Direct manufacturer shipments: How to avoid higher costs and slower delivery times

For hospitals and health systems, reducing supply chain waste is a top priority as the shift toward value-based care drives new cost saving initiatives.

Freight management is an often-overlooked cost saving opportunity; in fact, 50 – 70% of healthcare transportation spend goes unmanaged.¹ Among these expenses are shipments received directly from manufacturers. These shipments bypass cost savings strategies such as third-party distribution and freight management programs. As a result, they can drive costs up—while actually slowing delivery times down.

To understand how direct manufacturer shipments can be a source of new savings, start by considering the receiving process. If you’ve ever stood on a hospital loading dock and watched shipments arrive throughout the day, you’d have to agree that it’s a highly complicated, time consuming process.

Oftentimes, hundreds of manufacturers are shipping thousands of individual boxes directly to the hospital in multiple deliveries throughout the day. With all that volume and complexity, there’s no end-to-end visibility from manufacturers to you. You can’t manage what you can’t see, so you don’t have the data necessary to identify savings opportunities.

There’s also a lack of data standards and consistent service levels across all of these manufacturers and individual daily shipments. And once products arrive, there’s the still the challenge of moving them from the loading dock to the appropriate hospital department. What can supply chain professionals do to convert this complexity into a new source of savings?

Streamline your supply chain

To date, the challenge with direct shipments is that each manufacturer is working independently in its own silo. In effect, each manufacturer is its own “supply chain”—and the inefficiency drives up shipping costs. To lower them, hospitals and health systems can aggregate these individual “supply chains” into a singular streamlined one.

Doing so can reap multiple benefits. First, you’ll simplify the receiving process and internal distribution. By reducing the workload, you’ll make it easier to deliver every product to the right hospital department. You’ll also save time by reducing the number of product touches. More efficiency can yield more savings and free up resources for supporting patient care.

Another issue with multiple manufacturer shipments is all the invoices and other paperwork they generate. By streamlining the supply chain, you’ll simplify ordering and reduce the potential for errors. Think of the time you could save and redirect to more productive tasks.

Finally, check your contract language pertaining to who pays freight in each of your largest manufacturer agreements. By reading the fine print, you might find that you are paying for freight when you don’t have to.

A final benefit of streamlining direct manufacturer shipments is avoiding rush freight charges. While two days is the industry standard for direct-ship delivery², manufacturers may “rush” many products by shipping overnight—and the ensuing premium delivery charges can really add up. By taking greater control of your direct shipment strategy, you’ll minimize the need for rush shipments.

Take the next step

How can you take advantage of these savings opportunities? Work with a knowledgeable supply chain consultant to evaluate your direct shipment strategy. Start by identifying products that could be delivered in a more cost-effective and efficient way:

1. Target high-end physician preference items in the OR and cath lab: These areas are typically the top receivers of direct shipments. Can you save money by shipping medical devices, implants and other high-value items in a different way?
2. Consider moving the appropriate items off consignment: Over time, consignment levels can expand or get out of skew. Can you maintain the right inventory level of these items in a more cost-efficient way?

Recognize that some products should remain direct; the key is having a balanced approach to your direct and non-direct shipment strategy. It’s not an “all-or-nothing” proposition.

As hospitals and health systems look for every opportunity to save, one clear place to start is with products shipped direct from manufacturers. The time and money you save can be valuable new resources to help you support patient care.

Click here to learn more about how Cardinal Health can help you streamline your supply chain.

¹Based on internal OptiFreight® Logistics customer data.

²Becker’s Hospital Review: “A Simpler Solution for Direct Manufacturer Shipments: 5 Qs with Cardinal Health’s Director of Supply Chain Solutions”