Cost and service pressures are significant throughout the Canadian healthcare system, and it's no different in Ontario, where 40 percent of the provincial budget goes to healthcare spending. In 2008, Shared Support Services of Southeastern Ontario was created to maximize supply chain efficiencies leading to savings that member hospitals could then reinvest in direct patient care.
3SO, as the non-profit was called, was formed by Kingston General Hospital, Brockville General Hospital, Hotel Dieu Hospital, Lennox and Addington County General Hospital, Perth and Smiths Falls District Hospital, Providence Care and Quinte Health Care. Success to date has been significant. From April 01, 2009 to March 31, 2014, the savings return to hospitals has amounted to $49.2m. For every $1.00 invested in the shared service, the return on the investment has been $1.67.
Healthcare shared services in southeastern Ontario was relatively new in 2008, though they had existed for a couple of years in other parts of the country. However, the 3SO board and its CEO and general manager, Lyndon Smith, determined not to be bound by other organizations' business models. Third-party warehousing and logistics integration were core to the 3SO vision. To achieve cost efficiencies, an outsourced regional warehouse and logistics provider (3PL) was mandated in the business case for stock inventory. Outsourcing the central warehouse and distribution to a 3PL would result in regional efficiencies by, for example, reducing storage space and inventory at hospitals and freeing up the space for other hospitals’ activities.
However, initial research revealed that there was only one primary healthcare 3PL provider in Ontario. 3SO was not satisfied with the limited options available, so it collaborated with another Ontario healthcare supply chain shared services organization for selecting and evaluating a 3PL provider. The two organizations produced a joint RFP which combined the service volumes and requirements, and captured synergies in more than one region.
The collaboration with another SSO allowed for pulling data from a larger number of hospitals, and for leveraging the experience of an SSO that had been historically exposed to logistics outsourcing. In addition, the two organizations engaged a subject matter expert 3PL project manager for the outsourcing project in order to better understand what data 3PLs require to develop the best solution.
For its part, 3SO was looking for a 3PL already using leading supply chain technology and expertise. The RFP process produced five compliant bids. The final decision was made in April 2009. However, the SSO that participated with 3SO in the RFP chose not to change their incumbent service provider, so 3SO proceeded alone and selected SCI Logistics as its 3PL.
SCI Logistics operates an extensive national distribution infrastructure, coupled with a comprehensive parcel delivery and transportation network. Besides healthcare, its customers are in the retail, e-commerce, technology and financial sectors.
SCI Logistics also offered full price transparency, product and vendor independence, commitment to a warehouse location in the southeastern Ontario region, significant experience with SAP integration, full cross-docking support services, flexibility for onboarding more products in the future, as well as purchase and decommissioning of one of the existing hospital material management carousels, which created a one-time revenue stream for 3SO and a member hospital.
In 2009, Smith commented: “Having a distribution facility centralized in our region provides us with the responsiveness and agility required to allay the concerns of our member hospitals regarding the transition to this new service arrangement.”
Under the agreement, 3SO manages procurement of surgical and medical products and SCI takes ownership of the majority of the stock inventory and manages all fulfillment activities to and from the central regional warehouse to each of the hospitals. This gives 3SO flexibility regarding the range of products they wish to order and full visibility on their component costs while, at the same time, leveraging the consolidated demand from the hospitals for improved regional pricing for members’ products.
After SCI Logistics purchases stock products from vendors under 3SO-negotiated vendor contracts, the products are stored at SCI Logistics’ warehouses and are resold at 3SO’s negotiated price to the member hospitals. SCI Logistics manages transportation from the warehouse to hospitals’ receiving docks. The 3PL charges a line item charge for each item picked and packed.
To ensure smooth implementation, 3SO hired a project manager. 3SO and SCI Logistics jointly developed, implemented and continue to maintain service standards consistent with leading industry standards and practices, including: 1) inbound receiving and put away, 2) order processing, 3) returns turnaround and put away, 3) physical and cycle count accuracy.
3SO and SCI Logistics work together on managing vendors’ replenishment performance. SCI Logistics’ staff and senior leaders brought to the table the hands -on approach and continuous improvement practice. Ongoing, joint 3SO and SCI Logistics meetings on continuous improvement are designed to continue to resolve issues and highlight improvement opportunities on both sides (e.g., expiry management, lead time management).
SCI Logistics currently has three green-belt CI experts in the Kingston facility. Corporately-sponsored Lean and CI programs result in a number of initiatives in purchasing, receiving, facility management processes, and other areas of the business. At the SCI Kingston facility, over the past year, every employee has brought forward at least one continuous improvement idea to benefit 3SO and its member hospitals.
The solution has enabled 3SO to decrease overall regional supply chain operating costs to free up resources for the member hospitals to use for other hospital activities.
The vendors ship their stock products to one location verses 15 sites across seven hospitals. Due to reducing the manufacturers’ cost to ship their products, the combined logistics and product prices for stock medical surgical products carried by SCI for 3SO were lowered for numerous products.
Space in hospitals is a precious commodity. Most hospitals are either landlocked or have little or no capital to expand. The partnership's warehouse has freed up space that is the equivalent of the footprint of an NHL hockey rink.
SCI Logistics handles more than 3,000 products delivered to approximately 400 locations that 3SO is managing in southeastern Ontario. Stock fill rate is more than 99 percent across all seven member hospitals (compared to the Ontario healthcare target of 98 percent).
In 2009, inventory turns targets were 12 turns per year, and now are averaging more than 16 a year. And service levels are continuing to be met.
“We are proud that our service is contributing to making hospitals more efficient. We believe we have a true strategic collaborative partnership with 3SO,” says John
Ferguson, president and CEO of SCI Logistics. “We know that people at 3SO would say that they have never experienced a similar level of integration of efforts in the healthcare supply chain.”
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