The Healthcare Hub

Future of Healthcare Supply Chains: an In-Depth Analysis

Monday, March 27, 2023

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. Healthcare supply chain challenges in 2023
  3. Innovation in healthcare supply chains
  4. Overcoming challenges in healthcare supply chains
  5. 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.

Even before the COVID-19 pandemic, a study found supply costs could account for up to 40% of a hospital’s total expenses. By the end of 2021, supply expenses for hospitals were up 15.9%, with expenses in specific clinical areas even higher. As the American Hospital Association reported, “medical supply expenses in ICUs and respiratory care departments increased 31.5% and 22.3%, respectively.”

Coming out of 2022, which was the worst financial year for U.S. hospitals and health systems since the COVID-19 pandemic began, 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.


Key players in healthcare supply chain back office

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 behind the scenes: 

  • Procure-to-pay (P2P): The healthcare organization’s procurement and accounts payable (AP) teams and supplier or distributor’s accounts receivable (AR) teams should align on products, purchases and payments.
  • Contracting: The healthcare organization’s internal contract management team, its group purchasing organization (GPO), and its distributor and suppliers should align on supply negotiated contracts, terms and prices.
  • Consignment products (e.g., implantable devices): The healthcare organization’s clinical team and supplier’s sales team should 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 



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

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.



Overcoming challenges in healthcare supply chain operations

Two of the biggest barriers to supply chain advancements in healthcare are lack of system integration and resulting data silos.


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.

For example, 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

The U.S. Food and Drug Administration (FDA) issued recalls for at least 60 medical devices used in U.S. healthcare facilities in 2022. Each year, the 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



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



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.

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Kara L. Nadeau

Healthcare Industry Contributor