Until recently, hospital executives paid little attention to the supply chain, assuming it was of little strategic importance. Even its traditional physical location is indicative of the rank it occupied in the hospital departmental hierarchy.
"Go back 15 years and [the supply chain] was frequently in the basement next to medical records and next to other service aspects," says Eugene Schneller, PhD, co-director of the Health Sector Supply Chain Research Consortium at Arizona State University's W.P. Carey School of Business in Tempe. The hospital supply chain simply existed as a transactional function of the industry.
Fast forward to the current day, and "strategy" is the buzzword surrounding supply chain. Materials manager positions are solidifying their position in the executive level of leadership. Healthcare organizations are viewing the supply chain as an opportunity for significant cost savings instead of just a cyclical process. And in the most progressive organizations there is an understanding that excellence in supply chain management can help drive excellence in clinical performance.
The hospital supply chain is evolving and changing the way providers practice high-quality care. As the old adage goes, one must look to the past to see what lies ahead.
The old supply chain
In past years, supply chain and strategy often weren't discussed as a single idea. As Dr. Schneller says, the supply chain was viewed as just another necessary element of hospital operations. Supplies and materials were treated as a commodity, not managed as an asset.
"By and large, [supplies] were used as something that had to be there to carry out a procedure," Dr. Schneller says. "The expectation from the physicians is they were there and what was there is what the clinician wanted."
This expectation of readiness of supplies and of specific supplies requested by physicians continues to be an underlying cause of one of the biggest obstacles facing strategic materials management today: physician preference items. As physicians are trained on and become accustomed to certain tools and devices, they tend to want to stick to using those specific ones in their practice. It demonstrates the antithesis of the financial benefits of buying in bulk and instead purchasing individual items.
And while a high level of physician satisfaction with the materials environment remains a goal, meeting every physician's personal preference is just not compatible with excellence in supply chain management performance, Dr. Schneller says.
Physician preference items have also hindered smooth integrations in the case of mergers, acquisitions and affiliations. "Frequently what those [mergers and acquisitions] fail to do is bring together the diverse aspects of the supply chain," Dr. Schneller says. "You have two systems with different group purchasing organizations, distributors and physician preferences. It takes a long time to integrate cultures, but it shouldn't take so long to integrate some of the business aspect functions that help integrate those cultures."
A new approach
The healthcare landscape is changing, and along with it healthcare organizations started eyeing different areas where they could cut back costs. With the supply chain being the second largest cost after labor, Dr. Schneller says organizations have realized the potential for savings.
"As [the cost of supplies] increased, it became clear to some of the more progressive systems that every dollar you could save in supplies would drop to the bottom line," he says.
Healthcare organizations are addressing issues like physician preference items and medical device tracking and documentation. More and more materials managers are solidified in the executive suite, carrying titles such as vice president of supply chain operations. Subsequently, C-suiters are coming to understand one another's perspectives and making decisions that help integrate functions. This is important as supply chain officers enter into alliances with CFOs and CIOs when considering major investments in technology, thus helping to drive both innovation and integration. Additionally, supply chain executives working with CMOs and clinical leaders helps bring clinical quality and safety considerations to front of mind when strategically sourcing supplies.
Additionally, Dr. Schneller sees the scope of the supply chain expanding outside the hospital walls. As remote patient monitoring and home care are gaining popularity and use, the supply chain needs to extend to reach these additional service areas. "We're seeing a great deal of focus of moving much of what's happening in the hospital to the home," he says. "We've tended to leave supply chain in the U.S. at the hospital door when you discharge that patient….Now it has to interact in the physician environment and the home to have a consistent quality of care and access and timely delivery of care to the patient. It's less about the hospital supply chain and more about the healthcare delivery supply chain."
Continued research
While the supply chain is still in early stages of its transformation as a strategic element of hospital operations, much research is still needed to determine best practices, which is at the core of what Dr. Schneller oversees as co-director of HSRC-ASU. The consortium's mission is "to provide actionable research to develop best standard practices for the healthcare supply chain that reduce risk and cost and to influence policy," according to its website.
Past and current research projects of HSRC-ASU include management of physician preference items, hospitals' best practices with unique device identifiers in the operating environment, barriers to trust in buyer and seller relationships, price versus total cost of ownership and transparency in contractual obligations.
HSRC-ASU is also looking outside healthcare's boundaries to learn applicable best practices from other industries, such as automobile manufacturing. "By looking at other industries and what they've done, we'll be able to help organizations more quickly look at what the major trends are, whether it's IT, integration or innovation," Dr. Schneller says.
HSRC-ASU is dedicated to research that leads to actionable change. And the sooner hospitals, medical device suppliers, group purchasing organizations and distributors can apply research theories into application, the better.
"There's very little translational research in supply chain," Dr. Schneller says. "How do you get things from the bench much more quickly into practice? That's what we're committed to doing, is taking high-quality academic research and moving it quickly into the practice arena."
For more information and access to reports, visit HSRC-ASU by clicking here. Dr. Schneller can be contacted at gene.schneller@asu.edu.
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