Healthcare SCM: The Gap Between “Haves” and “Have Nots” Persists

I ran across a post in an Institute for Supply Chain Management (ISM)  blog about healthcare supply chain practice that argued how good SCM practice continues to lag in healthcare –that while materials management (MM)  tool adoption and the use of GPOs has “taken off” since 2005, most hospitals have only scratched the surface of what’s possible. To wit, where MM technologies have been deployed, only a fraction (30%) of their capabilities are being used. And those parts are almost exclusively operationally focused –nothing too strategic.

The same can be said about far too many provider/GPO relationships. Faced with a huge menu of truly strategic GPO services, providers opt for basic operational assistance; they don’t seem to have much appetite for the healthier items –what’s really going to be good for them in the longer term.

Does any of this ring true?

  • Limited use of automated replenishment/MRP; manual intervention by purchasing departments is still required (unlike the retail industry that has taken full advantage of supplier-managed inventory, healthcare still considers it an in-house function);
  • Manual, paper-based approval processing;
  • Very limited, if any use of Bar Coding and RFID technologies;
  • Limited reporting and analytics — mostly retrospective operational reporting;
  • Materials management still is treated as operational overhead, rather than as a strategic function;
  • Limited use of e-procurement –considered too hard to effectively implement.

In a recent article “The Future of the Healthcare Supply Chain” in the Healthcare Financial Management magazine, the author states “suppliers wield considerable power, but healthcare organizations can benefit from virtual centralization of the supply chain.”

The author goes-on to propose:

  • To achieve savings in the healthcare supply chain, healthcare organizations need to cooperate, instead of compete;
  • By forming a consolidated service center (CSC), healthcare organizations can centralize their contracting, procurement, distribution, and logistical operations.  The CSC would enable organizations to improve efficiency and reduce costs.

To me, the author is making a strong endorsement of GPOs. And for most providers who aren’t part of a large and profitable system that is heavily invested in developing in-house SCM capabilities, why not?  Providers who aren’t in a position to make the requisite investments and lack the necessary skill-sets might consider re-evaluating their GPO relationships. I like the word “turnkey” in this context, because that’s what the “have not” providers genuinely need. First, executive “re-education” needs to become more of a priority. Getting the implementation sequences right –with next step permissions governed by performance– requires buy-in across the enterprise. GPOs need to develop better ways of teaching provider execs why they should want a larger bite of the apple –and offer to digest it for them, if necessary, until their own systems are prepared to handle it.

And the licensing deals made between SCM tool vendors and GPOs need to embrace the following reality:

  • If SCM tool vendors expect to have their solutions included and successfully promoted in the turnkey packages offered to the provider, then a) they must maintain responsibility for the implementation of their solutions and include as much on the job training as required, and b) their payment terms must be built-into the broader, performance-based compensation model of the GPO.

Source: ISM blog

—Tom Finn

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