Filling a New Prescription for Supply Chain Improvement in Healthcare Logistics

Filling a New Prescription for Supply Chain Improvement in Healthcare Logistics

Improved supply chain and distribution operations provide relief to healthcare businesses suffering from excessive costs and inefficiency. What is the prognosis? Patient care is improved, and healthcare costs are reduced.

The way healthcare organizations get goods and engage with manufacturers and service providers is experiencing a significant transformation—one that is required to fulfill new patient needs, comply with healthcare regulations, support an overall focus on enhancing patient care, and cut costs.

The 2016 Healthcare Provider Supply Chain Outlook study from Gartner highlights a few of the most important concerns and projects in the industry. According to the survey, healthcare executives are most interested in aligning their aims with the strategic goals of an integrated delivery network (IDN), prioritizing uniformity, and addressing pharmaceutical costs.

“Healthcare supply logistics is complicated, and each IDN is unique,” says Eric O’Daffer, a Gartner healthcare supply chain researcher. “The focus on decreasing complexity and overall cost to serve across the supply chain remains the most significant adjustment for firms with foundational maturity. They want to use their talents and build two-way contact with clinicians upstream, who have traditionally made decisions outside of the supply chain.”

In the industry, UPS sees similar tendencies. According to John Menna, vice president of global strategy, healthcare logistics at UPS, hospital systems are redefining procurement and supply chain through economies of scale previously only available in the largest national systems.

“One tendency is for hospital systems to engage in establishing and buying up clinical locations closer to the patient,” Menna notes, “which increases the scope of logistical complexity for their supply chain executives.” “Building a supply chain network that fulfills the demands of not only the institutional hospital, but also the ambulatory, clinical, and homecare settings is critical to offering more patient-centric care.”

Supply chain management, product selection/utilization, and standardization are all priorities for healthcare businesses as a whole. “They’re forming ties with suppliers,” says O’Daffer. “They analyze data to completely comprehend the intersection of logistics and overall delivery costs in order to measure right price, right time, and service cost collections, and then create a supply chain network that supports adherence,” says the company.

Technology, with a heavy dose of data and analytics, is the underpinning prescription for today’s modern supply chain systems, regardless of the extent and complexity of the healthcare business.

Many firms negotiated and managed logistics almost as an afterthought a decade ago, seeing it as a necessary evil for ensuring that items were accessible when needed and avoiding supply chain fire drills.

According to the Gartner analysis, today’s healthcare supply chain is different, with a transition away from provider or group buying organization (GPO) procurement and toward total cost to serve.

“Inbound freight, internal logistics network charges, inventory holding costs, loss/expiration, and, most crucially, service levels at the point of use are all becoming increasingly essential to healthcare firms,” O’Daffer argues.

Mayo Clinic is a leader in supply chain management efficiency. Its health system is big and geographically dispersed, servicing over 70 cities across Minnesota, Wisconsin, Iowa, and Georgia, with 19 owned hospitals in Minnesota, Iowa, and Wisconsin, as well as two owned hospitals in Phoenix and Jacksonville, Florida.

Mayo Clinic is ranked first in Gartner’s Healthcare Supply Chain Top 25 for 2015, owing to its overall cost, quality-care approach. Mayo Clinic is undergoing a multi-year supply chain transformation to transition its supply chain from a material management-focused business to an enterprise supply chain system.

With a strong strategic strategy, the organization began to improve 17 years ago. “In that time, we’ve gone from a decentralized organization to one with shared resources and a specific focus on data that our practice can use,” says Bruce Mairose, Mayo Clinic Supply Chain Management’s vice chair of operations. “By encouraging communication, we hope to change the healthcare supply chain delivery process. We’ve invested in technology and enabling procedures as a result of that conversation. We don’t make product decisions; instead, we provide pertinent information to the practice to help them make judgments.”

Today, the Mayo Clinic supply chain works with 66 IDNs and 180 hospitals within those IDNs to provide contracting services. “Our main task is to change the nature of our supplier relationships,” he adds.

Several programs run by the organization alter these relationships. Mayo Clinic Supply Chain Management, for example, took control of its incoming freight spend in 2007 by negotiating directly with key shipping partners. Through better analytics, the company was able to gain a better understanding of their freight spend, which resulted in a 25% reduction in freight costs.

In March 2016, Mayo Clinic and Vizient offered Reveal, a web-based analytics and reporting supplier service, to the Upper Midwest Consolidated Offerings Center as part of its services (UMCSC). Reveal focuses on data analytics to promote transparency, cut down on wasted resources, and pinpoint sales prospects.

Participating suppliers with UMCSC contracts can view the overall product market by item at the SKU level, individual member, and share. As a result, providers may see where they have contracts as well as the market share of their competitors.

“At the line-item level, it’s a never-before-possible glimpse at their client marketplaces,” Mairose explains. “Reveal is the first of a multiphase toolkit that we hope will alter the healthcare supply chain and drive more dynamic supplier/provider relationships,” says the company.


Some healthcare firms use a somewhat different approach, opting for a centralized service center to streamline supply chain services (CSC). According to Gartner, more than 40 CSCs operate in the United States, accounting for 10 to 15% of the whole medical-surgical distribution market (by revenue).

There are two types of CSCs on the market now. A self-managed IDN, like Intermountain Healthcare, works with an internal GPO and often provides a wide range of services in addition to supply distribution. In an outsourced IDN, a third-party logistics (3PL) firm works with the provider to set up and/or administer the CSC.

Trinity Health, based in Livonia, Mich., has chose a mixed 3PL strategy. The healthcare organization is one of the country’s major multi-institution Catholic healthcare delivery networks. It has 90 hospitals and 120 continuing care locations in 21 states, accommodating almost 2.1 million visits yearly. These include home care, hospice, PACE (an All-inclusive Care for the Elderly) programs, and senior living homes.

Because of the difficulties inherent with a large network, Trinity chose the CSC technique. “It’s still a fragmented supply chain environment,” says Clay Johnson, Trinity Health’s vice president of supply chain operations. “Multiple distribution channels and intermediates that deliver to our hospitals, clinics, and physician offices are incorporated into the traditional healthcare supply chain. It’s how the industry got started, and it’s how it stays today.

He continues, “Right now, there are too many handoffs, too many places to buy stuff, and too many options.”

Trinity believes that improving supply chain efficiency starts with precise data and dependable information. Johnson explains, “We wanted to take control of our bill of materials.” “We intended to create a single point of entry for all manufacturers and a cheaper cost-to-serve for everyone in the supply chain,” says the company.

Trinity, like many other healthcare organizations, understood that the fragmented supply chain causes hospitals to construct storerooms to maintain safety stock and frequently hustle to get backordered supplies. According to Johnson, the CSC strategy will help to alleviate this problem by eliminating service and product variety, establishing regular ordering patterns, and building direct manufacture-to-warehouse links.

Johnson and his team chose XPO Logistics, based in Greenwich, Conn., to lay out the warehouse footprint, manage the real estate, handle the transportation, and help integrate the warehouse management system (WMS) and demand management system after evaluating 18 different 3PL providers both inside and outside the healthcare market (DMS).

Johnson admits that creating a CDC won’t fix all of the fragmentation issues. “We need to re-engineer the supply chain process in healthcare, build trust from our caregivers, and prepare accurate forecasting using strong data and information to make the warehousing system work,” he says. “We’ll be able to track products from point of origin to point of consumption thanks to the Trinity Health warehouse network. At the patient interaction level, we’ll know how much of a product we use and how much we buy.

“The availability of such data allows for critical discussions with clinicians and physicians about utilization, waste, and, of course, cost,” Johnson adds. “Good data and information piques the interest of physicians. At all stages of the supply chain, it is our role to maintain control, create trust, and modify habits.”

In November 2016, Trinity will begin distributing to its first hospital from its new warehouse.


By streamlining shipping and better understanding overnight versus procedural needs, suppliers are also aiming to develop solutions that support IDNs and improve supply chain management for healthcare customers.

Micro-distribution and field stock location (FSL) solutions, for example, allow healthcare organizations and providers to maintain inventory closer to the point of care, improve supply chain visibility, and gain access to high-cost products.

Medical device customers, for example, have access to a multi-client, healthcare-compliant distribution and MHRA approved warehousing UK facility, that provides comprehensive medical device replenishment services like decontamination and instrument inspection to support distribution services to hospitals. This facility is fully connected with UPS’s total transportation and FSL network, allowing healthcare manufacturers and distributors to reach more than 80% of hospitals in the United States within four hours.

Healthcare firms may have a higher return on investment through value-added service centers than from warehouses.

According to Kevin McPherson, vice president of healthcare at GENCO, a FedEx Company, “deploying value-added service centers can enable items to be assembled or upgraded to create efficiency within the care context.” “A value-added service center might prepare individual case carts for surgical procedures, blister pack bulk medications, or execute biomedical engineering services,” according to the website.


According to Jean-Claude Saghbini, chief technology officer and vice president of inventory management solutions for Cardinal Health, a healthcare services firm situated in Dublin, Ohio, an Internet of Things (IoT) strategy to helping tackle supply chain inefficiencies offers many benefits.

“To genuinely transform the supply chain into a strategic business asset, we need to bridge the gap between technology, data, and analytics,” he argues. “Today, we have the technologies to completely reinvent and revolutionize the healthcare supply chain. Healthcare systems may use an intelligent supply chain as a strategic business asset to lower overall healthcare costs, and we can assist them do so.”

Saghbini believes that an Internet of Things approach may speed up the transfer and analysis of massive data, as well as enable real-time decision-making on topics like consumption, product availability, and approaching product expiration—and he’s putting that idea to the test at Cardinal Health.

Cardinal Health purchased WaveMark technology in 2013, bringing powerful RFID point-of-use and data analytics capabilities to the company. Cardinal Health is also investing in advanced data gathering and analytics that may be combined with other data platforms to provide important insights for better decision-making.

“The sophisticated advanced analytics package in our cloud-based supply chain system helps healthcare providers to have better visibility into their supplies, as well as how to manage inventory over time to avoid waste,” Saghbini continues. “An RFID technology platform powers the solution.”


Cardinal Health’s connection with suppliers has altered as the supply chain and IoT have evolved. “To establish an end-to-end linked supply chain, all stakeholders—manufacturers, providers, and distributors—must have access to and exploit the same data, the same source of truth, as they optimize the supply chain,” adds Saghbini. “Our ties with manufacturers and suppliers will only be strengthened as a result of this progression.”

Saghbini is particularly enthusiastic about IoT’s potential to help and improve the medical device and implantable supply chain’s operations.

“Medical gadgets and implantables are prime candidates for the Internet of Things,” adds Saghbini. “It’s an area we’ll look into as we look for new ways to speed up the transfer and analysis of huge data and enable real-time decision-making on topics like consumption and product expiration,” says the company.

Similarly, GENCO’s McPherson mentions an IoT solution that might allow individuals to get medical devices and prescription prescriptions from the comfort of their own homes, rather than going through traditional healthcare channels like physicians’ offices, pharmacies, and hospitals.

According to McPherson, “that technology has the potential to cause real change in healthcare fulfillment.” “It has the ability to skip the older, multi-stage process, in which a device passes through several layers of procurement before reaching the patient. IDNs must be open to new technology and ready to adapt to changing conditions.”

Mobile technologies that record demand signals at the point of care are also becoming increasingly common IoT capabilities. Storage cabinets with RFID barcodes and smartphone applications, for example, can track medical supply usage and manage restocking.

“Automation simplifies procurement,” says McPherson. “Package sensing and tracking technology is also widely utilized to deliver life-critical and temperature-sensitive pharmaceuticals, allowing for precise monitoring of transit durations and ensuring compliance.”


The transportation of temperature-sensitive and critical products is an important aspect of healthcare supply chain networks. These items necessitate a supply chain that is both seamless and integrated, as well as one that follows strict product safety and security guidelines.

Over the last few years, a slew of innovative regulated room temperature transportation technologies have evolved, affecting both small-package transit and freight forwarding.

According to UPS’s Menna, “to get cold chain right, firms need approved and validated solutions that they can execute time and over for high-value, important healthcare products.” “Innovative cold chain packaging and temperature-monitoring equipment are being used by businesses to assure product protection along the supply chain.”

Exact Sciences, a medical diagnostics company situated in Madison, Wis., is one example of improved patient convenience. Its cutting-edge colorectal cancer home testing kit necessitates time-critical logistics to deliver the kit to the patient’s house and then transport samples from the patient’s home to the test laboratory.

“Many patients are hesitant to get examined for colorectal cancer because of the intrusive aspect of the operation,” Menna explains. “More individuals will no longer be afraid of testing for one of the most treatable types of cancer, thanks to the patient’s capacity to do the test in the privacy of their own home, aided by clever, effective logistics. In this scenario, a well-functioning supply chain network aids in early discovery and better care.”


Even as the complex supply chain network of leading healthcare organizations is transformed and streamlined, business logistics managers will need to maintain flexibility in the process, gain executive buy-in, and find a way to demonstrate total cost to serve—something that many have not had to do in previous management scenarios.

“Along with standardization and consolidation, hospitals need to have a realistic handle on GPO and supplier performance—a it’s big piece of managing cost performance,” says James Spann, Jr., global practice leader of supply chain and logistics at Simpler Consulting, a Truven Health Analytics Company.

Spann also stresses the importance of executive buy-in, particularly for smaller hospital networks. “A supply chain leader sits at the boardroom table of large hospital networks,” he explains. “The average community hospital, overseen by a manager or director, may not have the same level of C-suite visibility—but they should if they want to improve supply chain efficiency.

“As part of the supply strategic approach, they also need physician integration and alignment,” he adds. “They will run into barriers and obstacles if they have to go backward to seek buy-in.”

“At the supply chain level, healthcare organizations must improve their change management, service measurement, end-to-end costs, and senior leadership education on the role of supply chain in total quality and cost of care,” O’Daffer says. “They need to shift their focus from “we saved x dollars on a product” to “we lowered supply chain cost per adjusted admission and patient activity.”

“That’s difficult to do,” he continues, “and there are certain data obstacles to success.” “The ability to capture these costs will be the focus of new innovation.”

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