Is Your Hospital Operating with a Fragile Supply Chain?

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By Cory Turner CMRP, Senior Director, Healthcare Strategy & Product Marketing, Tecsys

We have all felt the impacts of supply chain fragility across many aspects of our lives. Product shortages – from toilet paper to computer chips – and delivery delays keep what we desire out of reach. While this is a nuisance for the average consumer, supply chain fragility in healthcare is enormously problematic, in some instances putting patient safety and lives at risk.

Oftentimes, it is not until a major issue arises in a health system or hospital’s supply chain that leaders take a step back to assess the stability of operations, such as the personal protective equipment (PPE) shortages experienced during the COVID-19 pandemic. 

In other cases, limitations are uncovered as clinical and/or finance leaders embark on initiatives to evaluate the impact of products on patient outcomes. Without access to accurate, timely and comprehensive data on product procurement and usage, they are missing a key piece of the puzzle required for value analysis and related programs (e.g., CQO, clinically integrated supply chain).  

Is your organization suffering the effects of a fragile healthcare supply chain? Here are five tell-tale signs. 

1. Supply chain in a silo versus organization-wide integration  

In many healthcare organizations, supply chain leaders have visibility to only the medical/surgical supplies contained within their enterprise resource planning (ERP) system, which represent 15-20% of a hospital’s inventory value. What’s missing are the high-cost items for the perioperative space, Cath and IR Labs, and pharmacy, which can account for 80% of supply assets.  

These specialty areas use their own standalone, “bolt-on” systems to record supply inventory and usage. Without an enterprise-wide supply chain management (SCM) system to track all products in all areas from receipt through use, the most important supplies to cost and clinical outcomes (e.g., implants, catheters, drugs) are hidden from supply chain’s view. 

2. Transactional versus strategic supply chain leadership

Historically, supply chain was viewed as a transactional function: Procure products at the lowest price, manage inventory effectively so clinicians have what they need, reorder what was used. Over time, as health systems and hospitals have become more accountable for the cost of supplies and their impact on patient outcomes, supply chain leaders have been called upon by the C-suite to play a strategic role. In this way, supply chain has gained greater leverage in securing the resources they need to move beyond “pushing products” to making data-driven decisions critical to their organizations’ success.

Fragile supply chains, on the other hand, are still stuck in a transactional role where resources (e.g., IT systems, staff) are aimed at getting through the day-to-day. Because the supply chain team spends most of its time fixing transactional issues (e.g., backorders, stockouts, lost inventory), there is little, if any, time to evaluate current performance and align future efforts with the C-suite’s higher-level goals. 

3. Fixed culture versus willingness to change 

In many healthcare organizations, it is an unwillingness to change that holds supply chain back from reaching its full potential. The C-suite, clinical leaders and even the supply chain team itself may view the supply chain function through the lens of the old ways of doing business, with the attitude of “this is the way we have always done it, why change?” 

While all stakeholders recognize there are problems in their organization’s supply chain, it has somehow survived regardless. But is that a true measure of success? A major barrier to advancement is the lack of visibility to significant problems below the surface: Supplies getting lost, expiring on shelves, not getting captured at point of use (POU) and charged to the patient. For example, a 451-bed healthcare system was losing $900k annually in supply waste due to excess, obsolete, lost or damaged stock in its Cath and IR Labs, but it didn’t uncover this issue until it implemented a SCM system that offered full visibility to this inventory. 

4. Over-reliance on third parties versus internal control 

While all healthcare supply chains must rely on manufacturers and distributors to help secure the vast multitude of supplies required for patient care, exchanging lack of control for convenience can undermine supply chain stability. 

A painful lesson learned during the COVID-19 pandemic is that just-in-time (JIT) inventory management reliant on the performance of third parties can put a health system or hospital in a precarious situation when the upstream flow of goods is slowed or blocked. Forward-thinking organizations are increasing their supply chain control by establishing their own warehouses or consolidated service centers (CSC) that place supply inventory in their hands and closer to their doors. 

5. Reactive versus proactive decision making 

Fragile healthcare supply chains are constantly reacting to problems rather than preventing them from happening in the first place. With supply data locked up in disjointed systems within procedural areas, supply chain leaders can’t collect and assimilate the information they need to perform analytics and make data-driven, proactive decisions. Even if they succeed in gathering data from different systems with the help of IT resources, by the time they get it all together and formatted in a way that facilitates analysis the information is likely inaccurate, incomplete and outdated. 

The move from reactive to proactive supply chain management requires an electronic and automated SCM platform that serves as the single source for inventory management where supply chain leaders have timely, accurate and complete data and in-depth analytics at their fingertips for real-time decision making, forecasting and demand planning. 

The opposite of fragility is stability 

There is increasingly recognition among the C-suite and other stakeholders of the importance of stable supply chain operations to the clinical health of patients and the financial health of their organizations. Now is the time for healthcare supply chain leaders to take a step back, root out those areas of fragility, and determine whether their operations are robust enough to support top-down priorities. Consider the five factors presented and decide where you can invest for greater stability moving forward.