What's the best distribution strategy for your organization? What are the key considerations when trying to identify the optimal distribution strategy?
Becker's Hospital Review recently spoke with Ken Rasbid, National Sales Director for the physician office platform at Cardinal Health, about factors to consider when evaluating a facility's distribution strategy. Mr. Rasbid weighed in on determining if the advantages associated with outsourced distribution make sense for a facility and explained how to successfully transition from self-distribution to outsourced distribution.
Note: Questions have been edited for length and clarity.
Question: When evaluating a facility's distribution strategy, what factors should supply chain leaders focus on?
Ken Rasbid: There are several important factors to consider.
When evaluating the non-acute continuum, focus on the best return on investment and reducing total delivered cost while also working on the end-user's service experience, improving efficiencies, eliminating waste and deploying supply chain sources most efficiently.
It's beneficial to review how a facility's labor might change if the distribution strategy changes. Potential employees affected include warehouse employees who may be duplicating efforts when receiving products. There are also procurement roles affected by backorder management, delivery confirmations, urgent orders, mis-orders and returns. Transportation and courier labor can be redirected toward other priorities. Shifting commodity purchases to an outsourced channel provides the ability to free up and redeploy resources to high-priority and high-value projects.
Non-acute medical surgical and laboratory distribution spend is less than five percent of an Integrated Delivery Network’s (IDN's) total spend but can feel like 50 percent of the effort. A change in distribution strategy can reduce transportation and fuel by consolidating and eliminating unnecessary delivery routes. It can also impact warehouse space as outsourcing allows you to optimize inventory space and repurpose warehouse racking toward the highest-impact SKUs with a one-time financial benefit to reduce days of inventory on-hand.
Additionally, focus on further reducing inventory costs. If you're outsourcing distribution, let a distributor, like Cardinal Health, carry the Days of Inventory on Hand (DIOH) supply costs instead of carrying them yourself. Non-acute items have lower volume and turnover and need a lower unit of measure.
Q: If the best strategy is outsourcing non-acute distribution, what should leaders expect from an outsourced partnership?
KR: When outsourcing non-acute distribution, partner with a distributor that is committed to executing your supply chain priorities. Establish measurements and Key Performance Indicators (KPIs) to validate cost-saving expectations.
To ensure clarity and visibility of non-acute purchases, have data integration through your Materials Management Information System (MMIS) to maintain alignment of products and pricing. This will not only provide transparency to understand the cost to serve this market but will bring actionable data to make more educated decisions.
Also, expect a positive end-user experience due to higher service levels and improved response times. The right distributor should help simplify the procurement process, eliminate waste, and likely improve end-user satisfaction. This expertise allows for the reduction of redundancies and redeployment of both labor and space to maximize Return on Investment (ROI).
Q: If a facility is switching from self-distribution to outsourced distribution, how can it plan for success?
KR: Understand all available facts but make educated assumptions when building price models. If not already in place, there is an opportunity to include clinic representation into your IDN's established clinical and product decision process. With that oversight, your distributor can work with the procurement team to identify product conversion opportunities that drive formulary, maximize contract connections and perpetuate consistency across the continuum. Other tips include finding specialized support such as project managers or distribution experts to facilitate change management and ensure a successful transition. Utilize flexible fulfillment options such as fleets, box trucks or FedEx.
Your distributor should work on your behalf to determine the most cost-effective delivery option based on each site's requirements.
Q: What should a facility’s supply chain leaders think about when evaluating distributors?
KR: IDNs who are adding facilities to their off-site network should ask themselves if they are experiencing pain points involving:
- On-time delivery?
- Responsiveness to sites?
- Growing expenses related to escalating transportation costs and fuel-surcharge rates?
- Challenges with open roles and unplanned employee turnover?
- Challenges hiring and filling open positions?
If any organization is experiencing one or more of these pain points, a Cardinal Health non-acute distribution specialist is an excellent resource to speak with about reducing the costs and complexity associated with your non-acute supply chain.
Conclusion
Evaluating a distribution strategy is extremely important. It can also be a complex undertaking because so many different factors must be considered.
Cardinal Health can help you think through your end-to-end fulfillment strategy and potentially improve your current distribution processes. For more information go to cardinalhealth.com/medicaldistribution.