The Healthcare Hub

Future of Healthcare Supply Chains: An In-Depth Analysis

Tuesday, January 2, 2024

As healthcare systems seek to build resilience, industry leaders are looking to technology as the primary source of innovation. This in-depth analysis of current challenges and future trends explores the role of AI, value-based care, DEI and sustainability in the future of healthcare supply chains. 


 

Table of contents

  1. Understanding the healthcare supply chain system
  2. Key functions of the supply chain in healthcare
  3. Healthcare supply chain challenges in 2024
  4. Supply chain risk mitigation strategies
  5. Innovation in healthcare supply chains
  6. Cybersecurity threats and strategies
  7. Overcoming challenges in healthcare supply chains
  8. Future trends in supply chain management

 


 

Understanding the healthcare supply chain system

The healthcare industry supply chain system flows behind the scenes in most health systems. It’s not until there is a disruption to that flow that healthcare supply chain comes front and center.

The risks are high: When clinicians do not have the critical medical/surgical supplies they need to deliver patient care--because of a shortage, stockout or missing inventory--it can disrupt or delay treatment.

Looking to research on healthcare industry trends : in a survey of 400 nurses, physicians, service line leaders and supply chain administrators, more than half (57%) of respondents could recall a time when a physician didn't have the product required for a patient's procedure. On top of the clinical impacts, the costs of the healthcare industry supply chain are staggering – and growing.

Vizient is forecasting a 2.9% estimated supply chain rate increase for January to December 2024, while Fitch Ratings predicts U.S. health systems and hospitals will continue to struggle financially in 2024 because of “labor shortages and salary/wage/benefit pressure that is still compressing margins for a sizable portion of the sector.”

Heading into the new year, healthcare executives are looking for ways to increase procedural revenue and cut costs where they can. Overcoming supply chain challenges with targeted supply chain advancements can help them achieve both goals. 

The evolution of the healthcare supply chain over the past 20 years has been substantial, driven by technological advances, regulatory changes, and shifts in healthcare practices. The pace of advancement grows even more rapid in the face of cost and quality pressures resulting in a more complex, technology-driven, and globally interconnected system.

This evolution has brought about efficiency improvements and cost savings, but also new challenges and vulnerabilities. Key developments include:

  • Technology Integration: The integration of information technology systems, including enterprise resource planning (ERP) systems, electronic health records (EHRs) and supply chain management (SCM) software, has revolutionized how inventory is tracked and managed. Automation and digital data capture have greatly increased efficiency and accuracy.
  • Globalization: The supply chain has become increasingly global, with pharmaceuticals, medical devices, and supplies being sourced from around the world. This has led to more diverse supply sources but also introduced complexity and risks related to global logistics and geopolitical factors.
  • Regulatory Changes: There has been a significant increase in regulatory oversight to ensure the safety and quality of medical products. Both the U.S. Food and Drug Administration (FDA) and European Commission continue to strengthen regulations aimed at MedTech manufacturer quality management (e.g., the FDA’s proposed amendment to its Medical Device Quality System (QS) Regulation and the EU’s amended Medical Device Regulation (MDR).
  • Just-In-Time Inventory Practices: The shift from bulk stockpiling to just-in-time inventory practices has helped reduce costs and minimize waste. However, it has also made the supply chain more vulnerable to disruptions, as seen during the COVID-19 pandemic. Supply chain leaders struggle to find a middle ground that offers resiliency without added expense. 
  • Increased Focus on Cost Management: Cost management in the supply chain has grown more complex in the value-based payment environment. The focus has shifted from purchasing items with the lowest price tags to determining how products impact overall care delivery costs and quality, for example, determining whether a product plays a role in costly infections, longer hospital length of stay (LOS) or readmissions not covered by payers.
  • Advances in Logistics and Distribution: Innovations in transportation and logistics, including real-time tracking and improved distribution methods, have enhanced the efficiency and reliability of supply deliveries. The growing trend of consolidated service centers (CSC), where health systems buy items in bulk, store them in their own warehouses and distribute them to their care sites contrasts with traditional distribution channels.  
  • Risk Management and Resilience: Ongoing supply chain disruptions and supply shortages have underscored the importance of having resilient supply chains capable of responding to crises. This has led to more emphasis on risk assessment and contingency planning.
  • Sustainability and Ethical Sourcing: There's been an increasing focus on environmental sustainability and ethical sourcing practices within the supply chain, reflecting broader societal concerns.
  • Personalized Medicine and Specialized Products: Advances in medical technology, including personalized medicine and biologics, have created new challenges for the supply chain, requiring more specialized handling and distribution processes.
  • Non-acute Care Expansion: As health systems and hospitals shift more care from acute to non-acute settings to reduce costs, the healthcare supply chain grows longer and more complex. Healthcare supply chain leaders are increasingly being called upon to equip clinicians and patients with equipment and supplies in areas far beyond the reach of traditional hospital logistics – all the way through to patient homes.

 


 

Key functions of the healthcare supply chain

The healthcare supply chain is critical to high quality patient care delivered with efficiency and cost effectiveness. A health system or hospital supply chain team’s responsibilities encompass a broad scope of activities – from strategic to tactical – and require coordination with both internal and external stakeholders.

  1. Procurement: Acquiring medical supplies, equipment, and pharmaceuticals. This involves identifying needs, selecting suppliers, and managing contracts.
  2. Inventory Management: Maintaining an optimal level of inventory to ensure that medical supplies and medications are available when needed, without overstocking which can lead to waste.
  3. Distribution: Efficiently distributing medical supplies and drugs to various facilities like hospitals, clinics, and pharmacies. This includes managing logistics and transportation.
  4. Quality Control: Ensuring the quality and safety of healthcare products. This includes monitoring the conditions in which products are stored and transported, and ensuring they meet regulatory standards.
  5. Information Management: Tracking and managing information related to supply chain operations. This involves using data analytics to forecast demand, track inventory levels, and optimize supply chain processes.
  6. Supplier Relationship Management: Building and maintaining relationships with suppliers. This includes negotiating contracts, ensuring compliance with regulatory requirements, and collaborating on product innovation.
  7. Cost Management: Controlling costs within the supply chain to ensure affordability of healthcare products and services. This involves strategies like bulk purchasing and negotiating favorable terms with suppliers.
  8. Compliance and Regulatory Oversight: Adhering to legal and regulatory requirements in the procurement, storage, and distribution of healthcare products.
  9. Risk Management: Identifying and mitigating risks in the supply chain, such as supply disruptions, product recalls, or changes in regulations.
  10. Sustainability and Diversity: Implementing environmentally sustainable practices and building a diverse pipeline of suppliers that support local businesses.

 

Key players in healthcare supply chain

Beyond healthcare industry logistics, there are many other parties that impact the healthcare industry supply chain system in some way – and the associated costs. Here are just some of the key players in healthcare supply chain: 

  • Healthcare Supply Chain Teams: The role of chief supply chain officer (CSCO) has grown in strategic importance as executive leaders recognize the importance of building a resilient, robust and efficient supply chain. To deliver on today’s cost and quality demands, prepare for future challenges, and drive continuous improvements, CSCOs need a team of supply chain professionals with the skills and dedication to support this mission.
  • Clinicians: The clinically integrated supply chain trend is growing, where clinical and supply chain teams share information with each other to support value-based care through purchasing decisions. Whereas in the past, some supply purchases were mainly supply chain driven (e.g., commodity products) and others clinician driven (e.g., physician preference items), there is now greater collaboration among these stakeholders with the recognition that supply choices impact costs, patient care quality and overall financial outcomes.
  • Healthcare Suppliers: The role of healthcare supplier is evolving alongside that of the provider supply chain counterpart. While health system and hospital supply chain teams depend on suppliers in the traditional sense – helping to deliver the right products at the right prices in the right quantities to the right places at the right times – many want more from their supplier relationships. There has been a steady drive to shift from purchases to partnerships, transactional to strategic, with healthcare providers and suppliers working together to share information and collaborate on operational and financial improvements.
  • Distributors: The role of healthcare distributor also continues to evolve as healthcare provider organizations seek out ways to strike that balance between resiliency and cost savings. The significant supply chain disruptions and shortages experienced during the pandemic revealed the flaws in the just-in-time distribution model. Today, many providers are more closely collaborating with their distributors and sharing demand data to maintain consistent supply levels and proactively addressing supply chain continuity threats as they arise.
  • Group Purchasing Organizations (GPO): For most healthcare organizations, GPOs play a central role in procurement and contracting, leveraging group buying power to drive savings. Challenged by rising costs coupled with supply shortages, provider organizations are increasingly looking to their GPOs to help navigate these issues. In response, GPOs have invested heavily in data and analysis capabilities over the past year, according to the Healthcare Group Purchasing Industry Initiative (HGPII). The industry organization notes that with these enhanced capabilities, GPOs can better “forecast demand changes and predict supply shortages” as well as act “as a price hedge for entities concerned about obtaining supplies at a reasonable price.”

A note on functional players

Within the healthcare supply chain are specific groups of stakeholders who work across organizations to facilitate supply procurement, delivery, management, and payments. Here are a few examples:

  • Procure-to-Pay (P2P) Team: The healthcare organization’s procurement and accounts payable (AP) teams and supplier or distributor’s accounts receivable (AR) teams work to align on products, purchases and payments.
  • Contracting Team: The healthcare organization’s internal contract management team, its group purchasing organization (GPO), and its distributor and suppliers work to align on supply negotiated contracts, terms and prices.
  • Consignment Team: For products that fall outside of traditional supply chain systems (e.g., ERP) and distribution channels, such as implantable devices, the healthcare organization’s clinical team and supplier’s sales team work to align on having the right product arrive in the operating room (OR) or other procedural area in time for a patient’s scheduled case, and ensuring that the correct, contracted price is paid to the supplier.

 

Healthcare supply chain challenges

When looking at healthcare industry supply chain as just that, a “chain,” the vulnerabilities and challenges become clear. The journey to get a product from the point of manufacture through to a clinician’s hands requires the efforts of multiple stakeholders each doing their parts efficiently and effectively.

Gaps at any point in the healthcare industry supply chain system increase the risks to availability– from the supplier producing the product, to its distribution to a healthcare facility, to hospital supply chain and clinical personnel managing that item down through to the point of care at the patient bedside.

 

Inventory management and distribution logistics challenges

Supply chain challenges, such as inventory management and distribution, that spiked during the COVID-19 pandemic continue today. In March 2023, the Health Industry Distributors Association (HIDA) reported that 93% of healthcare provider organization executives say they are still experiencing product shortages. They noted how shortages are not only more widespread than they were during the pandemic, but also more difficult to predict.

💡 Read more: COVID-19 and Healthcare Supply Chains - 5 Lessons Learned 

 

Non-pandemic supply chain risk factors

Beyond the COVID-19 pandemic, there are various other global events that have an impact on the healthcare supply chain and the availability of supplies needed for patient care, including geopolitical and climate events.

For example, the Russia–Ukraine war has restricted the supply of key metals and raw materials imported into the U.S. from Russia, which are used in the manufacture of semiconductors, surgical instruments, orthopedic implantable products and durable medical equipment. The war has also impacted trade route operations, disrupting the flow of electronics, raw materials, and parts supplies out of China.

A report from the Yale School of the Environment detailed how climate change is impacting global supply chains. The authors cited two specific climate related events in the U.S. - the “Texas Freeze,” which forced three major semiconductor plants to close and forced the closure of railroads that serve as “heavily used supply chain links between Texas and the Pacific Northwest” - and Hurricane Ida, which “damaged vital industrial installations⁠ that generate an array of products, including plastics and pharmaceuticals.”

 


 

Supply chain risk mitigation strategies

While healthcare supply chain stakeholders can’t predict or prevent most global events that cause disruptions, they can employ strategies to minimize the risks. 

  • Source closer to home: Given event related disruptions to transportation routes, consider prioritizing suppliers closer to care delivery sites to limit the required logistics to transport products from the site of manufacturer to the patient beside.
  • Diversify supply sources: Since the pandemic, many provider organizations have shifted from sole source to dual source or even tri-source supplier strategies. That way, if one supplier is experiences disruptions and back orders, the healthcare organization has additional sources on hand. 
  • Know your supplier manufacturing locations: Understanding where suppliers manufacture their products can help supply chain leaders recognize when there is risk at hand. For example, if a hurricane hits Puerto Rico, as Hurricane Maria did in 2017, and a provider knows their supplier has manufacturing facilities there, they can quickly pivot to a different supplier.
  • Know finished product raw material sources: In today’s global supply chain environment, both suppliers and providers should know where raw materials are sourced for finished medical supplies (e.g., geographies, countries, cities/towns). That way, if an event causes disruptions in that location, the supplier can switch sources if needed (and possible) and communicate with its providers on any necessary risk mitigation strategies. 
  • Increase visibility to inventory: Supply chain teams that know in real-time the status of critical supplies in stock across their facilities can keep inventory at a level where they can buffer the impacts of unexpected disruptions. 
  • Invest in technology: Additionally, McKinsey & Company recommends “investments in integrated data systems and national public-health institutes” that can better connect “national, district, and local service delivery units” and provide “transparency over needs and resources (such as workforce, consumables, and supplies).”

 


 

Innovation in healthcare supply chains

Recognizing the tremendous impact the healthcare industry supply chain system has on costs, patient care quality and financial outcomes, industry stakeholders have made substantial investments in supply chain advancements to secure the future of healthcare supply chain.

 

Tech and healthcare supply chain management

Visibility and control are two critical components in successful healthcare supply chain management. Healthcare organizations need access to accurate, complete and actionable analytics on supply status – from the time of product purchase through to its use on a patient – so they can make informed decisions to help improve care and reduce costs.

Healthcare industry trends reveal today’s most impactful supply chain advancements aimed at operational and financial improvements. As with many industries, healthcare is undergoing a digital transformation. Per the Harvard Business Review, “Digitally transforming the supply chain has been shown to reduce process costs by 50% and increase revenue by 20%; hospitals are no exception.”

Migrating healthcare supply chain processes and data into cloud enterprise resource planning (ERP) systems drives speed, agility, scale and visibility. As Deloitte stated in its recent report with Workday on the future of healthcare supply chain, “to truly take control of their supply chains, leaders will increasingly rely on the total upstream visibility provided by cloud-based management tools.”

Digital transformation is driving greater process automation throughout the healthcare industry supply chain system, from procure-to-pay to healthcare industry logistics. With a single, ERP- integrated, cloud-based inventory management platform to digitize and automate product tracking throughout this continuum, healthcare supply chain leaders can truly take control.

 

Innovative solutions in healthcare supply chains

The transition from manual to digital supply chain management was accelerated by the COVID-19 pandemic and continued to advance rapidly. The growing implementation of cloud-based enterprise resource planning (ERP) systems among healthcare organizations is fundamental to this transition.

In a recent GHX survey, 45% of health system and hospital leaders said they are already using cloud-based supply chain management technologies, and 24% said they plan to begin using these technologies within the next two years. This suggests that nearly 70% of all hospitals are likely to have adopted a cloud-based approach to supply chain management by 2026.

With digital systems, processes and data in place, healthcare supply chain leaders can employ advanced analytics capabilities powered by artificial intelligence (AI).

 

Artificial Intelligence (AI) for supply chain management

When asked which technologies are most likely to be implemented by 2025, 92% of healthcare chief information officers (CIO) surveyed by Gartner selected artificial intelligence (AI)/machine learning (ML).

Transitioning healthcare supply chain processes to the cloud opens vast new opportunities for supply chain advancements, including the ability to leverage digital technologies like AL, ML and blockchain.

For example, through AI-enhanced inventory control and end-to-end supply chain management software and services, healthcare organizations have been able to identify errors, opportunities for greater efficiency, and potential risks to patient safety (e.g., recalled or expired products).

Here are some examples of where AI-enhanced inventory management is supporting healthcare supply chain advancements:

  • $51 million worth of inventory found in one facility, when leadership believed they had about $5 million worth of inventory.
  • Nearly $200,000 worth of expired inventory found in a 2,000-bed health system.
  • A Schedule II controlled substance drug vial mixed in with non-controlled products found in a storage area of a 700-bed hospital.

 

Predictive analytics in supply chain management

Digital transformation of the healthcare supply chain, including the move from on-premise to cloud-based IT solutions, system integration, process automation and real-time data collection, has established the foundation for predictive analytics success. Health systems and hospitals with these capabilities in place can proactively manage their supply chains by predicting demand and matching inventory levels to support it.

For example, the supply chain team for Corewell Health, a 22-hospital Michigan health system, established an early-warning score for approximately 12,000 SKUs. Through this proactive planning process, the team monitors backorders and recalls, and has reduced the disruption of critical items. It has led to a 38% decrease in supply stock-outs. And the supply team for Stanford Healthcare in Stanford, California, leverages analytics to actively adjust inventory levels based on hospital trends, for demand planning and forecasting, and to project when inventory will run out.

According to McKinsey & Company, analytics is the backbone of supply chain excellence. Predictive analytics is the key to healthcare supply chain resiliency. In a 2023 survey, one quarter of health system executives and supply chain leaders selected data and analytics capabilities as their number-one investment opportunity.

 

Case studies: innovative supply chain solutions

Health systems and hospitals are transforming all aspects of their supply chains through digital technologies and advanced analytics. Here are three examples:

Implant orders: Froedtert Health’s clinical and supply chain teams were engaging in a highly manual, time consuming process for implant orders. They collaborated with GHX and their suppliers to automate these orders through the GHX Exchange through the application of custom business rules. As a result, the health system increased its bill-only PO EDI rate by 54% and volume by 465% in just six months.

Cost of care: Wake Forest Baptist Health in North Carolina struggled to measure the actual cost of providing patient care because of incomplete and inaccurate point of use (POU) supply documentation. Using GHX Clinical ConneXion, they automated the process of capturing supply data in the electronic health record (EHR) at the POU. By marrying supply, clinical and financial data, they now have true visibility into the impact of supplies on cost and outcomes.

Supplier payments: The supply chain team for Illinois-based Northwestern Medicine automated supplier payments, eliminating paper checks and gaining real-time visibility into the status of supplier transactions, through the GHX cloud-based ePay solution. Today, 99% of payments are digital. The health system benefits from greater payment accuracy and increased savings capture, including a 133% increase in annual rebates.

 


 

Cybersecurity in digital healthcare supply chains

Cybercriminals have increased their attacks on both healthcare organizations and supply chains – making the digital healthcare supply chain a prime target. A cyberattack on a health system or hospital’s supply chain could have significant consequences, including patient data breaches, operation disruptions and/or patient harm.

 

Key digital supply chain cybersecurity threats

Healthcare organizations are increasingly integrating systems and digitizing supply chain processes both internally and externally. Inside health systems and hospitals, supply chain teams are leveraging cloud-based ERP and supply chain management (SCM) systems to connect clinical (e.g., EHR) and financial systems. Further up the supply chain, they are using cloud-based ERP systems to integrate with the systems of their suppliers and other business partners. 

The greater the system connections and volumes of data exchanged, the higher the risk for cybersecurity attacks and data breaches. As noted by healthcare consulting firm FQHC Associates:

“The complex interconnectivity of healthcare software supply chains can make the source of a cyberattack difficult to trace. Healthcare organizations face the challenge of how to effectively oversee multiple vendors with overstretched IT resources at a time when good cybersecurity experts are hard to find.”

 

Strategies to enhance cybersecurity

The Healthcare and Public Health Sector Coordinating Council (HSCC), a coalition of private-sector critical healthcare infrastructure entities, published its Updated Health Industry Cybersecurity Supply Chain Risk Management Guide (HIC-SCRiM) in October 2023. The coalition aims to help small to mid-sized healthcare organizations meet the National Institute of Standards and Technology’s Cyber Security Framework (NIST CSF) supply chain security practices.

Here is a very high-level overview of the HSCC recommendations to healthcare organizations in alignment with the NIST CSF:

  • ID.SC-1: Identify, establish, assess, and manage cyber supply chain risk management processes and secure agreement from organizational stakeholders.
  • ID.SC-2: Identify, prioritize and assess suppliers and third-party service partners of information systems, components, and services using a cyber supply chain risk assessment process.
  • ID.SC-3: Use contracts with suppliers and third-party partners to implement appropriate measures designed to meet the objectives of the organization’s cybersecurity program and Cyber Supply Chain Risk Management Plan.
  • ID.SC-4: Routinely assess suppliers and third-party partners using audits, test results, or other forms of evaluation to confirm they are meeting their contractual obligations.
  • ID.SC-5: Conduct response and recovery planning and testing with suppliers and third-party providers.

 

Future cybersecurity trends

The digital technologies driving improved healthcare supply chain performance also present increased risk for cyberattacks. Therefore, healthcare organizations must strategically deploy new technologies with adequate safeguards in place – keeping cybersecurity front of mind. Here are 3 healthcare supply chain cybersecurity trends for 2024:

  1. Healthcare supply chain continues to be vulnerable: Among healthcare IT and security professionals surveyed, 64% said their organizations experienced an average of four supply chain attacks in the past two years, but only 45% say they have documented steps for attack prevention and response.
  2. AI presents opportunities and risks: “AI will be everywhere in 2024,” stated healthcare technology expert David Chou in his recent Forbes article. Chou noted that while the “healthcare industry is optimistic about AI's impact,” it “harbors concern about the technology's safety and security.” He pointed out how AI testing and validation will require time “as the technology learns and measures security requirements.”
  3. Collaboration is critical: As healthcare provider organizations become more digitally connected – internally and externally – they must collaborate with suppliers, vendors and technology partners to strengthen their cybersecurity standing. “Hospitals must proactively collaborate with vendors to impose stringent cybersecurity protocols, conduct regular audits and foster a culture of continuous improvement,” said Mike Parisi, head of client acquisition at cybersecurity compliance firm Schellman, in a recent Fierce Healthcare article.

 


 

How to overcome challenges in healthcare supply chain operations

Healthcare organizations face many challenges in navigating the complexities of their supply chains, from long-standing issues related to disjointed IT systems and data silos, to emerging pressures to engage in sustainable practices.

 

Barriers to effective supply chain management

If a healthcare organization is running its healthcare industry supply chain system on outdated and disjointed legacy IT platforms that lack integration with the ERP and electronic health record (EHR), it will face significant supply chain challenges.

When healthcare supply chain systems cannot speak with other systems (aka share data), healthcare supply chain teams must manually intervene to move data from one system to the next, or manually key the same information into these multiple systems. This leads to a significant drain on already limited resources, increases the risk for error, and slows the speed of supply management.

In today’s world where supply chain advancements are a top priority for healthcare leaders, the inability to seamlessly share data between systems are major roadblocks to change. Supply chain teams can’t effectively manage inventory enterprise-wide if data on those supplies are tied up in different systems and they don’t have visibility to it.

Research has shown that the ability to perform analytics for data-driven supply chain decisions is a key priority for healthcare leaders in 2023. Among healthcare CIOs surveyed by Gartner, nearly half (49%) said their technology investments will go toward business intelligence/data analytics.

But without a single, digital source of real-time, accurate and complete supply chain data, healthcare supply chain leaders can’t perform advanced analytics, such as demand planning and forecasting, which are critical to resiliency.

 

Regulatory and compliance issues

Each year, the The U.S. Food and Drug Administration (FDA) receives several hundred thousand medical device reports (MDRs) of suspected device-associated deaths, serious injuries and malfunctions.

For healthcare organizations still relying on manual processes for inventory management, identifying affected products within their vast inventory of supplies and removing them to avoid potential patient harm can be a huge challenge.

If they do not have a single healthcare industry supply chain system that captures and stores item level details for supplies, a supply chain team will likely find itself piecing together information from various systems and/or manually searching through affected products in storage locations.

While the clock is ticking, the chances an affected item could be used on a patient grows.
In fact, nearly one in four hospital staff members (24%) have seen or heard about a recalled or expired product being used on a patient.

Another concern when it comes to healthcare supply chain is patient privacy. To help meet compliance obligations related to accreditation needs, healthcare organizations must have in place policies and procedures to manage facility access for vendor representatives and know which areas they are cleared for access.

Furthermore, they must decide which vendors are defined as “business associates” under HIPAA and put appropriate safeguards in place to prevent unauthorized use and disclosure of patients’ electronic protected health information (ePHI).

 

Sustainability and environmental considerations

The healthcare supply chain is a tremendous generator of waste. The American Hospital Association (AHA) states that the “majority of the materials procured by a hospital ultimately become waste.” In many cases, the wasted supplies had never even been used.

Consider the following research findings on healthcare supply chain waste generated by U.S. healthcare organizations and its impact on the environment:

  • U.S. hospitals generate more than 4.7 million pounds of waste annually, which equates to roughly 27 pounds of waste per staffed hospital bed in America per day.
  • U.S. hospitals dispose of 2 million pounds of unused supplies each year, at a cost of $15 million annually.
  • More than 70% of a health system’s greenhouse gas emissions are embedded in the products and services they buy.

Healthcare industry logistics can play a central role in reducing wasted clinical supplies. But to do so, healthcare supply chain teams need visibility into what they are purchasing, the status of supplies within their inventories, and controls for avoiding expiry and other drivers of waste. This requires a healthcare industry supply chain system designed to overcome today’s supply chain challenges and pave the way for supply chain advancements, including optimized inventory management.

💡 Read more: Supply Chain Issues in Healthcare and How to Mitigate Them

 

Strategies for effective inventory management

The primary focus of a healthcare organization’s supply chain operations is to ensure the right products in the right quantities are available at the right places at the right times. Then why does inventory management remain a challenge for many health systems and hospitals?

Below are 7 best practices in healthcare inventory management from Jeff Elmhurst, GHX Inventory Solution Specialist:

  1. Streamline inventory processes: Conduct a comprehensive assessment of existing inventory, identify expired or overstocked items, and establish a baseline for future management. An inventory management system can significantly improve efficiency by automating processes such as tracking, ordering and replenishment, and provide real-time inventory visibility for informed decision making.
  2. Optimize inventory: Routinely check supply quantities within PAR locations to ensure effective levels are established. Using AI, an automated inventory management system can analyze historical usage data for each item within a PAR location and recommend an appropriate quantity.
  3. Centralize and categorize storage: Centralize supply management through an automated inventory management system for greater efficiency and accuracy. Establish dedicated storage areas for medical equipment and supplies, keeping them easily accessible to staff members. Categorize inventory based on product type, expiration dates, and usage frequency to facilitate efficient retrieval and reduce the risk of expired or misplaced items. Implement a first-in, first-out (FIFO) and last-in, first-out (LIFO) process to further ensure proper rotation and inventory utilization. 
  4. Move management to the cloud: Cloud-based inventory management software enables real-time access to data from anywhere within the healthcare facility, ensuring up-to-date information on inventory levels and facilitating timely decision-making. Integrating inventory management with enterprise resource planning (ERP) and electronic health records (EHR) systems streamlines processes and enhances overall efficiency.
  5. Educate and train staff members: Engage staff members and provide comprehensive training on correct inventory management procedures, including receiving, storing, and issuing inventory. To encourage adherence to inventory control protocols and reduce the likelihood of errors, promote a culture of accountability and ownership among staff members. Facilitate regular education sessions and opportunities for feedback to drive continuous improvement and foster a proactive approach to inventory management.
  6. Perform regular audits and track KPIs: Health systems can swiftly detect discrepancies, reduce waste, and make informed decisions about replenishments by regularly verifying the quantities of medical supplies. Conduct periodic inventory counts, known as cycle counts, to help reconcile the recorded inventory with the actual count. Additionally, tracking key performance indicators (KPIs) such as stock turnover, stockouts, and carrying costs, provides valuable insights into inventory management performance.
  7. Optimize physician preference cards (PPCs): PPCs document each surgeon's specific preferences for instruments, supplies and equipment required during surgical procedures. Automate card updates based on actual supply consumption to reduce waste and the costs associated with it, better forecast demand, minimize stockouts, and prevent over-purchasing. Accurate PPCs can also increase procedural efficiency and improve patient outcomes by enabling staff members to quickly locate and prepare items required for a case.

 

Address challenges of data integration

Cloud-based ERP systems have broken down barriers to healthcare supply chain data integration. Seamlessly integrating with EHR systems and financial systems, ERP applications in the cloud can establish a single, accurate and timely source of cost, quality and outcomes data required for value analysis and other activities at the core of today’s clinically integrated supply chain.

When asked to identify the most compelling benefits of using the cloud for supply chain management, 30% of health system and hospital leaders cited improved data analytics and reporting and 28% enhanced supply chain decision making. 

 

Enhance supply chain resilience

Calls for a more resilient healthcare supply chain have been made since the COVID-19 pandemic began, but what exactly does “resiliency” mean in this context?

In their article, Key Determinants for Resilient Health Care Supply Chains, Deloitte analysts offer these recommendations to potentially help health care organizations achieve supply chain resilience and prepare for future disruptions:

  • Explore the underlying issues behind supply chain vulnerabilities to prepare for future disruptions.
  • Ensure that supply chain leaders have consistent and unwavering support from top leaders.
  • Consider the maturity and complexity of the supply chain when evaluating technology investments.
  • Select the right digital supply network (DSN) technologies to implement.
  • Establish a strong governance and risk management framework to effectively manage volatility.

 


 

Future trends in supply chain management

Unleashing the power of data and analytics, stronger bonds between suppliers and providers, environmental and sustainability considerations as well as a focus on health equity are emerging as focal points for the improvement of healthcare supply chain operations.

 

Emerging technologies and their potential impact

Healthcare supply chain technologies that support the generation of advanced and actionable analytics are a key priority for healthcare executives when looking at the future of healthcare supply chain. When asked for one element they believed their supply chain function should invest in over the next year, strong data and analytics capabilities topped the list of U.S. health system executives and supply chain executives surveyed.

To generate valuable and credible analytics on which to make informed healthcare supply chain decisions, healthcare organizations will need to continue to invest in healthcare industry supply chain systems that facilitate integration, automation and collaboration among stakeholders. Cloud-based solutions check off all those boxes with their flexibility and scalability.

 

Opportunities for collaboration and innovation

Speaking of collaboration, the future of healthcare supply chain will also be driven by increased communication and collaboration among healthcare supply chain stakeholders.

Historically the relationship between healthcare providers and suppliers lacked transparency and open communication.. This prevented them from sharing healthcare supply chain data with each other that could inform better decision making on both sides.

But the COVID-19 pandemic --which necessitated providers and suppliers to work closely together to facilitate the flow of supplies despite the many challenges that came their way -- has prompted new thinking. To build a more resilient healthcare supply chain across the board, providers, suppliers, distributors and other key players are learning the value of opening doors and sharing data on inventory levels, shortages, forecasting and demand.

Salil Joshi, a senior director, analyst, in Gartner’s Supply Chain practice, offers four steps healthcare providers must implement to build a resilient supply chain, one that includes supply chain advancements in provider and supplier collaboration and innovation:

  • Build data from multiple sources to address inventory issues and to optimize all supply chain functions. To facilitate this, providers should upgrade data management systems, integrate data between supply chain and clinical systems, and build partnerships with solution partners, suppliers and GPOs.
  • Assess strengths and weaknesses of information systems and implement resiliency capabilities for supply chain and clinical systems. This includes evaluating critical functional capabilities of ERP systems, inventory management systems and EHR systems.
  • Develop a supply chain performance dashboard that focuses on contracting, requisitioning, purchasing, inventory management and supplier performance metrics.
  • Build collaboration tools with suppliers for critical data, including past purchase history, future changes in demand, and inventory visibility.

 

Health equity and DEI

As GHX’s Karen Conway recently explained, the COVID-19 pandemic shone a light on the longstanding problem of health disparities, resulting in much higher rates of chronic disease among poor and minority populations as compared to more affluent populations.

At the same time, the pandemic drove many healthcare organizations to diversify their supplier networks out of necessity – if their main supplier didn’t have the products they needed, they had no choice but to find alternatives. In some cases, they found these companies were in their own states, cities or neighborhoods.

An unexpected upside: the healthcare supply chain realized it could use “the power of procurement for economic development in low-income communities” by investing in diverse suppliers (women, minority and veteran-owned) in their own backyards.

It’s a win-win; instead of relying on a manufacturing plant on the other side of the globe and a vast healthcare logistics network at risk for disruptions along the way, healthcare organizations can access supplies close at hand from trusted sources.

And as Karen described, “Money spent with local, diverse suppliers and local community businesses can have a ripple effect, multiplying the economic impact through additional spending in the community by those businesses and their employees.”

Success stories are prompting more healthcare supply chain leaders to consider future investments in local small businesses. Take for instance Cleveland Clinic and University Hospitals, which introduced a Diversity Equity Inclusion (DEI) Supplier Accelerator last year. The program enabled five diverse-owned companies to learn more about what hospitals need from their suppliers, and for the hospitals to expand their supplier networks while supporting individuals in their communities.

“We spend over $3.5 billion a year, and we’re going to spend that regardless,” said Berlon Hamilton, Cleveland Clinic’s Supplier Diversity Director. “So why not spend it in our communities and make a bigger impact with those dollars by creating jobs and supporting economic stability? As an institution, we can make sure that our patients are not only physically healthy, but economically healthy as well.”

💡 Read more: 4 Best Practices for Healthcare Supply Chains

 

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Disclaimer: The third-party contributor of this piece is solely responsible for its content and accuracy, and the views expressed do not necessarily reflect the opinion of GHX.

 


 

Sources

  1. Understanding the healthcare supply chain system. Deloitte Insights.
  2. Supply costs could account for up to 40% of a hospital’s total expenses. PubMed.
  3. Medical supply expenses in ICUs and respiratory care departments increased 31.5% and 22.3%, respectively. American Hospital Association.
  4. Worst financial year for U.S. hospitals and health systems since the COVID-19 pandemic began. Kaufman Hall.
  5. 93% of healthcare provider organization executives say they are still experiencing product shortages. Health Industry Distributors Association (HIDA).
  6. Digitally transforming the supply chain has been shown to reduce process costs by 50% and increase revenue by 20%. Harvard Business Review.
  7. Migrating healthcare supply chain processes and data into cloud enterprise resource planning (ERP) systems. Accenture.
  8. To truly take control of their supply chains, leaders will increasingly rely on the total upstream visibility provided by cloud-based management tools. Deloitte and Workday.
  9. Healthcare chief information officers (CIO) survey on emerging technologies likely to be implemented by 2025. Gartner.
  10. An urgent call to reduce and reuse hospital supplies for stronger financial, environmental, and public health outcomes. Managed Healthcare Executive.
  11. The FDA issued recalls for at least 60 medical devices used in U.S. healthcare facilities in 2022. U.S. Food and Drug Administration (FDA).
  12. The majority of the materials procured by a hospital ultimately become waste. Sustainability Roadmap.
  13. Understanding the healthcare supply chain system. Deloitte Insights.
  14. Supply costs could account for up to 40% of a hospital’s total expenses. PubMed.
  15. Medical supply expenses in ICUs and respiratory care departments increased 31.5% and 22.3%, respectively. American Hospital Association.
  16. Worst financial year for U.S. hospitals and health systems since the COVID-19 pandemic began. Kaufman Hall.
  17. 93% of healthcare provider organization executives say they are still experiencing product shortages. Health Industry Distributors Association (HIDA).
  18. Digitally transforming the supply chain has been shown to reduce process costs by 50% and increase revenue by 20%. Harvard Business Review.
  19. Migrating healthcare supply chain processes and data into cloud enterprise resource planning (ERP) systems. Accenture.
  20. To truly take control of their supply chains, leaders will increasingly rely on the total upstream visibility provided by cloud-based management tools. Deloitte and Workday.
  21. Healthcare chief information officers (CIO) survey on emerging technologies likely to be implemented by 2025. Gartner.
  22. An urgent call to reduce and reuse hospital supplies for stronger financial, environmental, and public health outcomes. Managed Healthcare Executive.
  23. The FDA issued recalls for at least 60 medical devices used in U.S. healthcare facilities in 2022. U.S. Food and Drug Administration (FDA).
  24. The majority of the materials procured by a hospital ultimately become waste. Sustainability Roadmap.
  25. U.S. hospitals generate more than 4.7 million pounds of waste annually. The Baltimore Sun.
  26. Optimizing health system supply chain performance. McKinsey & Company.
  27. Four steps to building resilience in healthcare provider supply chains. Supply Chain Management Review.
  28. Healthcare value analysis: Future considerations. GHX Healthcare Hub.
  29. Cleveland Clinic and University Hospitals launch new accelerator program to support economic equity and growth for local diverse suppliers. Cleveland Clinic Newsroom.
  30. Accelerating contract readiness for a diverse community of suppliers. Cleveland Clinic Consult QD.
  31. Palmetto Case Study: Reducing Costs Through Data Quality and Process Improvement. GHX.
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Kara L. Nadeau

Healthcare Industry Contributor
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