The Value of Supply Chain Management in Healthcare

Discover the critical role of healthcare supply chain management in ensuring the seamless flow of resources and services within the healthcare industry. In this comprehensive article, we delve into the fundamentals of supply chain management, its importance in the healthcare sector, and effective strategies to optimize its performance.

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What is Healthcare Supply Chain Management?

Healthcare supply chain management involves the procurement of resources, the management of supplies, and an interlinked group of processes that are required for healthcare professionals to carry out their operations and increase productivity. Each link in the medical supply chain influences overall cost, patient outcomes, and service efficiency.

The Importance of Supply Chain Management in the Healthcare Industry

COVID-19 related supply chain disruptions across the United States have expedited the need to optimize hospital supply chain management. This is especially true for health systems that aim to provide high-quality care, ensure service availability, reduce cost and boost profitability. Over the course of the past few years, supply chain management in healthcare has become a central focus due to increasing pressures to reduce cost from the pandemic, while improving patient outcomes and reimbursement. Healthcare supply management and optimization within health systems achieve these goals through improved data collection and employment, attentive vendor management, and incentive alignment. 

How Does the Healthcare Supply Chain Work?

The healthcare supply chain for healthcare consists of numerous stakeholders. Each one plays a significant role in how the supply chain operates. These stakeholders include:

  • Manufacturers: The manufacturers are the labs, biologists and vaccinologists. They perform the research, development, manufacturing and monitoring. These groups make medical, surgical and pharmaceutical supplies and watch for shortages.
  • Distributors: The logistic partners and wholesale distributors sell, deliver and monitor products while following proper procedures.
  • Providers: Providers include pharmacies, urgent care centers, hospitals, assisted living facilities, dialysis centers and long-term care facilities. These places receive products from the distributors so they can prescribe them to patients. They submit orders to distributors, look for inventory shortages and call in prescription refills.
  • Patients: The patients are the people in the community who use these products or services. They influence the demand for medicines and other products with their unique needs.

Ways to Optimize Healthcare Supply Chains in Healthcare

Optimizing the healthcare supply chain is crucial to ensuring patients receive high-quality care. While the healthcare supply chain has strict regulatory requirements, there are areas where it can improve. Enhance efficiency in the supply chain by following these hospital SCM tips:

1. Improve Visibility

You should be able to tell where products are within your supply chain at any given time and properly manage inventory. To do this, gather your data in a single location. This process includes data from manufacturing sites, distributors, suppliers, products, modes, customers and the like. 

You will then need to improve your data analysis capabilities from end to end using software platforms, artificial intelligence (AI) or third- or fourth-party services.

2. Consolidate Your Supplier Base

Managing your suppliers is an easy way to optimize your healthcare supply chain. Consolidating suppliers can be simple if you:

  • Build partnerships with your suppliers that are a win-win for all parties.
  • Start retendering to improve your understanding of the market, improve supplier competitiveness and potentially build open contracts.
  • Conduct performance reviews on a monthly, quarterly and annual basis.

3. Center Performance

Define a hierarchy of meaningful outcome-based healthcare supply chain measures. These performance measurements should allow for analysis of the tradeoffs between key performance indicators (KPIs).

You can also create a KPI model focusing on the quality, service, costs and revenue of your entire supply chain. Target each part of the organization’s supply chain and capture real-time performance data.

4. Implement Standardization

Healthcare organizations often grow by acquiring other entities. This situation can result in all the separate systems and processes affecting one another.

Standardize processes for physical and financial elements using a framework like the Supply Chain Operations Reference (SCOR) model. Doing so allows you to implement and enforce standards across all areas of the medical supply chain.

5. Know Your Costs

Many organizations would benefit from a greater understanding of their costs, including how much these are and where they come from. Start by collecting data about your costs of goods and services. Using standard categories, you can benchmark and assess the data and look for patterns.

Analyzing the invoice will help you determine where your cost-saving opportunities are. You can identify non-standard patterns and implement new processes that eliminate waste.

emergency room in hospital

SCM & Hospitals: How Supply Chain Management Can Reduce Hospital Costs

Supply chain leaders within healthcare are under immense pressure to reduce cost across their systems. In the US alone, hospitals are estimated to lose $54 billion in net income in 2021.

Robust utilization data is one way that healthcare supply chain leaders can increase their bottom line and improve the revenue management cycle. Dynamic access to centralized, consumable, and real-time data allow health systems to determine what’s needed, what’s in stock, and the scope of future demand.” Hospital supply chain systems employ data across their system to capture demand, eliminate waste, and avoid redundancy.

Eliminating waste and redundancy across the medical supply chain is just one example. Supply chain knowledge and data can be employed across a health system to achieve price reductions, utilization optimization, and standardization that drive value to the health system. 

Related: How to Measure Productivity in the Healthcare Industry

nurse holding clipboard in emergency room

Does the Healthcare Supply Chain Affect Patient Outcomes?

In today’s value-based care model, health system leaders are required to improve patient outcomes despite the necessity to reduce cost. In particular, supply chain management in the healthcare industry plays a critical role in improving patient outcomes to achieve reimbursement through incentive alignment.

For example, decisions surrounding supply selection solicit feedback from the hospital supply chain teams and clinicians to optimize patient outcomes and source cost-effective supplies. These teams can be aligned through detailed data. Utilization and clinical outcomes data provide the opportunity for medical supply chain teams and clinicians to make decisions that achieve the goals of the health system. Linking supply chain related items such as product standardization to patient outcomes enable these teams to align on the most cost-effective and clinically optimal choice.

What is the Future of the Healthcare Supply Chain?

Supply chain management is a critical function in the healthcare industry. The elimination of unnecessary costs, patient outcome improvement, and increased reimbursement are only a few of the significant benefits optimal supply chain management provides. Emphasis on data collection and employment, incentive alignment, and vendor management are a few avenues that healthcare organizations can utilize to achieve these goals in the future.

 At Pathstone Partners, we specialize in helping healthcare systems across several different markets navigate the complexities of their supply chain. With our years of experience in clinical purchased service and supplies, we can assist with everything from supplier contract review to price negotiations. 

Contact us online to learn more about our healthcare consulting solutions and how we can help create efficiency in your supply chain. 

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The Value of Supply Chain Management in Healthcare

This article was authored by Alex West. Alex is a senior associate with expertise in performance improvement and non-labor cost reduction engagements for health systems at Pathstone Partners.

The Value of Supply Chain Management in Healthcare

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