The Healthcare Hub
Best Practices for Healthcare Supply Chain Optimization
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Kara L. Nadeau, Healthcare Industry Contributor
In today's complex healthcare environment, mastering supply chain management is crucial for operational excellence and enhanced patient care. This article outlines key strategies and actionable tips that can help providers address healthcare supply chain issues.
Table of contents
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Overview: 3 Key Focus Areas for Best Practices in Healthcare SCM
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Challenges and Solutions in Healthcare Supply Chain Management
Best Practices in Healthcare Supply Chain Implementation
With the growth in recognition of the impact supply chain management in healthcare has on operational, clinical and financial outcomes, many healthcare executive leaders are making greater investments in their supply chain operations. Here are three key areas to focus on.
Establish effective supply chain KPIs
Key performance indicators (KPIs) are vital benchmarks for healthcare supply chain management, quantifying the effectiveness of supply chain metrics.
By leveraging KPIs, healthcare supply chain leaders can assess their level of effective supply chain management and gain valuable insights to guide improvements in their healthcare facilities. KPIs can be used to measure a broad range of metrics, including:
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internal supply chain operations, such as fill rates, inventory turns and other supply chain goals
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trading partner metrics, such as perfect order and backorder percentage rates
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metrics on the supply chain's impact on overall healthcare organization costs, for example, supply expense as percent of net patient revenue.
Because of the vast number of healthcare supply chain management KPIs available, some supply chain leaders find it challenging to determine which metrics are most critical to measure. Is it best to measure KPIs related to supply chain costs, patient care metrics, group purchasing organization (GPO) contract optimization? To build a resilient healthcare supply chain, should supply chain teams focus on a narrow or wide range of metrics to start?
For general guidance on healthcare supply chain KPIs, read this recent post, which includes top KPIs in healthcare supply chain operations, tips for using supply chain KPIs, and real-world examples of KPI tracking to overcome healthcare supply chain challenges.
Integrate technology for efficient operations
Efficiency in healthcare supply chain management is a top objective for leaders. An efficient supply chain drives higher staff productivity, greater accuracy and lower costs, while improving clinical customer service compared with manual processes.
End-to-end supply chain management in healthcare, where processes are automated and optimized, and data on medical supplies digitally captured to enable actionable analytics, requires the integration of key systems, including the enterprise resource planning (ERP) system, electronic health record (EHR) system, supply chain management (SCM) system and financial systems.
The transition to cloud-based solutions is helping to streamline this integration. Find out how in this post by GHX Chief Corporate Development Officer Rob Alcock.
Build Strong Vendor and Supplier Relationships
Successful supply chain management in healthcare requires all parties along the supply chain continuum to collaborate on improvements, including healthcare organizations, distributors, suppliers of medical products and medical devices and group purchasing organizations (GPO).
While health system and hospital supply chain management teams have traditionally relied on suppliers to deliver the appropriate products at competitive prices, in the correct quantities, to the designated locations, and at the scheduled times, there is now a growing desire for deeper engagement in supplier relationships.
There's a consistent push to transition from mere purchasing of medical products to forming strategic industry partnerships. Providers and suppliers are increasingly exchanging healthcare supply chain data and work together on enhancing both operational and financial aspects of the end-to-end supply chain. For example, when a healthcare supply chain team can forecast demand for supplies, and shares this information with suppliers, both parties can better optimize their supply chains.
To drive greater efficiency and cost savings, avoid significant supply chain disruptions, and support optimal patient care, healthcare supply chain stakeholders have been collaborating on initiatives to reduce financial waste from the healthcare supply chain. For example, supply chain professionals on the provider and supplier sides have been working to extend automation and minimize manual intervention throughout the P2P process, specifically into invoicing and payments.
Challenges and Solutions in Healthcare Supply Chain Management
While many healthcare supply chain teams have made significant improvements, putting into place solutions and processes to reduce healthcare costs and minimize supply disruptions, there are still common challenges that organizations struggle with today. Fortunately, there are a growing number of technology solutions available to address these challenges and help drive more effective and streamlined supply chain processes.
1. Automate Manual Processes
Even with tremendous advancements in automation, the healthcare supply chain is still plagued by non-value added manual tasks that burden already strained labor resources and increase costs, non-compliance, errors and waste. This is the case throughout the supply chain with specific areas including procurement, invoicing and payments, and inventory management.
Solutions for process automation: The digital transformation of supply chain management across all industries and the recognized need for effective supply chain management in healthcare has driven the development of automation solutions to address all of these areas.
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Directed buying: For provider organizations, supply chain management starts with requisition of goods. Directed buying ensures supply chain compliance by enabling supply chain managers to influence thousands of purchasing decisions being made each day – directing users to contracted, compliant goods and services that are the preferred choice of the organization.
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Bill-only implant orders: Implants comprise a large portion of any hospital's supply budget and managing them can be hard work because data for inventory tracking, billing and coding is not always reliable. By automating the processes associated with implants, health systems have the opportunity to achieve significant time and cost savings without compromising patient care in their supply chains.
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Invoicing and payments: For healthcare supply chain stakeholders that have automated front-end P2P EDI transactions with trading partners (PO, POA, ASN), extending automation to invoice processing and payment generation establishes a fully digitized order-to-cash cycle for visibility into cash flow and access to insights for informed decisions (e.g., drive the approval process, flag outstanding invoices, speed payment processing).
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Inventory management: Automated systems and processes for tracking and managing medical inventory have become the benchmark for healthcare inventory optimization in most health facilities. Implementing automation in hospital inventory management enhances efficiency within the healthcare supply chain, provides greater visibility into medical supply inventory, and relieves medical staff from the burden of managing inventory.
2. Tackle Poor Data Quality for Better Cost Management
In complex supply chain networks where distributors, suppliers and healthcare organizations must align on continuously changing product and price data for medical supplies, manual updates fall short because of the constant data churn. This leads to pricing inaccuracies, rework and significant time and labor allocated to resolutions throughout supply chains.
Solutions for data cleansing and management: With automated solutions for data cleansing and management in the supply chain, healthcare supply chain leaders can improve data quality in their ERP system item masters, which serve as the source of truth for item, contract and pricing data. Automation and item data optimization reduces manual intervention and errors, ultimately contributing to lower healthcare costs for a healthcare facility.
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Item master data serves as the backbone of the hospital supply chain. Ensuring the accuracy, timeliness and completeness of this data is paramount for achieving the "perfect order". Advancements in digital technologies and automated processes have improved data quality and streamlined item master management in supply chains.
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Contract data: On average, healthcare providers manage 1,200 or more group purchasing organization (GPO) and local agreements with contract pricing data. Automated contract price management can significantly reduce exceptions and increase contract match rates for up to 3% savings of total spend. This consistent and focused approach to increasing match rates and reducing overpayment is needed to capture savings lost from contract price misalignment.
Watch this video to find out how The Ottawa Hospital supply chain team found $600k in overpayments for which the organization was able to claim credits.
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Data to support cloud ERP transitions: As more hospital supply chain teams make the move from on-premise to cloud ERP systems that seamlessly integrate with related systems inside and outside of the supply chain (e.g., SCM, EHR), they are finding the need to establish clean item data that these connected systems can share. Healthcare facilities that establish a clean data foundation for their cloud-ERP transition - and employ automated solutions to maintain data integrity - can maximize their cloud investment.
In this video, Win Fisher from PwC's Workday practice describes how El Camino Health quickly moved its aging PeopleSoft ERP system to Workday while achieving an error rate of less than 1% and stabilizing all of their EDI integrations within the first few days of production.
3. Turn Available Data Into Actionable Analytics
The healthcare industry supply chain is increasingly turning to data and analytics to inform decisions, from identifying cost reduction opportunities, to forecasting demand patterns, to maintaining quality control and costs by evaluating medical products based on the value they deliver.
The move to process automation, digital data capture, and cloud ERP systems with their seamless integration is improving the ability to capture digital supply chain, clinical and financial data and perform analytics to support a clinically integrated supply chain. But many health systems are still early on their digital transformation and analytics journeys.
Solutions to enhance analytics capabilities: Health system supply chain teams are leveraging internal data from their healthcare organizations and supplementing it with healthcare industry data, including peer benchmarks and published clinical evidence, to enhance their analytics capabilities.
The derived insights support more effective supply chain management, including demand planning and forecasting, efforts to a establish a cost-effective pricing system for PPI, such as implantable medical devices, and value analysis initiatives aimed at delivery high quality care and better outcomes at a lower cost.
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Category optimization: With category optimization, supply chain leaders can use data pulled directly from their healthcare systems to identify evidence-based savings strategies and surface spend and physician utilization insights.
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Product introduction management: Web-based product introduction management enables healthcare supply chain management leaders to perform modernized product reviews that engage physicians, standardize processes and ensure that product approvals are limited to only those items that have demonstrated improved clinical value.
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Physician-level analytics: Healthcare supply chain teams can gain transparency into device utilization, patterns and trends to enable evidence-based and clinically relevant decision making for sourcing and value analysis with physician level analytics.
The Key Benefits of Best Practices for SCM
Best practices in healthcare supply chain management, including system integration, process automation, data-driven analytics and KPI tracking, can deliver significant benefits to not only the supply chain department but also enterprise-wide, including improved patient outcomes and more effective healthcare cost management.
Cost Reduction and Financial Optimization
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Identify opportunities for supply chain savings, including contract optimization, medical products standardization, and more cost effective purchased service engagements through actionable analytics.
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Drive more on-contract, on-formulary spend among requisitioners through directed buying with solutions like GHX Marketplace.
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Capture early pay discounts and rebates from timely medical equipment supplier payments with more accurate and efficient P2P transactions with GHX ePay.
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Lower overall cost of care by reducing preventable but non-reimbursable patient infections and readmissions and shortening length of stay by using evidence to select supplies that improve outcomes.
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Maximize existing healthcare staff resources by minimizing non-value added tasks; this includes costly clinical resources that are in short supply.
Improved Patient Care Through Efficient Supply Chain
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Reduce the risk for supply shortages and maintain patient care continuity by better managing product inventory with inventory management software.
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Prevent recalled or expired items from being used by clinicians on patients with improved inventory visibility and management.
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Support enhanced patient care, patient safety, and patient outcomes by enabling evidence-based decisions on medical products.
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Partner with suppliers to more efficiently fulfill orders for patient care products by streamlining P2P processes.
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Help keep patient surgical procedures on schedule by automating the implantable device supply chain so the operating room (OR) has the right devices, in the right sizes, at the right times.
Enhanced Operational Transparency and Accountability
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Navigate healthcare industry supply chain changes with agility through transparency into supply inventory, orders, backorders and availability of clinically equivalent substitutes.
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Measure and improve supply chain performance, within the healthcare organization and out to supplier operations, with real-time data and reporting on P2P transactions.
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Match supply with demand by performing analytics based on supply chain and clinical utilization data for more accurate demand forecasting.
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Mitigate potential supply chain issues with upstream visibility to suppliers, their manufacturing facilities and raw material/component sources.
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Demonstrate financial accountability in the supply chain by presenting accurate spend and utilization data to medical organization financial leaders.
Real-World Examples of Successful Implementation
Here are some real-world examples where best practices in healthcare supply chain management have led to significant improvements and cost savings for hospitals and health systems in the US.
Froedtert Health Automates Bill-Only Implant Orders
Froedtert Health and a strategic supply partner automated bill-only implant orders without PHI using only their ERP systems and the GHX Exchange, thereby improving efficiency and reducing costs.
Through enabling technologies, automation and a collaborative effort with the supplier and GHX, Froedtert Health increased its bill-only PO EDI rate by 54% and volume by 465% in just six months (January–July 2022).
OHSU Uses Strategic Sourcing Tool To Deliver Savings
With the help of GHX Lumere’s Category Optimization, a strategic sourcing solution for healthcare, to surface savings opportunities and use clinical evidence to negotiate vendor pricing, OHSU saved $400k on a total of $2 million shoulder device spend.
Cardinal Health Improves Fill Rates, DSO with Data Sharing
Cardinal Health's data sharing systems with its customer Banner Health significantly improved fill rates and days sales outstanding (DSO) and increased communication and trust between the trading partners, winning the pair the GHXcellence Award for Collaboration.
Phoebe Putney Health System Achieves 99% Paper-Free Invoicing
With GHX eInvoicing, Phoebe Putney was able to reduce AP staffing levels with no additional stress on the remaining staff and captured approximately $300,000 in accruals by achieving 99% paper free invoice processing.
Memorial Hospital at Gulfport's Reaches 95% Item Data Accuracy
Memorial Hospital at Gulfport worked with GHX to implement a data management solution to improve data integrity, and operational and financial performance, resulting in a 95% data accuracy rate. As a result, 65% of orders are purchased on-catalog (up from 40%) and buyers spend less time addressing issues and more time supporting clinical departments with procurement.
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.
FAQs about SCM Best Practices in Healthcare
Q. What are the most critical elements of healthcare supply chain management?
A. The most critical elements of healthcare supply chain management include contracting, value analysis, procure-to-pay, inventory management, supplier relationship management, recall and expiry management and analytics for demand planning and other strategic supply chain planning activities.
Q. How can healthcare providers optimize inventory levels?
A. Key strategies to optimize inventory levels include integrating key systems (ERP, EHR, SCM), gaining enterprise-wide visibility to supplies in all storage locations, accessing real-time, accurate data on supply status to manage them effectively (e.g., move supplies to areas where they are needed to avoid waste), capturing supply data at the point of use (POU), and applying analytics to link supply and demand, understand utilization trends and adjust supply chain management accordingly.
Q. What role does technology play in modern healthcare supply chains?
A. Technology is critical to today's modern healthcare supply chains. With cloud-based systems in place, automated processes and digital data capture, healthcare supply chain management leaders can improve overall efficiency, gain greater transparency into operations, capitalize on savings opportunities, drive out costs and waste, and inform value-based purchasing decisions.
Sources:
Nearly 70% of U.S. Hospitals and Health Systems to Adopt Cloud-Based Approach to Supply Chain Management by 2026, GHX, September 26, 2023, https://www.ghx.com/news-releases/2023/nearly-seventy-percent-of-hospitals-to-adopt-cloud-based-supply-chain-management/
How to Measure Healthcare Supply Chain Management Initiatives, GHX, February 29, 2024, https://www.ghx.com/the-healthcare-hub/healthcare-supply-chain-metrics-guide/
Helping Healthcare Supply Chain Adapt for a Modern World, GHX, April 26, 2023, https://www.ghx.com/the-healthcare-hub/helping-healthcare-supply-chain-adapt-for-a-modern-world/
How to Reduce Hospital Waste: Cost-Saving Strategies for Healthcare, GHX, November 3, 2023, https://www.ghx.com/the-healthcare-hub/healthcare-waste-reduction-guide/
Driving Compliance through Directed Buying in Healthcare Supply Chains, GHX, August 23, 2023, https://www.ghx.com/the-healthcare-hub/compliance-via-directed-buying/
Automate Bill-Only Implant Orders: Real-World Success Stories, GHX, September 1, 2023, https://www.ghx.com/the-healthcare-hub/automate-bill-only-implant-orders/
Optimizing accounts payable with automated invoicing, GHX, https://www.ghx.com/media/vamdqbkn/ghx_einvoicing-children-s-of-alabama_case-study.pdf
Mastering Inventory Management in Healthcare Supply Chains, GHX, July 31, 2023, https://www.ghx.com/the-healthcare-hub/healthcare-inventory-management/#strategies
Item Master Data in Healthcare: Best Practices and Common Problems, GHX, June 14, 2023, https://www.ghx.com/the-healthcare-hub/item-master-data-healthcare-guide/
A strategy to significantly reduce price exceptions, GHX, https://www.ghx.com/resources/educational-brochures/strategy-to-reduce-price-exceptions/
The Ottawa Hospital Drives Automation within Its Supply Chain, GHX, September 25, 2023, https://www.ghx.com/resources/videos/the-ottawa-hospital-ghxcellence-provider-of-the-year-canadian/
El Camino Health: Implementing a Seamless Integration Between GHX and Workday, GHX, August 30, 2023, https://www.ghx.com/resources/videos/integration-between-ghx-and-workday/
Mary Washington Healthcare Saves Nearly Seven Figures with Category Optimization, GHX, February 13, 2024, https://www.ghx.com/resources/customer-stories/mwhc-saves-with-category-optimization/
The gold standard for new product evaluation, GHX, https://www.ghx.com/resources/product-information/product-introduction-management-brochure/
The Importance of Healthcare Value Analysis: A Comprehensive Guide, GHX, March 11, 2024, https://www.ghx.com/the-healthcare-hub/value-analysis-guide/
Automating Bill Only Implant Orders: How Froedtert Health Did It and Why You Should Too, GHX, February 1, 2023, https://www.ghx.com/resources/customer-stories/automating-bill-only-implant-orders-froedtert-health-case-study/
OHSU Saves 20% on Shoulder Devices through Evidence-Based Pricing, GHX, January 25, 2024, https://www.ghx.com/resources/customer-stories/ohsu-case-study-ghx-category-optimization/
Rodney Schmidt and Banner Health Expand and Drive Industry Best Practices, GHX, September 25, 2023, https://www.ghx.com/resources/videos/banner-health-and-cardinal-health-ghxcellence-collaboration-award/
Phoebe Putney Hits 99% Paper-Free Invoicing with GHX eInvoicing, October 19, 2022, https://www.ghx.com/resources/customer-stories/99-percent-paper-free-einvoicing-phoebe-putney/
Clean Supply Data Supports Value-Based Healthcare for Memorial Gulfport, GHX, August 5, 2020, https://www.ghx.com/resources/customer-stories/improve-data-integrity-healthcare-operational-financial-performance-memorial-gulfport-case-study/