Aug
30
Written by:
Karen Conway
8/30/2010 8:42 PM
The healthcare supply chain and the potential it has to tackle one of our nation’s biggest problems, rising healthcare costs, may finally be getting the recognition it deserves. It’s not that hospital leaders have not seen savings opportunities in the supply chain, but the majority of their focus has been on physician alignment, product standardization and more aggressive negotiations with suppliers. While these efforts can and have yielded savings for hospitals, they are still limited in scope, making improvements in very specific areas as opposed to a more holistic approach that can yield savings across the entire supply chain. If we are truly going to take costs out of the healthcare system, we have to look at the entire system, rather than just trying to reduce costs for one sector, potentially at the expense of another.
Interestingly, the concept behind the 1996 study that got many of us to focus more on the supply chain – the Efficient Consumer Healthcare Response (EHCR) study - has been relatively ignored. That study identified more than $11 billion dollars in waste in the healthcare supply chain and led to a greater reliance on e-commerce for order processing. While the EHCR study continues to be frequently referenced today, but there has been little discussion, at least until recently, of “efficient consumer response” or ECR and its potential application in healthcare. Well known in the retail industry, the term refers to manufacturers, logistics service providers and retailers working together to help ensure there is more than enough product available at the point of sale, but very little excess inventory throughout the supply chain.
Think of what the successful application of this concept could mean in healthcare. What if we could always ensure that there was enough product at the point of use for patient care, without the excessive amount of inventory in the pipeline that often expires before it can be used. We have all heard stories about nurses stockpiling supplies in cubbies in the OR, even above the ceiling tiles, to make sure they do not run out in an emergency. At the same time, we hear stories about suppliers overproducing product for fear they will not have enough when a customer needs it and will lose a sale. All of this contributes to significantly higher healthcare costs.
These problems occur when the various players in the healthcare supply chain do not have visibility into what is happening either upstream or downstream from them. What if, in healthcare , suppliers could receive more accurate and timely information at the point of use that could trigger upstream supply chain activities to better meet customer demand. Certainly this is not something that can be achieved overnight, and technology, no doubt, will play a role. But there is an even more fundamental step that needs to be taken first, and that is, getting the various players – manufacturers, distributors and healthcare providers – to begin talking to one another, to identify opportunities to improve visibility, to share information and to make decisions based on fact, not emotion.
I mentioned at the beginning of this posting that I am optimistic that we may, as an industry, be ready to apply some of these concepts to healthcare. If you are interested, I recommend two articles on this topic. One is easily accessible from Medical Device Network. You can read the article, entitled “Logistics and Holistics for Medical Supply Chains” at
http://www.medicaldevice-network.com/features/feature81024/. The other article, “Is supply chain the cure for rising healthcare costs?,” is a little bit older but still very applicable. It was published in Supply Chain Management Review last September. You can read an excerpt and, if you choose, download a full copy (with a free 7-day subscription to Highbeam Research) at this url:
http://www.highbeam.com/doc/1G1-209535627.html. I encourage you to check them out and let me know what you think. Are we ready yet?
1 comment(s) so far...
Correct me if I'm wrong but isn't the the Periodic Automatic Replenishment (PAR) the healthcare equivalent of the ECR in retail? The "automatic replenishment" is enabled by setting a PAR level, below which point the MMIS triggers a pick from an inventory location. PAR locations are not inventory locations per se but rather, point-of-use storage. In the case of computerized supply cabinets like Pyxis, that system generates a materials requisition for a pick ticket.
PAR locations may also include OR suites, pre and post op bays/rooms, suture carts, specialty rooms (C Section, Endoscopy Suite, Sub Sterile Rooms) and miscellaneous locations (scrub sinks, locker rooms, warming cabinets). In this case, replenishment is not so automated. On a daily basis, the supply manager carries a handheld terminal, scans the barcodes, enters the counts, docks the handheld, then uploads the data. Lawson's wireless application streamlines the process a little bit by sending wireless data real-time.
The concept of PAR works well if PAR levels are set properly. An optimal level eliminates "Just in Case" stockpiling while increasing product availability. For those who would implement PAR optimization within their organizations, a good baseline is a 23.5% reduction in stockouts and 12% reduction in replenishment trips.
While PAR has become best practice for healthcare, lean practitioners sing the benefits of kanban instead. See ezinearticles.com/?The-Par-Level-Myth-Exposed---The-Method-Nobody-Uses-(Except-Hospitals)&id=3955875. If I understand correctly, the kanban method will increase inventory while reducing labor (true to the lean principle). It's up to you to decide.
By Lowell R. Luis on
1/3/2011 8:27 AM
|