverage for negotiating lower prices. Studies on value-based purchasing and purchasing innovation lay essential groundwork for future health service research into the effects of evidence-based purchasing on costs.
4. Cost Reduction and Regulation Strategies
Bundled payments and gainsharing arrangements aim to influence the costs of devices used in supply-intensive procedures. Certain products, termed "pass-throughs," are excluded from comprehensive reimbursement programs. Examining how these elements are incorporated into hospitals and assessing the effects of changing incentives will enhance the evaluation and development of healthcare policies. Early research on the utilization of drug-eluting stents, highlighting that gainsharing lowered costs for coronary stent patients without compromising quality and access, serves as a valuable model for researchers exploring the advantages of incentive-schemes.
Before delving into the future, it's crucial to grasp today's challenges. The traditional supply chain model often grapples with intricate inventory management, a lack of transparency, and elevated operational costs. Current healthcare supply chains face substantial hurdles and offer room for enhancement. More than 80% of hospitals contend with complexities in inventory management, resulting in both stockouts and excess inventory.
Over 90% of healthcare organizations struggle to track medical products effectively, with only 10% having full visibility into their supply chain. The supply chain constitutes up to 30% of a hospital's total operating budget, exerting financial pressure.
In the backdrop of the COVID-19 era, the spotlight on supply chain dynamics extends across various industries, from electronics and automobiles to agriculture, imported goods, and even vaccines or everyday items like toilet paper. Healthcare is no exception, and over the past two years, supply chain challenges have emerged as a focal point for healthcare executives and policymakers globally. The pandemic has ushered in a paradigm shift, redirecting attention from the traditional focus on supply chain efficiency, primarily cost reduction, toward resilience and contingency planning. Notably, supply chain disruptions surged by 67% in 2020 compared to 2019, emphasizing the need for a more robust and adaptable approach. The prevalent strategies of Lean Management and Six Sigma, which aimed at cost reduction by minimizing inventory, have left many medical device supply chains vulnerable to disruptions. Consequently, discussions on safety stock and business continuity planning have gained prominence at all levels of organizational governance. Supply chain risk management has become a critical aspect, with ongoing discussions surrounding safety stock and business continuity planning at all levels of organizational governance. The Strategic National Stockpile's role is evolving, and proposals for local entities to develop shared safety stocks are gaining traction. The healthcare sector, previously inclined towards just-in-time inventory and reliance on suppliers and intermediaries, is now urged to incorporate preparedness into its planning and financing for future disruptions. Another critical aspect highlighted is the interconnectedness of resource dependency, especially in healthcare products that rely on other industries. Shortages in medical devices dependent on semiconductors, such as chips for pacemakers and ultrasound machines, underscore the risks associated with resource dependencies. Lastly, the discussion emphasizes the importance of supply chain integration in healthcare systems. While there has been a historical focus on integration within healthcare systems, the paragraph suggests that supply chain integration, spanning suppliers, peers, intermediaries, customers, and organizational units, deserves more attention. The challenges and benefits of such integration, particularly in the context of merged health systems, remain an area where health services research could provide valuable insights.
Looking at the healthcare supply chain like a "chain" shows us where things can go wrong. To get a product from the factory to a doctor, many people and steps are involved, and each has to work well. If there are issues anywhere in this process, it makes it risky for the product to be available when needed, from the supplier making it, to its journey to a healthcare facility, and all the way to the patient's bedside where clinicians need it.
One big problem is with managing how much stuff we have (inventory) and getting it to the right places (distribution logistics). These challenges, especially during the COVID-19 pandemic, are still causing issues. In March 2023, the Health Industry Distributors Association found that 93% of healthcare executives say they're still dealing with shortages. What's even more concerning is that these shortages are not only more common than during the pandemic but are also harder to predict. This makes it tougher for hospitals and clinics to have the right things at the right time, putting patient care at risk.
Each of these key terms plays a significant role in the health supply chain. Here's a brief explanation of how they are related
Procurement-to-pay (P2P): This is the process of requisitioning, purchasing, receiving, paying for, and accounting for goods and services. In healthcare, P2P systems can streamline the procurement of medical supplies and services, ensuring that healthcare providers have the necessary tools while managing costs effectively.
Inventory Management Software: This software helps healthcare organizations track stock levels, orders, and deliveries. It's crucial for managing medical supplies, ensuring that there's enough equipment on hand without overstocking, which can be costly.
RFID Tracking Systems: Radio-frequency identification (RFID) systems are used to track products and equipment in real-time. In healthcare, RFID can help manage assets, control inventory, and prevent loss or theft of medical supplies.
Blockchain Technology: Blockchain can provide a secure and transparent way to track the provenance of medical supplies, manage contracts, and ensure the integrity of the health supply chain.
Predictive Analytics: This involves using data, statistical algorithms, and machine learning techniques to identify the likelihood of future outcomes. In healthcare, predictive analytics can forecast supply needs, helping to prevent shortages or overstocking.
Supplier Relationship Management (SRM): SRM is about systematically assessing suppliers' contributions and influence on success, ensuring that the best possible service is obtained. In healthcare, this can mean better quality supplies and innovations from suppliers.
Cold Chain Monitoring: This is crucial for managing temperature-sensitive healthcare products, such as vaccines. It ensures that such products are stored and transported within safe temperature ranges.
Transportation Management Software: This software helps in planning, executing, and optimizing the physical movement of goods. In healthcare, it ensures timely delivery of medical supplies, which can be critical for patient care.
Point-of-Use (POU) Systems: POU systems track inventory at the location where it is used, such as in a hospital ward. This can reduce waste and improve efficiency in the healthcare supply chain.
Data Analytics and Business Intelligence: These tools help in making informed decisions by analyzing data patterns and trends. In healthcare, they can optimize supply chain operations and improve patient care through better resource allocation.
Collaborative Planning, Forecasting, and Replenishment (CPFR): CPFR involves collaboration between suppliers and retailers to forecast demand and ensure that inventory is replenished efficiently. In healthcare, this can lead to better inventory management and reduced costs.
Just-in-Time (JIT) Inventory Management: JIT is a strategy that increases efficiency and decreases waste by receiving goods only as they are needed. In healthcare, this can minimize storage costs and reduce the risk of spoilage for perishable supplies.
Robotics and Automation: These technologies can streamline the healthcare supply chain by automating repetitive tasks, such as packaging and sorting, which can reduce errors and increase efficiency.
Real-Time Tracking and Tracing: This allows for the monitoring of goods and assets throughout the supply chain in real-time. In healthcare, this can ensure that supplies are delivered where they are needed promptly.
Cloud-Based Supply Chain Solutions: These solutions offer scalable and flexible data storage and analytics capabilities. For healthcare, cloud-based solutions can improve collaboration, data sharing, and supply chain visibility.
Each of these technologies and processes can contribute to a more efficient, cost-effective, and high-quality healthcare supply chain, ultimately leading to better patient outcomes.
In the complex landscape of healthcare supply chains, where global events often lead to disruptions beyond prediction or prevention, stakeholders are increasingly adopting strategic approaches to minimize risks. One key strategy involves prioritizing suppliers located closer to care delivery sites. By doing so, healthcare organizations can reduce the logistical challenges of transporting products from manufacturers to patients, especially in the face of event-related disruptions to transportation routes.
Another crucial risk mitigation tactic is the diversification of supply sources. In response to the lessons learned during the COVID-19 pandemic, many provider organizations have transitioned from relying on a single source to embracing dual or even tri-source supplier strategies. This diversified approach provides resilience, ensuring that if one supplier faces disruptions or backorders, alternative sources are readily available
Understanding the manufacturing locations of suppliers becomes paramount in risk management. For instance, being aware of a supplier's facilities in a region vulnerable to natural disasters enables quick pivoting to alternative suppliers when needed. This awareness extends to the knowledge of raw material sources for finished medical supplies, requiring both suppliers and providers to be well-informed about the geographies, countries, and even specific cities or towns where these materials originate.
Real-time visibility into inventory status emerges as a crucial aspect of preparedness. Supply chain teams equipped with such visibility can strategically maintain inventory levels, providing a buffer against the impacts of unforeseen disruptions. Additionally, embracing technology plays a pivotal role in enhancing supply chain resilience. McKinsey & Company recommends investments in integrated data systems and collaboration with national public-health institutes. These technological advancements facilitate better connectivity between national, district, and local service delivery units, offering transparency over critical resources like workforce, consumables, and supplies. Overall, these comprehensive strategies form a robust framework for navigating the challenges inherent in healthcare supply chains and ensuring effective responses to unexpected events.
Optimizing Supply Chain Performance in Healthcare (Report) by McKinsey & Company:
During the COVID-19 pandemic, health systems faced shortages of essential supplies like gloves and masks. A survey found that many health executives now see the supply chain as crucial and strategic due to its impact on daily operations. Despite challenges, health systems aim to invest in the supply chain for better performance, cost savings, and increased resilience. A well-managed supply chain can reduce spending, improve care, and support growth goals.
Supply chain initiatives in the healthcare industry should involve in-person discussions between supply chain colleagues and clinicians to optimize product choices, procedure costs, and contract compliance. Supply organizations should consider appointing supply chain professionals with clinical backgrounds to support initiative implementation, identify improvement opportunities, and build relationships with physician and facility leadership. Joint goals should be set across facilities and functions to align incentives and promote collaboration. Sharing savings targets between the supply chain function and other stakeholders helps ensure accountability. Clinical engagement, goal setting, and data analytics are critical elements of a high-performing supply chain.
1.Supply chain initiatives in healthcare require in-person discussions between supply chain colleagues and clinicians
2.Supply organizations should appoint supply chain professionals with clinical backgrounds to support implementation and identify improvement opportunities
3.Joint goals should be set across facilities and functions to align incentives and promote collaboration
Here are three questions you might be asking:
Why is it important to have in-person discussions between supply chain colleagues and clinicians in healthcare?
What role can supply chain professionals with clinical backgrounds play in supply chain initiatives?
Why is it important to set joint goals across facilities and functions in healthcare supply chains?
During the COVID-19 pandemic, health systems faced shortages of essential supplies like gloves and masks. A survey found that many health executives now see the supply chain as crucial and strategic due to its impact on daily operations. Despite challenges, health systems aim to invest in the supply chain for better performance, cost savings, and increased resilience. A well-managed supply chain can reduce spending, improve care, and support growth goals
The COVID-19 pandemic highlighted health disparities, with poorer and minority populations experiencing higher rates of chronic disease. This crisis prompted healthcare organizations to diversify their supplier networks, discovering local alternatives in their own communities. This shift presented an opportunity for the healthcare supply chain to use procurement as a tool for economic development in low-income areas by investing in diverse suppliers, including women, minority, and veteran-owned businesses.
The advantages of this approach are evident: relying on local suppliers reduces the risk of disruptions associated with global logistics networks. Additionally, investing in nearby businesses creates a positive economic impact, as money spent with local, diverse suppliers circulates within the community, benefiting businesses and employees alike. Success stories from such initiatives are encouraging healthcare supply chain leaders to consider further investments in local small businesses.
An illustrative example is the Diversity Equity Inclusion (DEI) Supplier Accelerator introduced by Cleveland Clinic and University Hospitals. This program empowered five diverse-owned companies to understand hospitals' needs, allowing the hospitals to expand their supplier networks while supporting individuals in their communities. Berlon Hamilton, Cleveland Clinic’s Supplier Diversity Director, emphasized the potential impact, stating that with an annual spending of over $3.5 billion, investing in local communities can create jobs, support economic stability, and ensure patients' overall well-being both physically and economically.
In essence, the pandemic-induced diversification of supplier networks has become an opportunity for healthcare organizations to contribute to economic development in their local communities, fostering diversity, equity, and inclusion while securing a reliable supply chain.
Effective demand planning and inventory management are crucial components of a resilient supply chain, particularly in the healthcare sector. The accuracy and timeliness of analytics heavily rely on the level of system integration and data-sharing capabilities within an organization.
In a survey conducted by EY among large U.S. health systems, 95% expressed the desire to enhance their demand planning processes, yet over half reported not using any dedicated system for planning. Accenture's survey of supply chain executives revealed that 26% attributed improved demand forecast accuracy to the adoption of cloud-based solutions.
Healthcare supply chain management priorities for 2023, as highlighted by SMI members, include the need for true patient-level demand planning and the ability to transmit predictive demand signals to manufacturers. They emphasized the importance of accurate and comprehensive data sharing between healthcare providers and industry partners for enhanced forecasting and disaster mitigation.
The authors of "Building Resilience into the Nation's Medical Product Supply Chains (2022)" underscored the significance of transparency in medical product supply chains. They emphasized that data alone are not sufficient; rather, data must be transformed into useful forms and disseminated to relevant stakeholders. This approach enables better decision-making, helping identify vulnerabilities and proactively prepare for potential disruptions in medical product supply chains.
To achieve data sharing at the required level, integrated digital solutions are imperative. These solutions serve as bridges between healthcare providers and suppliers, fostering communication and collaboration for informed decision-making. The Cleveland Clinic exemplifies success in overcoming supply chain challenges through collaborative supplier relationships and data sharing. Their implementation of a resiliency program, monitoring supplier fulfillment, and utilizing a bidirectional demand planning tool with inventory visibility earned them recognition on the Gartner Healthcare Supply Chain Top 25 for 2022.
In essence, the key takeaway is that while the majority of healthcare organizations express a strong interest in improving demand planning, many are not leveraging dedicated systems for this purpose. Cloud adoption and integrated digital solutions play a significant role in enhancing demand forecast accuracy. The emphasis on true patient-level demand planning and comprehensive data sharing highlights the need for collaboration across the healthcare supply chain. Transparency is identified as a crucial factor, with the Cleveland Clinic's success serving as a practical example of how supplier relationships and data sharing contribute to supply chain resilience. Overall, the integration of digital solutions and data-sharing mechanisms is essential for informed decision-making and proactive management of supply chain disruptions in the healthcare sector.
The evolution of the healthcare supply chain, progressing from traditional ink-and-paper methods to the current era of AI-driven inventory management, marks a significant advancement. Yet, there exists untapped potential for further enhancement, presenting an opportunity to fortify strategic resilience, facilitate care coordination, enhance visibility, reduce waste, and control costs within the healthcare supply chain.
Exciting solutions are on the horizon, poised to revolutionize healthcare logistics. Empowered by clinicians taking a leading role, innovative supply chain strategies have the capacity to not only streamline operations but also contribute to the delivery of superior care. These advancements extend beyond the confines of healthcare facilities, promising to foster thriving communities. The prospect of a brighter future for health is within reach, as ongoing improvements in the healthcare supply chain hold the promise of increased efficiency, reduced costs, and ultimately, an elevated standard of care for patients.
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