When healthcare logisticians were asked about the biggest area of opportunity to drive cost out of their supply chain, as part of the 2015 "UPS "Pain in the (Supply) Chain Healthcare Survey," nearly seven in 10 cited "optimizing their transportation costs," and six in 10 checked off "gaining better inventory visibility."So it's no surprise that those parties across all facets of the healthcare industry are exploring a variety of options to cut costs and boost supply chain efficiencies. Here are three such options — and at the core of each of them is a collaborative model that can help transform your supply chain.
Increasingly, healthcare providers are working with group purchasing organizations (GPOs), which use collective purchasing power to get discounts from vendors, ultimately saving their members money and introducing efficiencies. GPOs can be especially beneficial for midmarket companies that don’t have the same bargaining power as enterprise-level companies.
In using GPOs, “some healthcare providers are seeking to reduce their inbound and outbound transportation costs," says Todd Ebert, president and CEO of the Healthcare Supply Chain Association, a trade organization that represents 14 regional and national healthcare GPOs. "Others are looking at evolving their supply chains from just focusing on materials to considering a broad range of issues, including the entire lifecycle of the product.”
GPOs also help make the most of the cost of healthcare supplies by providing consulting services to their healthcare provider members. For example, GPOs educate them about how products can drive the most value, including storage, labeling, and product usage recommendations. They even analyze product data and make use of recommendations to support improved patient outcomes. And they also may include the services of a reliable third-party logistics provider, such as UPS, that contributes special expertise to the healthcare industry.
According to the Healthcare Supply Chain Association, GPOs save hospitals and freestanding nursing homes 10% to 15% off their purchasing costs annually. Overall, this means GPOs help hospitals save up to $33 billion each year through lower product prices.
On the other side of the equation are healthcare manufacturers. They’re facing the same supply chain challenges as their customers.
“Unfortunately, most suppliers have been slow to react to changes in the healthcare supply chain, which is moving from a push to a pull model,” says Gerry Romanelli, executive vice president of business development at TRIOSE Inc., a non-asset-based logistics provider specializing in managed solutions for hospitals and health systems nationwide.
“We’re seeing forward-thinking manufacturers looking at ways to share ‘space’ with customers or even non-healthcare traditional distribution models,” he adds. “Many are looking for ways to eliminate trunk stock and oversupply on hospital shelves.”
Strategies for sharing space can include storing inventories directly on hospital campuses, Romanelli says. Manufacturers are also reducing their inventories by handing off product sooner to speed ownership-transfer cycles and decrease touchpoints in their supply chains. When manufacturers deliver a product earlier to the customer, they get paid sooner.
Traditionally, transportation costs have been higher than they might be, with staff that order materials frequently requesting urgent deliveries when not necessary. “They are partnering with companies like TRIOSE and UPS to help control inventory and optimize the mode of delivery to eliminate waste,” Romanelli says. In other words, if it’s not needed urgently, it won’t arrive by UPS Next Day Air.
Many healthcare manufacturers are using data to collaborate with their customers and GPOs on a deeper level. One way is price/data sharing because it helps to validate any gains made in cost efficiencies and ultimately leads to better price transparency. If manufacturers have better visibility into supply chain costs, they also have insight into what their partners — such as suppliers — can do to lower their costs, such as transportation, raw materials, and even their own suppliers.
“Some suppliers are offering to operate with a model of total transparency to help reduce the overall cost of operations,” says Chris McDown, senior vice president of sourcing operations for Vizient Inc., a GPO and performance-improvement consulting firm for healthcare providers.
Vizient has seen some suppliers offer to operate within this model of total transparency, which provides greater visibility into the costs of their operations. In one example, a supplier collaborated with Vizient on behalf of a group of the GPO's members and established a baseline of the total costs associated with their product and service. Then the supplier agreed to partner with this group to share a percentage of any cost improvements they realized together.
This approach incentivized the members to work in collaboration with the supplier to find efficiencies that lowered supply chain operations costs. This initiative has proved to be very successful for that supplier and those members and demonstrates again the cost savings that can come from collaboration across the supply chain.
But the quest for greater efficiency isn’t all about the supplier swallowing the biggest pain pill, McDown says. “The approach has incentivized the members to work in collaboration with the supplier to find efficiencies that lower supply chain operational costs,” he notes.
In this new era of healthcare complexities, finding ways to increase supply chain improvement has become a necessity. And it requires true collaboration between providers and manufacturers — all in the name of improving healthcare delivery to increase value to patients and lower costs.
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