Getting better: How healthcare providers can build modern supply chains

By Tim Vaio, Managing Director, Supply Chain and Operations Advisory, and Jeff Coble, Director, Supply Chain and Operations Advisory, KPMG

Among its many effects, the COVID-19 crisis has exposed some of the fundamental challenges healthcare providers face with supply chain management (SCM).

Stories about a lack of ventilators, personal protective equipment and more were suddenly at the top of everyone’s news feeds. While no amount of planning could have prepared any provider for the demands of a pandemic, SCM capabilities across providers are not where they need to be. 

Well before COVID-19, if you had asked any U.S. provider what was one of their top supply chain priorities, you’d likely get the same answer:  providing high quality patient care in a cost-effective manner. But every dollar spent on overhead, excess perishables, and moving inventory from the wrong location to the right one is a dollar that isn’t put towards patient care.

Most providers, for example, perform reactive sourcing and procurement to meet their needs. Others rely on so-called “just-in-case inventory” to ensure they always have the supplies needed—which results in excess inventory, obsolescence, and relying on purchase history to predict future demand.  Providers often assign inventory purchasing and stocking duties to clinicians and their teams who are responsible for patient care but who lack SCM experience.  And strategies such as par-inventory replenishment and smart cabinets still require SCM capabilities often absent in patient care settings. 

Becoming a planning organization is a culture change, and it’s hard to do.  The good news is that leading practices from manufacturing and distribution industries can be leveraged by healthcare providers to begin this journey in a way that is incremental and builds internal SCM capabilities.  We’ve learned a great deal about what works well, where organizations get stuck, and how companies accelerate these journeys along the lines of data management, planning systems, and organizational roles to support planning.   

Data management and maintenance

Good planning organizations by definition are good data organizations, and better supply chain outcomes are always data driven.  They are also highly data intensive, and organizations striving to improve SCM outcomes must define organizational roles and responsibilities for data management and maintenance.  In planning, this goes beyond the basic master data requirements to include planning data elements such as item sourcing rules, inventory policies, and other “modifying” attributes which will be used to drive purchasing and inventory movements. Processes, ownership, and tools for data management and maintenance should become a daily part of “how work gets done” and result in data that is consistent and reliable.  ERP systems are very good at maintaining the integrity of source data—but planning data often changes to support organizational goals and must be tightly governed. 

The area of data is also one where the “crawl, walk, run” perspective applies.  With the right data and tools, much can be done to improve efficiencies with a minimal supporting data set.  But in healthcare, there are significant upside opportunities here as providers can track and analyze myriad third-party data sources, helping them stay ahead of health trends and even catastrophic events or crises like COVID-19. Everything from health plan and college enrollment data to weather forecasts to attendance projections for major events can help providers plan for surges in admissions. Providers can also pull in data from the Centers for Disease Control and Prevention (CDC) and work with their operations teams to help prepare for major health outbreaks such as the annual strains of the flu.

Planning systems

Utilizing a single platform that covers the end-to-end process (forecasting, sourcing, and replenishment) is the ideal state.  This allows hospitals to manage all elements of their master data (vendor master, contracts, item master and stocking locations) within a single integrated platform. This also creates a scenario where all procurement, inventory management and accounts payable functions are in lockstep with one another and creates improved usage history for planning, buying, logistics and distribution, and payments. When the information is combined with continuously updated item location management, hospitals can also better enable their inventory management practices of managing par levels, replenishment, ship-to and deliver-to locations and distribution.

Hospitals and other providers can also leverage integrated supply chain planning solutions to take advantage of the vast stores of data they’ve captured in their ERP, point of usage (POU), and electronic health records (EHR) systems. This can help them predict demand more accurately and make smarter decisions about how much and what kinds of inventory to carry—and when.  The track record of these tools is long and diverse, and adopting these applications can be supported by lessons learned in other industries.  And though we mentioned an ideal “single solution” environment, many of these packaged applications have been built to integrate with multiple transaction tools—allowing organizations to take steps forward even in a disparate IT environment.

Dedicated SCM roles

Balancing supply and demand, supported by leading practice procurement, can optimize patient care and inventory—but bringing this all together requires internal skills and competencies in operations and supply chain management. 

SCM and sourcing/procurement teams can work together with operations teams and clinicians to develop forecasts that look weeks, months or quarters down the road—ensuring that internal teams or distributors stock the supply chain with optimal inventory levels in the right locations.  Advanced planning systems in the hands of people who know how to leverage their “what-if” features create advantages even for extreme events.  For instance, if significant weather-related impacts occur in one part of the country, the right supplies can be positioned to handle spikes in the expected types of injuries that might be associated with an upcoming storm.

The trend in some of the larger U.S. healthcare systems is to put professional supply chain and finance teams in charge of managing procurement, planning, and inventory tasks. The best teams treat clinicians as loyal “customers,” have mastered advanced planning and budgeting techniques, and use cloud supply chain management systems to optimize inventory procurement and deployment. Surgical theater scheduling has been maximized as a critical resource, and the same acumen should be extended to other assets and consumables.

Catching up

Innovative new methods employ “co-visibility” capabilities that can help healthcare providers share inventory data with suppliers to adjust more quickly to shifts in demand. Leaders are also simplifying planning, combining seemingly unrelated medical products into a single category if they share similar supply and demand patterns.

If the COVID-19 crisis hasn’t already spurred providers to modernize their supply chains, improve visibility, and identify issues and impacts, mounting cost and competitive pressures eventually will.

Just as manufacturers can’t afford to let their plant-floor assets stand idle, hospitals need to maximize their investments in supplies and ensure minimal waste. While laggards might still outnumber leaders among U.S. healthcare providers, the payoff for adopting supply chain planning solutions can be significant, and there is a wealth of experience in these areas that can be leveraged today to begin.  Why not start now? 

Learn more about how healthcare organizations can optimize their supply chains with leading technologies and processes.