The Healthcare Hub

Reducing Cost-to-Serve in Healthcare

posted by: David Reed
Monday, August 19, 2013

By David J. Reed, vice president of Operations and Healthcare Business Solutions, corporate compliance officer, Cook Medical Incorporated

About two years ago I was giving a talk on healthcare supply chain and mentioned that within the past 90 days one healthcare system had ordered from us over 60 times in one day, shipping to the same location. Somebody in the audience responded, “What’s wrong with that?”

I’ve been in this industry for over 30 years and much of how we handle the purchasing and delivery of products has not changed significantly during that time. No one made a purposeful decision to make this process expensive and inefficient. It’s that no one has made a concerted effort to look at what is really driving the costs around the purchase and movement of products from the manufacturer to the bedside.

Fast forward to today and most people in the audience would immediately recognize how activities like this add costs. Organizations are now wringing out the washrag to find every single penny of every dollar to save. As a result, Cost-to-Serve has come to the forefront. People are now questioning whether we are doing everything we can to ensure the cost to procure and deliver products is as low as possible. The simple answer is “no.”

I recently took part in an executive forum on Cost-to-Serve at the 2013 GHX Healthcare Supply Chain Summit where 40+ representatives from provider and supplier organizations came together in a room to explore why the cost to procure and deliver products in healthcare is so much higher than in other industries. We identified numerous cost drivers, such as freight charges and excessive ordering and inventory, and shared ideas on how we can collaborate to address these issues.

At Cook Medical, we’ve set up a Healthcare Business Solutions team to collaborate with customers on ways to improve efficiency and reduce costs in the supply chain. We sit down with customers and discuss where in their organizations they need our products and what are the optimal ordering frequency and inventory levels to meet clinician needs without adding unnecessary costs or generating waste.

These conversations are unchartered territory for most of us. They require a level of trust that is lacking within most healthcare trading partner relationships. If Cook Medical and its customer agree to reduce inventory levels within the customer’s facilities, the customer has to trust that its clinicians will have the products they need when they need them, and we must trust that the customer won’t switch to a competitor’s products just because that competitor has more inventory on the facilities’ shelves.

We’ve found starting with simple improvements builds trusts on both sides, enabling us to tackle more complex and riskier issues over time. Addressing low hanging fruit, such as freight charges, goes a long way in building trust and demonstrating value. Once you’ve established that baseline, that’s when the real change can begin to happen.