The sheer logistics of operating a modern healthcare facility are daunting. From the most expensive medical devices to the vast array of paraphernalia (medications, syringes, bandages and various medical instruments) required to provide comprehensive care, hospitals procure, store, utilize and dispense an extraordinary quantity of specialized material and equipment. It is an extremely complex supply chain with many diverse links.
In fact, supply chain costs are one of the biggest expenses in any hospital's budget. At close to 40 percent of the operating budget for some institutions, the supply chain represents the second largest expense after labor costs. Because the supply chain occupies an outsized space on the balance sheet, implementing more effective inventory management strategies and improving supply chain performance can have a significant impact, with reductions of 10-12 percent possible with even moderate supply chain improvements.
To help achieve these results, hospitals and other healthcare organizations are increasingly looking to robust technology systems to help create more efficient business processes. Today, advanced supply chain management software is one of the most popular and effective ways that healthcare institutions can do exactly that. The best SCM solutions optimize supply chain efficiency, streamline essential business processes, and frequently make a measurable and sometimes dramatic impact on the bottom line. At a time when the healthcare supply chain is only growing more complex and convoluted, understanding the exciting potential of SCM solutions — and acquiring a working knowledge of the industry best practices for implementing and managing those systems — is perhaps more important than ever before. 
By the numbers
One of the most dramatic ways in which SCM software can make an impact in the healthcare industry is through its automation functionality, making it possible for hospitals and healthcare organizations to be "leaner" and "smarter." The best SCM solutions are capable of fully automating a wide range of necessary logistical processes and procedures, from reordering and restocking supplies when they are low to handling the details for the payment and processing of invoices. When you add in the need to meet strict regulatory mandates and restrictions that can make supplying a hospital with mission critical necessities more complicated, automation's potential for recapturing some of that lost efficiency by reducing processing times and performing essential tasks like cross-checking deliveries is noteworthy.
Additional savings are made possible through a vendor-managed inventory approach, where a hospital keeps a product on hand, but will not actually pay for the product until it is used or consumed. This reduces carrying costs and lowers operational and capital expenditures.
Effective SCM tools are not limited to automated inventory regulation, either. On the back-end, where hospitals need to pay for procured supplies, e-settlement tools can facilitate fully electronic and automatic invoicing and payment. Ultimately, this type of process reduces administrative costs and allows the hospital to spend less time on bureaucratic and logistical details and more time on treating patients.
Enhanced vendor insight
One of the ways in which SCM software helps to smooth out any kinks in the supply chain is through sophisticated vendor management tools. Quality SCM solutions confirm that vendors/suppliers are performing to expected standards by monitoring to make sure that orders are not arriving late, that avoidable shipping errors are not occurring, and that accurate and timely delivery of quality products is maintained at all times.
Because vendor certification is already such a complex and time-consuming process, managing the day-to-day details of hundreds of vendors and account details is virtually impossible without some kind of vendor management capabilities. By engaging in a kind of ongoing quality control, SCM vendor management functionality makes it possible for hospitals and healthcare organizations to not only monitor and manage their professional relationships today, it makes it easier to make more thoughtful and strategic decisions about which of those relationships should be part of the supply chain in the future.
Contract management
When it comes to the contracts established between healthcare institutions and suppliers, SCM solutions have much to offer in terms of their ability to ensure that the terms established within those contracts are satisfied. Changes in pricing means that hospitals that want to stay competitive must continually reconcile those price differences between contractually established levels and new market realities. This has traditionally been a weak point for healthcare institutions, which frequently have failed to monitor compliance and performance metrics with adequate rigor. Consequently, when deliveries are delayed, mistakes are made or prices change, those institutions are often overcharged or underserved, contributing to poor inventory controls and unforeseen shortages, some with the potential to have an impact on patient health and safety.
Go right to the sourcing
One of the underappreciated aspects of high-quality SCM management is its ability to provide healthcare institution the ability to take a more proactive approach to sourcing. In other words, instead of working with a single manufacturer or supplier, hospitals can cast a wider net and proactively compare candidates based on a wide range of factors. By taking more time to refine requirements, evaluate options and compare different vendors and manufacturers with their competitors, hospitals can be better informed and confident that they are making the best, most cost-effective decisions.
Powerful SCM solutions will also provide supplier enablement functionality. This allows suppliers to register online where they can place a competitive bid to provide a specific commodity or service — resulting in the hospital's ability to vet pricing quickly. This type of feature cuts down on time spent talking to various suppliers and comparing pricing. It brings the information directly to your doorstep.
Analytical rigor
The best SCM solutions facilitate a much higher and more sophisticated level of supply chain analysis. A potent combination of powerful business intelligence tools and detailed tracking and reporting functionality that captures all financial and supply chain data means that healthcare organizations can answer some of the tough questions that have long been a mystery for far too many operators. With an SCM solution in place, accurate information about spending, inventory shelf life and areas of strength and weakness are at the fingertips of decision-makers. Instead of theory, healthcare institutions can make decisions based on hard data.
Practice makes perfect
While an SCM solution can be a game-changer, having a understanding of your organization's needs and abiding by accepted best practices for implementing and utilizing sophisticated SCM software to meet those needs head on will go a long way toward ensuring success in enhancing business processes and improving the organization’s bottom line.
The right stuff
Utilizing the right tool is Job 1A. There are a number of solutions out there — some much better than others — and selecting the appropriate tool for your organization can be more complicated than it may appear. Above all else, make sure that you select a system that addresses your specific needs, with all necessary functionality baked right into the tool.
Ask for help
Working closely with a consultant or advisor with established expertise in the implementing and optimization of SCM solutions is strongly recommended. Experienced operators in this space will not only understand how to adapt the system to the specific needs of each user, but can lean on the practical experience acquired with other healthcare institutions to deliver valuable industry-specific insights. Leveraging the full power of SCM optimization means understanding — and utilizing — all of the applicable and available functionality to your advantage.
Catch the train
Employee education and training is absolutely essential, and the implementation of any SCM solution is incomplete without that element being put in place. Knowledge transfer and comprehensive change management can be facilitated by electronic tools and tutorials, but end users can only get so far on their own. Hospitals almost always work with a vendor who provides implementation support on the front end, as well as training and technical support on a continuing basis.
The introduction of SCM solutions has the ability to alter the landscape for hospitals looking to do more with less and find greater efficiencies in their current processes. By providing enhanced clarity into the supply chain, healthcare organizations can not only expect to see improvements to their bottom lines, but the additional insight will ultimately lead to better, more informed decision-making capabilities.
Roland Butvilofsky serves as PeopleSoft practice manager at MIPRO Consulting, a consultancy specializing in implementations, upgrades and optimizations of Oracle’s PeopleSoft applications. Mr. Butvilofsky serves can be reached at roland.butvilofsky@miproconsulting.com.