Professional Documents
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According to The Beryl Institute research, the patient experience is one of the top three
priorities of hospital leaders over the next three years.
It is clearly time to refocus on the person at the center of care. Many organizations are
struggling to understand what patient-centered care truly means, and what it really looks like.
Every caregiver has a role in the patient journey, from the valet attendant, to the CEO and
clinical sta
Successful hospitals provide an exceptional patient experience. Organizations with a culture
that focuses on patients are rewarded with higher clinical quality and eciency, a safer
patient environment, greater caregiver engagement, and improved nancial results.
The supply chain is a critical component of a hospitals success towards providing an
exceptional patient experience. It hosts a vast network of products, services and players all
intended to serve the patients, their family and caregivers.
Managing the ow of information, supplies, equipment, and services from manufacturers to
distributors to providers of care is especially dicult in clinical supply chains, compared with
more technology-intense industries like consumer goods or industrial manufacturing.
As supplies move downstream towards hospitals and clinics, the quality and robustness of
accompanying management and information systems used to manage these products
deteriorates signicantly. Technology that provides advanced planning, synchronization, and
collaboration upstream at the large supply manufacturers and distributors rarely is used at
even the worlds larger and more sophisticated hospitals.
This paper outlines the current state of healthcare supply chain management technologies,
addresses potential reasons for the lack of adoption of technologies and provides a roadmap
for the evolution of technology for the future.
This piece is based on both quantitative and qualitative research assessments of the
healthcare supply chain conducted during the last two years..
INTRODUCTION
Technology to better plan and manage the acquisition and replenishment of key resources,
such as pharmaceuticals, supplies and equipment, are severely lacking in hospitals today,
compared with other industries. Driven by continual cost pressures and other operational
constraints, the supply chain represents one of the largest opportunities for cost savings and
value creation in the healthcare enterprise, but a comprehensive roadmap is needed to help
assist hospitals.
This white paper suggests that hospitals create an evolutionary path for supply chain
technologies, implementing better business practices and more advanced technologies to
increase vendor collaboration, optimize pricing and sourcing eorts, and improve the
prediction of required order quantities and inventory levels.
When hospital executives talk about technology, they most commonly refer to clinical decision
support, medical informatics, or electronic medical records (EMRs). A wide range of
technology and systems are developing that bring advanced decision support to the forefront
of healthcare practice in the front oce, which is the point of care or place at which care is
provided to patients.
In the back oce, representing the administrative and nancial functions, there has been
only minimal progress in implementing technology. There is continued deployment of
enterprise resource systems, but these tend to focus primarily on business processes that are
generally considered more visible and seen as strategic, such as human resources or nancial
management.
Although most of these enterprise systems have procurement, inventory, and distribution
capabilities, they are rudimentary in scope and function, providing mainly transactional and
limited reporting capabilities. This limited functionality needs to be expanded to take a wider,
strategic perspective on the clinical supply chain.
Supply chain management (SCM) is dened as the planning, organizing, and controlling of
functions inside and outside a company that enable the chain to make products and
provide services to the customer. 1
All of the parties in the clinical chain patients, providers, materials department, vendors,
distributors, and manufacturers need to work together to create a chain that is eective, even
as each entity in the chain is ghting to carve out a prot or cost saving.
The focus on the entire supply chain, from suppliers through the delivery of care, is a relatively
new concept in hospitals; it represents a departure from the normal materials management
perspective of managing internal, discrete business functions separately. However, it
represents a major opportunity for patient value enhancements, as other industries have
learned over the last decade. 2
Optimizing the supply chain is important, because pharmaceutical supply and materials
expenses consume approximately 35 percent of hospital expenditures in most organizations.
When accounting for all supply chain expenses, including the administrative cost of procuring,
receiving, and administering the chain, total expenses for this area can account for nearly 43
percent of all hospital expenses.
Because hospitals have tackled a number of other automation projects with easier returns on
investment, supply chains for clinics and hospitals now are primed to begin the transformation
that most other consumer-based industries have undergone in the past 20 years. This area,
known as supply chain technology, has yet to receive signicant attention in hospitals. In the
healthcare industry, SCM technology has been widely used by medical supply manufacturers
and large distributors, but has yet to trickle down the chain into hospitals and to the point of
care.
In other industries, such as manufacturing, automotive, and retail, there has been signicant
deployment of supply chain management systems. However, hospitals have not signicantly
adopted the majority of these technologies, and they remain far behind in scope and
sophistication compared with virtually every other industry.
A meta-search of healthcare information systems books published in the last 5 8 years shows
very little coverage of supply chain systems, their importance, or their future. Even when
supply chain technology topics were addressed in publications, they were discussed in the
generic sense, mentioning the most common functions of automating inventory control,
purchasing, and receiving.
Advanced texts on supply chain management and technology hardly ever mention the hospital
industry in cases or context. Regardless of the current state of hospital supply chain technology,
the direction is clear even though the pace of change is not.
While the hospital industry has unique concerns and challenges, the basic requirements
remain the same in all industries; that is the need to predict the right location, the right price,
the right time, and the right products.
That suggests that hospital SCM systems will evolve as they have in consumer-driven and
manufacturing industries. The only unknown is the timing of when individual hospitals will
begin this evolution, which will partially be based on each organizations nancial condition
and the vision of their executive and operational leadership teams.
Now that operational and tactical processes have been addressed, SCM technology will begin
to focus on what the software industry calls demand-based systems, which include predictive
modeling, data mining, and business intelligence. These systems continue the evolution
towards more strategic planning solutions for SCM optimization because they help focus rms
on eectiveness and margin enhancement.
In many hospitals, paper requisitions remain the norm, but they get in the way of maturing
supply chain technologies. This is a necessary step to create a transaction history, which is a
requirement for organizations as they move to subsequent phases and need to rely on this
information for analysis and intelligence.
Also in Phase 1, hospitals will explore limited use of electronic data interchange (EDI) with key
vendors or distributors. Typically, this means that of the most common EDI transaction sets,
only one or two are commonly in use, such as EDI 850 for purchase orders.
Additionally, there is a general lack of trust in key vendors and distributors during this early
phase of development, so technology strategy is not focused on building collaboration or using
electronic commerce to bridge processes.
Finally, the overall technology is focused on managing and minimizing supply costs, which
produces a strategy involving centralization and automation. While Phase 1 produces stable
results in the supply chain, there are no stellar performers. During Phase 2, there is a signicant
amount of transaction history that has been captured, typically about two to three years
worth.
Hospitals that have reached this phase want to use this data in creative ways and replace
manual, people-intensive processes with more intelligent system processes. Using advanced
analytical systems, such as forecasting and predictive modeling, supply chains can make more
intelligent replenishment decisions, can optimize inventory levels, can analyze spending
patterns in key categories, and can track performance metrics in signicantly greater detail.
Hospitals also begin to value collaboration with key suppliers and distributors and expand the
use of electronic data interchange for more than one or two transaction sets.
Typically, EDI progression in Phase 2 supports several transactions, such as EDI 840 (request
for quotation), EDI 843 (response to RFQ), EDI 850 (purchase order), EDI 855 (purchase order
acknowledgment), EDI 856 (advanced shipment notice), EDI 870 (order status report), and EDI
810 (electronic invoice).
Additionally, hospital supply chains in this phase will start to explore the use of broader ecommerce tools. The initial use of XML in collaborative planning and forecasting processes for
example and Internet-enabled e-procurement and online catalogs for suppliers are ways in
which hospitals will move beyond EDI towards more scalable, exible Internet technology.
Overall, the technology strategy in this phase focuses hospital management systems on
optimization.
As hospitals progress to Phase 3, there is a much higher concentration on collaboration and
integration, both of internal business processes and with external parties in the supply chain.
While supply chains tend to focus inwardly on supply costs and eciencies in the rst two
phases, there is a heightened focus on alignment with the revenue cycle during this phase.
Ensuring seamless integration of the supply chain and the revenue cycle is vital to obtain higher
eectiveness. Tracking a supplys history into the chain, ultimately ending at consumption or
the point of use by a specic patient is important in aligning revenue and supply processes, as
well as reducing system redundancies.
In Phase 3, hospitals and suppliers become integrated through systematic processes and
technology. For example, consider an environment in which a facilitys patient acuity or
procedural case mix changes; analytics would automatically suggest dierent buying and
replenishment plans, and key suppliers could be instantly alerted to this change.
Plans are adjusted, causing fewer inventories to be held in the chain, reducing expenses and
ensuring strong collaboration with all parties. While such systems seem futuristic, they are in
use today in many manufacturing industries.
This analytics layer helps to produce real-time intelligent analyses, reducing the need for
extracting large amounts of transactions, importing data into spreadsheet systems, and
generating one-time analyses that are manual and time-consuming. These systems also will
have a collaboration layer that supports external business processes with key suppliers, such
as e-procurement, collaborative planning, forecasting, and replenishment.
As the supply chain matures, collaboration with key vendors and partners will become
commonplace. Similarly, these systems will have integration layers that ensure complete
alignment with revenue cycle systems and processes as well as underlying ERP solutions.
Integration between the charge description master and patient billing systems, and the
inventory management and materials costing system, is necessary to ensure full capture of all
revenues and expenses. To aid in analysis, these systems will need a performance reporting
layer, supported mainly by a graphical user interface that highlights key performance metrics
and, decision support.
Finally, these systems must possess technology capabilities that concentrate solution
functionality on each of the key areas that support optimization and collaboration. These
include warehouse management, e-procurement, demand planning and forecasting, use of
multidimensional planning, real-time inventory management, including RFID where
appropriate on select materials and equipment, and enhanced exibility in modeling the
supply chain to meet desired results.
Potential obstacles that stand in the way of the development and delivery of this integrated
supply chain management system are numerous and well documented. There are literally
dozens of impediments, including the lack of nancial resources, lack of physician sponsorship,
too many competing interests, low prioritization from IT, and lack of leadership and vision from
supply chain management. However, the two most signicant, yet manageable roadblocks, are
trust and discipline. Trust must be broadened internally between the various functions in the
hospital; more than that, trust must be engendered to share information openly with external
vendors and distributors.
The movement towards e-procurement and other Internet enabled processes linking multiple
parties requires signicant trust with key business partners. Hospital supply chain executives
have historically lacked this trust. Additionally, the lack of disciplined strategic thinking in
materials management has limited the deployment of SCM technology.
Disparities in disciplined thought to build a technology plan, to build required business cases,
to explore new technologies, and bring them into healthcare, and to take a disciplined
approach to implementing and following through has contributed to the quality and
robustness chasm in SCM technology that exists between hospitals and other industries.
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CONCLUSION
Hospital nancial operating margins continue to be negative or marginally positive, forcing
facilities to look at all opportunities for reducing costs and enhancing revenues.
As clinical supply chain management focuses on becoming more strategic and eective, the
management systems must evolve substantially. Regarding the evolution of supply chains,
hospitals lag signicantly behind other industries in deploying advanced management systems
to drive supply chain optimization.
Hospitals must begin to value the supply chain as a potential tool for competitive advantage
and focus on management systems in this area if they are to catch up to other industries or
make progress. Also, hospitals need to shift their internal information technology strategy to
focus more resources and vision on the supply chain.
CIOs and their sta must become more engaged in dening SCM business processes and
performance metrics, and helping to align the SCM technology strategy and respective
roadmap accordingly.
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