COVID-related disruptions continue to rock global supply chains in nearly every industry, leading to empty store shelves and manufacturing delays for a range of products. However, when critical supplies fail to reach healthcare providers, it becomes a matter of life or death, rather than simply an inconvenience.
The healthcare supply chain directly impacts the day-to-day operation of individual healthcare providers and large healthcare organizations alike. Ensuring that patients around the globe receive the highest quality of care possible requires a steady supply of items: from cotton swabs and personal protective equipment (PPE) to cancer-treating interferon and high-tech biomedical imaging machines.
All suppliers and providers in the global healthcare supply chain must work together to make sure that medical needs are met throughout the world. Leading this effort are executives trained to anticipate and overcome the unique logistical challenges that the healthcare industry faces to lock in reliable sources for the supplies and equipment that are critical to a healthcare provider’s operation. Programs such as a Master of Business Administration in Healthcare provide the training and experience for a career in healthcare supply chain management.
What is supply chain management in healthcare?
The steps involved in managing the global healthcare supply chain highlight the complexity of the task as it attempts to piece together many fragmented processes into a coherent whole. The steps include the following:
Identifying the resources that various healthcare departments and operations require
Finding vendors and distributors of these resources that meet quantity, quality, and delivery requirements
Monitoring the shipment of goods from the source to the appropriate healthcare provider
Communicating with all stakeholders, including manufacturers, insurance companies, hospitals, care providers, group purchasing organizations, and regulatory agencies
Mitigating the complexity of healthcare supply chain management is the ability of organizations to reduce their costs by making their supply chains as efficient as possible. Supply chain management in healthcare is the process of managing upstream and downstream relationships with manufacturers, distributors, and customers, with the goal of delivering value and aligning the supply chain with the healthcare organization’s care delivery model.
How supply chain management in healthcare functions
The healthcare supply chain typically starts with the manufacturers of medical equipment and supplies, who ship their products to networks of distributors — although some health products are purchased directly from the manufacturer. In either case, purchases are often made through group purchasing organizations (GPOs) that establish a purchasing contract on behalf of the healthcare provider.
By aggregating purchasing volume to negotiate discounts with manufacturers and distributors, GPOs save U.S. healthcare services as much as $55 billion each year, according to a study that the Healthcare Supply Chain Association (HSCA) commissioned. GPOs may be owned by hospitals or by third parties that focus on serving the purchasing needs of not-for-profit clinics or long-term facilities, for example. In addition to cost savings, GPOs offer improved efficiency and greater predictability, as well as consistent and stable pricing.
The U.S. Food and Drug Administration (FDA), Medicare and Medicaid, and other regulatory agencies are also involved in healthcare supply chain management, particularly in ensuring that the products being purchased are fit for their intended use. They also determine how much healthcare providers will be reimbursed for the cost of products. Adding to the complexity of supply chain management in healthcare is the tendency of many caregivers to prefer specific types or brands of products, while managers seek the most affordable options that meet quality requirements.
Ensuring sufficient supplies for healthcare providers across the globe
In the wake of the extended supply chain disruptions affecting the healthcare industry during the COVID-19 pandemic, industry leaders have called for government agencies to make global supply chains more resilient. A study by CapGemini found that 70% of the 1,000 organizations surveyed took three months or longer to restore their supply chains after COVID struck in 2020, and 40% of the healthcare providers surveyed required more than three months to restore their supply chains. The following strategies can help supply chains remain stable and efficient:
- Healthcare services providers must carefully vet supply chain partners to ensure that they’re legitimate and able to meet all quality, quantity, and delivery requirements.
- Some regulations were temporarily relaxed at the height of the pandemic, but by mid-2021, most of these temporary measures ended. This makes it necessary for healthcare providers to confirm that the products they’re acquiring comply with all safety and other standards.
- The U.S. government is working with the healthcare industry to move the production of essential medicines, medical equipment, and supplies back to the U.S. via onshoring.
- Efforts are also underway to apply new technology to make healthcare supply chain management more transparent via telehealth, patient monitoring devices, predictive planning, and other artificial intelligence applications.
Supply chain issues plague countries around the world and are especially challenging in areas that lack the necessary infrastructure. The U.S. Agency for International Development (USAID) has placed eight separate global supply chain projects under the umbrella of the USAID Global Health Supply Chain Program (GHSC). The program attempts to leverage the agency’s purchasing power and operating efficiencies to combine procurement, last-mile delivery, in-country technical assistance, capacity expansion, quality assurance, and other supply chain operations in a streamlined and unified process.
Benefits of supply chain management in healthcare
Supply chains represent about 30% of all spending by hospitals, or $25.4 billion annually, according to medical equipment supplier West Monroe. Following the financial turmoil of treating patients during a pandemic, many healthcare service providers see enhanced supply chain efficiency as a key to recouping recent revenue losses.
The many vulnerabilities and inefficiencies of the healthcare supply chain came into sharper focus during the COVID-19 pandemic: low inventory visibility, reactive product ordering, and overspending. A survey by Sage Growth Partners on behalf of inventory management service Syft found that 43% of hospitals lost nurses and 12% lost doctors as a result of supply shortages during the pandemic. Implementing a modern healthcare supply chain management strategy improves patient outcomes, enhances worker safety and productivity, and saves healthcare providers money.
How supply chain management helps cut healthcare costs
A well-managed supply chain can help organizations reduce costs, operate more efficiently, and improve patient outcomes. VIE Healthcare Consulting describes seven best practices that make healthcare supply chains more effective.
- Audit internal inventory: The audit will indicate the number and type of devices on-site and each device’s manufacturer, model, serial number, location, and condition.
- Discard or replace obsolete or damaged equipment: Contact the product manufacturer to ask about a discount for exchanging the outdated equipment. Old devices can be sold to medical parts dealers or recycled.
Apply data analytics to identify inefficiencies: Real-time data analysis shows how effectively resources are being used, helps replace wasteful scheduling, and reduces paperwork. It also cuts down on readmissions by identifying patients at greatest risk of subsequent health problems.
Rent rather than buy rarely used equipment: MRI machines, CT scanners, and other expensive diagnostic and treatment devices tie up valuable resources and may not generate sufficient revenue to justify their purchase. Renting such equipment costs much less than buying and often includes the cost of installation and maintenance of the machines.
Review vendor prices annually: Vendors often become complacent after winning a regular contract with healthcare services and may even raise prices without notification. An annual review lets the healthcare provider request bulk discounts and other savings, compare prices with competitors, and address delivery delays or other problems that may have occurred.
Reduce the number of equipment vendors: It’s rarely possible for a healthcare provider to obtain all its equipment and supplies from a single vendor, but by minimizing the number of different suppliers it deals with, it can streamline maintenance and repair, minimize paperwork and record keeping, and save on training costs.
Bring department heads together to discuss their shared challenges: Departments within a healthcare service may have competing or conflicting goals even though they work together daily. Integrating supply chain operations helps all departments share common outlooks and quickly identify and address problem areas.
Linking supply chain management with improved patient outcomes
Timely delivery of care is key to patient treatment, yet too often patients must wait to access the equipment and resources they need. The healthcare supply chain encompasses everything from the latest high-tech medical devices and equipment to hospital linens and dressings. A smooth running supply chain allows healthcare providers to focus on patient care rather than wasting time chasing down supplies of critical products and equipment.
By building resilience into the healthcare supply chain, organizations are able to avoid having to react to disruptions in the availability of the products they need to ensure positive patient outcomes. Supply chain costs now represent 37.7% of total patient costs, according to Gartner.
An example of how a modern supply chain directly impacts patient health is the integrated delivery network (IDN) created by Geisinger, a healthcare provider located in Pennsylvania. The company’s Fresh Food Farmacy program provides patients who have Type 2 diabetes with deliveries of nutritious foods along with education on the causes and impact of Type 2 diabetes and weekly follow-up care.
The program was a departure from the approach to supplies that the company had taken in the past and involved working with partners outside the hospital setting. After overcoming many obstacles in the early stages, the program ultimately reduced the risk of death or serious complications among participants by 40% and saved the hospital between $16,000 and $24,000 per patient annually while costing only $3,500 to $4,000 each year to feed a family of four and provide them with education and support.
Challenges in healthcare supply chain management
In the short term, the greatest challenge that the healthcare industry faces continues to be providing sufficient PPE to healthcare professionals. Glitches in the supply chain have affected the availability of PPE directly as well as indirectly through supply chain-related shortages of some materials and supplies used in the manufacture of the equipment. These secondary sources are especially difficult to address because they’re nearly impossible to anticipate considering the volatility of the economy and geopolitical events.
In addition, the critical shortage of doctors, nurses, and other healthcare professionals extends to key positions among supply chain workers. Competition for trained supply chain staff has led to many of these workers being successfully recruited by industries that offer more stable work environments. However, the greatest obstacle in modernizing healthcare supply chain management is the reliance on reacting to market and industry conditions rather than making decisions proactively.
- Supply chain management needs to be elevated to the level of information management, operations management, and financial management rather than being seen as a support function of financial or clinical planning.
- New measures of success need to be developed that go beyond nonlabor cost reduction — lowering the price of goods and services — to include supply chain return on investment (ROI) and other metrics.
- Greater resilience can be built into healthcare supply chain management by applying such techniques as dynamic sourcing, which replaces sole sources for critical material with multiple sources, some of which are local.
Solutions to these and other supply chain challenges rely on technologies that identify the equipment and supplies that are most likely to become critical as a result of different potential disruptions. They then cross-reference clinically identical alternatives across a range of manufacturers. Healthcare providers see their supply chains as critical sources of data that can be fed into advanced analytics engines with the goal of making all healthcare operations more efficient and effective in improving patient outcomes.
How supply chains help prevent shortages of equipment and medication
Healthcare supply chains had become more streamlined and more global in the years before the COVID-19 pandemic, but those same traits made supply chains more vulnerable to disruption. A distributed, ad hoc network of domestic medical suppliers and community groups formed to fill the gaps in supply of PPE and other critical products during the pandemic. The local, decentralized model that arose can’t match the cost-effectiveness of the previous supply chain, but many of its characteristics can be adopted in a new supply chain model for the healthcare industry.
- GPOs failed to anticipate supply backlogs from the handful of large distributors they dealt with and ultimately relied on the local sources that were able to meet demand. In the future, local suppliers of critical goods will be integrated into global supply chains.
- Local suppliers are able to respond faster than those located overseas as conditions change and new needs arise. For example, ear, nose, and throat (ENT) specialists requested a customized face shield for treating COVID patients from a local source that was able to create the modification in a single day.
- Healthcare providers need to identify potential local sources for supplies and establish a platform to reach out to and communicate with these local companies. They must also connect the healthcare professionals who need the equipment with the people who are designing and manufacturing the products.
- Disaster preparation drills that are common at hospitals and other healthcare facilities have to include stress-testing the supply chains that support their operations. This includes identifying alternative local suppliers for critical products and streamlining the invoicing and payment process.
Efforts to combat theft in healthcare supply chains
It didn’t take long for the first COVID vaccine thefts to be reported after their initial rollout, as Forbes reports. The problem of controlled and noncontrolled substances being stolen from hospital inventories predates COVID, as do efforts to secure products in the supply chain. An important tool in preventing the theft of products in the supply chain is the use of data analytics that link electronic health records (EHRs) to drug administration logs and other inventory tracking tools.
Strengthening the security of healthcare supply chains involves changes to three areas:
- Operations: Real-time visibility into the supply chain allows providers to track items from the time they’re purchased to the time they’re administered to patients. This requires both track-and-trace technology and surveillance to pinpoint the time and place a product goes missing.
- Education and training: Employees in all departments must be aware of the threat of theft to the organization and the consequences of being caught stealing, including loss of employment, arrest, and a criminal record. They need to also be trained in proper storage and tracking of medication, equipment, and supplies.
- Technology: In addition to EHRs and clinical decision support systems, healthcare providers must take advantage of logistics and inventory technology to protect their investment in equipment and supplies. Modern tracking systems can alert managers to potential theft of supplies and identify areas of vulnerability.
Healthcare supply chain jobs and careers
Modern logistics, transportation, and distribution have become a core competency for healthcare organizations and companies in nearly all industries. In particular, these areas have become a source of vital information about how efficiently the organization is operating.
Among the positions that involve supply chain management are procurement officer, demand planner, and inventory manager. These and other healthcare supply chain jobs are in great demand as companies realize the many benefits of an efficient, reliable supply chain. The positions also benefit from a high job satisfaction rating: A survey by the Association for Supply Chain Management (ASCM; formerly APICS) found that 88% of supply chain professionals feel positive about their career’s outlook and would recommend the field to others.
Healthcare supply chain jobs
Supply chain professionals hold various job titles, including inventory manager, materials manager, demand planning manager, logistics manager, operations manager, procurement specialist, sourcing manager, purchasing manager, business analyst, and supply chain manager. Some hold the following APICS certifications: APICS Certified in Production and Inventory Management (CPIM); APICS Certified Supply Chain Professional (CSCP); or APICS Certified in Logistics, Transportation, and Distribution (CLTD).
The U.S. Bureau of Labor Statistics (BLS) categorizes supply chain professionals as logisticians or as purchasing managers, buyers, and purchasing agents.
- Logisticians manage all aspects of an organization’s supply chain and product life cycle, from purchase through disposal. Their activities include purchasing, transportation, inventory, and warehousing. They develop business relationships with suppliers and clients to ensure that products meet all requirements.
- Purchasing managers, buyers, and purchasing agents evaluate potential suppliers based on the price and quality of products, delivery times, and other factors. They track new products and industry trends, analyze price proposals, review other information to determine reasonable prices, and negotiate contracts with suppliers.
Healthcare supply chain careers
The healthcare positions charged with keeping the organization’s supply chain running smoothly play key strategic and leadership roles. They interact with manufacturers, suppliers, and other parties outside the company as well as with senior executives, department heads, managers, and employees in all departments of the organization.
These are among the healthcare supply chain career paths available to people thinking of entering the field:
- Supply chain managers devise and implement logistics and supply procedures so that sufficient inventory is always available. They regularly communicate with suppliers as well as with managers and employees inside the organization to ensure that products meet all requirements and purchase contracts are cost effective. The salary survey site PayScale estimates that the median annual salary for supply chain managers was about $84,000 in January 2022.
- Supply chain analysts coordinate the purchase and delivery of the products and equipment that healthcare departments require for projects and for their day-to-day operation. The job entails a great amount of data analysis and problem-solving to determine the causes of supply chain delays and glitches. PayScale estimates that the median annual salary for supply chain analysts was about $62,000 in January 2022.
- Purchasing managers interact with executives and employees throughout a healthcare organization and play key roles in planning projects and working with vendors and other parties outside the company. They review purchase proposals, negotiate contracts, and identify areas of potential cost savings. Purchasing managers typically deal with many assignments simultaneously and must pay close attention to all details. PayScale estimates that the median annual salary for purchasing managers was about $70,000 in January 2022.
- Logistics managers deal with the transportation of goods from vendors and distributors to healthcare facilities. Their goal is to ensure that goods move as efficiently as possible and arrive at their destination in a timely manner. They monitor inventory in warehouses and shipments to healthcare departments at various locations. PayScale estimates that the median annual salary for logistics managers was about $68,000 in January 2022.
- Procurement specialists locate the goods and services that healthcare organizations need and determine the lowest price available. They issue purchase orders based on the specifications of departments within the company and monitor the performance of suppliers in fulfilling the terms of the agreements. Procurement specialists may be involved in preparing for and analyzing purchase contracts, working directly with executives and managers in all areas of the organization. PayScale estimates that the median annual salary for procurement specialists was about $60,000 in January 2022.
Enhancing patient outcomes by improving logistics and procurement
The efficient management of healthcare supply chains directly impacts the quality of care the organization provides and the likelihood of positive patient outcomes. Supply chain professionals contribute to their companies by improving the work environment for doctors, nurses, and other healthcare workers as well as by stretching healthcare budgets. Find out how OpusVi and Northern Arizona University’s online Master of Business Administration in Healthcare degree program prepares students for careers in healthcare supply chain management.
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