Did you know that waste in the medical device and implantables supply chain amounts to an estimated $5 billion in losses, each year?1
Why? Well, for starters, the healthcare supply chain is complex and has many moving parts, which effectively serve as obstacles to efficiency. Complex product stocking processes require intensive staff time – time that most experts agree could be much more effectively spent on patient care. High-cost medical devices sometimes expire before they can be put to use. Siloed systems lead to the duplication of efforts, poor data sharing and inadequate or nonexistent analytics capabilities. All this at a time when reductions in reimbursement rates are creating an acute need for both providers and medical device manufacturers to reduce their overall costs. At face value these obstacles seem insurmountable and the waste appears to be irretrievable.
However, technology-based solutions are bringing big changes to the healthcare supply chain – a solution that can, indeed, help solve many of these challenges. Radio frequency identification (RFID) technology enables automated stocking, accurate usage capture, healthcare ecosystem compatibility and robust data analytics.
So what can RFID mean for healthcare’s bottom line?
In my opinion, an end-to-end supply chain that is truly networked can provide invaluable insights into many aspects of healthcare. Usage patterns emerge. Outcomes are linked to products and practices. Waste becomes visible, measured and reduced. Working capital is re-allocated. It’s my belief that true product costs are reduced. Even healthcare industry staffing – from manufacturer’s sales teams to caregivers on a hospital floor – can be reorganized to reflect insights culled from the supply chain. The retail industry has been utilizing analytics in the supply chain for quite some time, and to great effects.
From the point of manufacture, to the distributor, to the store, to the point of sale, items are tracked and information freely flows both up and down the supply chain. In retail, the benefits to this approach are already clear. Item-level data from manufacture to the point of sale is captured, providing valuable analytic data, which can help reduce stock-outs and lost sales, while at the same time decreasing unnecessary inventory and promoting predictive point-of-sale based forecasting. In short, retailers and manufacturers have broad visibility throughout the supply chain, and can use historical and predictive data to anticipate the products they need while seamlessly aligning those needs with their current inventory.
The healthcare supply chain lies in stark contrast with the efficiencies of retailers. More often than not, data is either not captured or not shared, so visibility remains siloed within each separate piece of the supply chain. Furthermore, historical approaches to supply chain management are no longer sustainable, as the current consignment distribution model forces high loss rates to be built into product costs. Data sharing and end-to-end visibility are critically important to recovering this waste and creating a more strategic and efficient supply chain. If we can track a $7 razor from raw materials to a medicine cabinet, imagine the efficiencies that can be gained when we can do the same with high-cost medical devices like pacemakers.
The RFID revolution: the time is now
Radio frequency identification (RFID) isn’t new, nor is inventory control. Even the roles of the players – hospitals, doctors, manufacturers and distributors – are the same. So it’s easy to underestimate the importance of this development, because on the surface, the supply chain looks much the same.
So, what’s different? Reflecting on more than a decade in this business, efficiency gains have been incremental. The next era will be different. The change on the horizon is much greater than what’s easily imaginable today. There’s an estimated $5 billion2 in waste in the medical device and implantables supply chain, and stakeholders will go to great lengths to capitalize on this opportunity to reduce costs. Manufacturers and healthcare providers alike have mutually aligned motivations for adopting RFID technologies throughout their supply chains, as their pain points often overlap. Both groups have to reconcile problems with product expiration, product loss, overstocking and product shortages. Unfortunately, today the healthcare supply chain isn’t a common-platform network.
Rather, it is still heavily fragmented and siloed. Hospitals use RFID, often excelling in its application within their own internal applications like inventory management or patient and capital asset tracking. Similarly, suppliers and manufacturers have excellent management systems that suit their internal needs. But lack of integration between suppliers and purchasers leads to platform incompatibilities, which limit supply chain communication and wastes some of the most important and beneficial applications of an RFID- based tracking platform.
What’s next?
The next logical step is the creation of an end-to-end, networked supply chain, in which all stakeholders – producers, purchasers and distributors – swim in the same pool of information, to improve efficiency and coordination for all participants. Hospitals benefit from efficiency improvements, reductions in waste, proactive supply management, enhanced charge capturing and improvements in patient safety and clinical satisfaction. Manufacturers share in these benefits, with reduced and optimized inventory and end-to-end inventory visibility, allowing for real-time consignment allocation within the integrated delivery networks (IDNs) and the region. The healthcare supply chain is taking notice, and change has begun.
For example, Cardinal Health is now working with hospitals and manufacturers to create end-to-end supply chain visibility for high value products. These items – pacemakers, artificial knees and hips – can cost $200 to $20,000 per box. Ordering and inventory control are done ad-hoc, leading to waste which is harmful to everyone’s bottom line. Some of healthcare’s large institutions have already adopted RFID technology into their supply chains, recognizing the enormous value and benefits of end-to-end visibility. RFID technology is one of the most effective ways of ensuring that the communication and data capture required for this visibility is precise, accurate and efficient. Fueled by the growth of RFID technology, precision inventory management solutions promise dramatically improved efficiency and cost savings, which can cascade across entire healthcare systems. Advances in data capture and analytics have enabled the growth of networked supply chains, which span from the manufacturer line to patient-side point of use.
The use of RFID technology is now linking producers, purchasers and distributors end-to-end across the entire supply chain. This allows manufacturers to see real-time inventory and consumption data, prompting earlier demand signals and all but eliminating product expiration challenges. Utilizing RFID technology, hospitals are better equipped to manage their high-cost products without burdening clinical staff with tedious supply chain responsibilities.
The RFID revolution is increasing efficiency, improving the patient experience, and changing the bottom line for the healthcare supply chain. Is it revolutionizing yours?
The views expressed in this article are those of the author and not those of Cardinal Health.
1 PNC Healthcare; GHX quantitative research study (August 2011)
2 PNC Healthcare; GHX quantitative research study (August 2011)