Better healthcare through leaner logistics

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Hospitals are, as ever, under increasing pressure to provide high-level patient care with minimal funding and over the past few years have looked to outside suppliers to take a more active role in managing supply chains. Higher patient demand for treatment and surgical procedures, coupled with increased pressure to measure the services provided, are some of the key issues driving the need for hospitals and supply chain companies to work even more closely together to raise service quality and save costs.

Hospital logistics have advanced, albeit conservatively, over the past few years but can still be fragmented, with little visibility over ordering, stock availability and status of supply chain activities. These issues drain critical patient care resources and lead to escalating costs in hospitals.

Looking to best practice
Many companies, including Exel, have looked to supply chain best practice in other sectors, such as automotive and retail, and taken the lessons learnt from those industries and applied them to hospital logistics. These include delivery consolidation techniques, savings in transport and storage and the use of established inventory savings through the use of established processes. These practices can reduce stocks held in valuable hospital space by 50 per cent. Medical staff can also focus on critical patient care rather than managing supply chains.

Now, further integration in the supply chain is needed to release more value. This is created when there are consistent goals, processes and sharing of information between functions, departments and organisations. Integration is needed at these levels: Within the hospital organisation; between hospital and supplier, and within the supplier organisation.

Further value will be created if there is greater collaboration between hospitals and the purchasing group and suppliers. End-to-end supply chain management will only be achieved if there is visibility of real demand as it happens and the mechanisms in place to fulfil the demand at an appropriate cost.

New distribution channels are emerging within hospitals which demand closer partnerships between hospitals and product manufacturers. These require more focus on the following core areas:

  • Information technology – provides management information, links suppliers and automates manual processes;
  • Inventory visibility – provides information to support supplier and production rationalisation and strategic purchasing;
  • Simplifying existing processes – re-engineering existing, complex supply chains;
  • Resource release – space, traffic and patient care staff are released by moreeffective supply chain management.

Here are some the basic procedural improvements that an efficient hospital logistics can typically deliver: Human resources correctly allocated to supplies, buying, storeman and pharmacies; Correct materials ordered eg linen, bandages, medical equipment and medicines; Storage costs and facilities; Transport costs; Support costs – eg helpdesks; Reduced time spent by nurses on non-patient care.

Service enhancements
Re-engineering hospital supply chains has not just reduced costs but provided major service enhancements throughout the supply chain such as a dedicated logistics teams, procedure-based processes, regular ward reviews, full audit trails and support.

Benefits to the nursing staff have meant that they spend less time handling stock and can focus on patient care. Additionally, on-site helpdesks and customer service contacts allocated to each department provide support for day-to-day and unplanned activities. Off-site benefits include congestion removal, Medicines and Healthcare Regulatory Agency (MRHA) and Health and Safety (HSE) compliance, storage space to check and store goods and process orders.

Now more than ever, attention at all levels, including government, needs to be focused on the financial benefits and in particular waste elimination (eg overspending and over-ordering). This can be achieved through the effective control of stock, expenditure, information and inventory in the following ways: By tracking consumption at product/location/patient level, hospitals can identify patient and procedure costs; On-site materials management service enables clinical staff to focus on patient care; Off-site consolidation of deliveries relieves space and congestion in the hospital; Off-site logistics creates cost economies across multiple hospitals locally and amongst the total supply base; Intelligent order management enables consolidation of supplier deliveries across wards and hospitals; And fully tracked-and-traced delivery to ward ensures the right product ends up in right hands at the right time.

Hospitals need to engage more closely with suppliers to take greater responsibility for the delivery of products and services within the hospital environment. Aligning closely with their customers’ objectives, manufacturers will realise great supply chain benefits which have a further positive impact on relationships with the hospital:

  • through effective stock and information management, manufacturers are able to control inventory levels and eliminate waste
  • by tracking consumption at product/location/patient level, manufacturers can identify sales trends as they occur and forecast more effectively
  • on-site management of consignment stocks allows greater configurability of service to match customer need and profit potential
  • off-site storage of products allows manufacturers to offer vendor managed inventory (VMI) service to local customer base
  • local logistics platform creates cost economies across multiple hospitals locally and amongst the total supply base
  • local logistics platform permits manufacturer to offer other value-added services (VAS) and to act as first tier supplier
  • Intelligent order management enables consolidation of deliveries across wards and hospitals
  • Fully tracked-and-trace delivery to ward ensures the right product ends up in right hands.

By deploying critical stock close to the point of demand, manufacturers are able to offer a better level of service to customers which enable them to respond to demand and reduce waste.

Establishing a local platform, manufacturers will be better placed to manage their own service offering by being closer to the market. This will also force hospitals to introduce effective logistics management to make the critical financial savings mentioned previously.

And the future? Increasing focus will be placed on high-spend areas such as operating theatres and pharmacies in order to realise greatest purchasing efficiencies and inventory savings. With visibility of demand and control of inventory, the next phase of integration, with the supply base, becomes possible. In doing so, new models can be applied, with suppliers taking greater ownership of the supply chain; this can take the form of an extension of service provision (eg stock management), or a different risk profile (VMI) or a role change (becoming a tier one supplier).

And the next phase is…
The next phase of development addresses the growing requirement for procedure and therapy-based solutions within the hospital. The solution links product to patient and will interface with hospital patient administration and finance systems. Supply chain integration will be horizontal, between supplier, procuring hospital and end user.

Fundamentally, the service will evolve from being focused on the efficient delivery of the current healthcare model (goods and services), to one which is adaptable to changing user requirements and supplier innovations.

The implications for the commercial relationship between suppliers and hospitals are profound. Hospitals which can force the integration agenda and enforce disciplines on suppliers will make large efficiencies. Suppliers offering a broader service scope can use this to secure preferential terms or greater market share.

An innovative logistics model will resolve basic, immediate issues and anticipate the future demands of hospitals. From the manufacturers to the patients, a robust supply chain will provide major economies of scale and improve the quality of services that hospitals can provide. Third party logistics providers are a resource that help hospitals and suppliers integrate supply chains and balance local, communitybased logistics with international agendas but appreciate cultural differences within hospitals. The operational benefits of effective hospital supply chains in this area are becoming clear, the challenge now is to manage supply chain change sensitively and challenge existing practices and behaviours to release financial benefits.

Simon Duddy is head of Solutions for Exel’s Healthcare sector.

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