Tips for Implementing Healthcare Supply Chain Management Systems

• Kara L. Nadeau, Healthcare Industry Contributor

Digital transformation in the healthcare supply chain has evolved from materials management information systems (MMIS), to standalone enterprise resource planning (ERP) systems, to a fully integrated and digital supply chain management (SCM) ecosystem.

This level of maturity in supply chain operations is necessary for success in an increasingly complex and challenging care delivery environment. Among executive leaders in healthcare organizations surveyed, 78% believe managing supply chain operations has become harder or much harder than five years ago.

In this article, we'll explore planning and implementation steps as well as key metrics to measure the results of your digital transformation and real-world optimization success stories from the healthcare industry.

Table of contents

1. Implementation planning
2. Step-by-step implementation
3. Metrics and KPIs to measure
4. Real-world success stories

Planning Your Healthcare Supply Chain Management Implementation

Before launching a digital transformation initiative, here are three key steps to preparing a SCM implementation plan.

Assess Your Current Supply Chain Efficiency

When planning for a SCM system implementation or improvement, it helps to start with assessing the current state of your supply chain capabilities, efficacy and efficiency. There are many industry resources available to supply chain leaders to help them benchmark the maturity of their SCM operations, including:

• The KPMG Supply Chain Management (SCM) Maturity Model
• The SMI Resilience Maturity Model
• The Gartner Supply Chain Maturity Model

Set Clear SCM Objectives and Goals

The current level of maturity plays a central role in setting effective optimization objectives and goals. This can vary significantly depending on the size of the organization and the challenges it faces.

For example, a small community medical center that is just beginning to optimize SCM through procure-to-pay (P2P) process and inventory management automation will have a vastly different strategy compared with a large IDN with an established distribution center, modern technology for automation, and advanced analytics capabilities for strategic activities like demand planning.

Examples of healthcare SCM implementation goals and objectives include:

• Automating procure-to-pay processes
• Better inventory management and visibility to tackle waste
• Product standardization through evidence-based supply selection
• Automating invoicing and payments to optimize cashflow
• Compliant vendor management across facilities

How to Choose the Right SCM Software

Here are five software features to consider when choosing healthcare supply chain management solution for your needs.

1. Healthcare-focused: The healthcare supply chain has many nuances not found in other industries, including patient safety challenges and compliance with regulatory agencies' requirements. Therefore, it is critical to select a SCM software provider that has extensive expertise and experience in healthcare. For example, GHX pioneered healthcare’s leading cloud-based supply chain network, which today connects tens of thousands of healthcare organizations across the globe, and has 20+ years of industry experience.
2. System integration: The chosen SCM system should seamlessly integrate with both the ERP and EHR systems to facilitate process automation and data sharing. It should also support collaborative data sharing with suppliers. For example, gaining upstream visibility into supplier manufacturing and raw materials.
3. Process automation: Automation drives efficiency and accuracy while enabling cost reduction, eliminating waste and supporting quality patient care. Depending on your objectives, investigate which processes can be automated to reduce the burden on staff.
4. Digital data capture: System integration and process automation should enable digital data capture in the SCM and connected systems (ERP, EHR). Establishing a centralized repository of accurate, complete and timely data on supply procurement, management and usage, and the ability to link supplies to patient outcomes, can support the transition to value-based care.
5. Advanced analytics capabilities: As the role of supply chain management continues to grow in strategic importance, those in leadership roles increasingly rely on analytics to support data-driven decisions. The SCM solution should feature advanced analytics capabilities to support strategic activities in supply chain, including demand forecasting.

Build Broad Consensus and Buy-In

Often, the benefits of adding new technology to optimize supply chain management may seem obvious to those involved, but to others, they may not be. In order to overcome potential obstacles, prepare the terrain by engaging cross-functionally to build consensus.

1. Ensure sponsorship from senior clinical leaders: Engage the chief medical officer (CMO), chief clinical officer (CCO), chief nursing officer, and service line chairs as visible and active sponsors of clinical supply chain efforts. Leaders can accelerate progress and enable best-in-class performance by offering clinical guidance, building clinician confidence in supply chain efforts, making tough decisions, and holding other clinicians accountable for changes in behavior.
2. Formalize cross-functional, specialty-focused teams to evaluate strategies for each category: Formal committees comprising clinicians and supply chain leaders should be responsible for all contracting and utilization initiatives. Although many health systems have a clinical engagement structure, they may lack critical elements, including clear decision rights, accountable physician champions, sufficient representation from across the system, and engagement throughout the full life cycle of the supply initiative (from opportunity identification and sourcing to implementation and compliance).
3. Invest in an on-the-ground supply chain team: Supply chain initiatives cannot be driven solely from corporate or market headquarters. It is often most effective to have in-person discussions between supply chain colleagues and clinicians about product choices, procedure costs and compliance with contracts.

Steps for Effective Implementation

A successful SCM system implementation is paramount when leading a digital transformation. Here are three critical steps that will help ensure a seamless roll-out.

1. Prepare Your Organization for Change

Change management in healthcare organizations is notoriously challenging given the number of stakeholders that impact and are impacted by supply chain management. Drive collaboration by bringing together the right people and processes, ensuring that both back office staff and clinical teams are involved in the process.

Make sure to effectively communicate the need, benefits and expected results of the software implementation to gain broad buy-in and support for the initiative. Stating clearly what you expect to achieve will help you find champions in the organization to support your digital transformation.

2. Integrate SCM Solutions with Existing Systems

Cloud-based solutions have made it much easier to integrate SCM, ERP and EHR systems for supply chain management, breaking down many of the barriers experienced with on-premise, legacy systems.

Establishing a solid data foundation will pave the path for integration success and successful use of the SCM solution. Before integrating systems and data sharing, take the vital step to cleanse supply data, including item data in the ERP item master.

For example, the industry’s largest and most up-to-date supply item data catalog, GHX Data Connect delivers millions of expertly enriched data points and validated attributes such as GTIN, UNSPSC, HCPCs, revenue & billing codes, and descriptions to the ERP via API integrations with Workday, Infor and Oracle.

3. Train Users to Maximize Adoption

When implementing healthcare SCM technology, training users is a critical step for healthcare providers. Proper training equips staff with the knowledge and skills needed to navigate the software efficiently, reducing errors and improving workflow accuracy.

Moreover, training sessions facilitate compliance with regulatory requirements, safeguarding patient data privacy and ensuring adherence to industry standards.

By familiarizing users with the software's full range of features and functionalities, this ultimately helps you to maximize the benefits of this investment. It also promotes staff acceptance and adoption of the technology, overcoming potential resistance to change.

Metrics and KPIs to Measure SCM Implementation Success

Here are some common KPIs from AHRMM to define and measure the success of SCM implementation for the healthcare industry, ensuring continuous improvement, in three areas of supply chain management.

KPIs for Operations

• Perfect Order
• Total Suppliers Per $1M Non-Labor Supply Expense
• Percentage of Purchase Order Lines with Expedited Shipping Costs
• Supply Chain FTEs Per $1M in Total Non-Labor Supply Expense

KPIs for Resiliency

• Internal Requisition and Order Fill Percentage Rate
• Primary Distributor Backorder Percentage Rate
• Percentage of Items Stored in the Item Master with Identified Substitutes
• Primary Distributor Fill Percentage Rate
• Non-Labor Supply Expense Per Case Mix Index (CMI) Adjusted Patient Days (APD)

KPIs for Finance

• Supply Accounts Payable (AP) Days
• Supply Expense Per Case Mix Index (CMI) Adjusted Discharge
• Supply Expense as Percent of Net Patient Revenue
• Spend Under Management (SUM)
• Inventory Turns
• Supply Chain Labor Expense Per Case Mix Index (CMI) Adjusted Discharge

SCM Process Improvement and Optimization: Real-World Success Stories

Here are four examples of healthcare SCM initiatives that have yielded cost savings, facilitated timely delivery of products, and contributed to high quality care.

Achieving the Perfect Order

In this recorded 2023 GHX Summit session, Vicky Lyle, VP of Industry Associations, and Shawn Cooke, Sr. Director, Master Data & Contract Administration, for Owens & Minor described the negative impacts of product data misalignment on Perfect Order rates, and outlined ways distributors and providers can partner together to overcome them.

Accounts Payable Optimization

In this case study, Northwestern Medicine’s AP team describes how they reduced supply AP payable days, increasing payment term compliance with suppliers (15-day term), from 26% to 90%, which resulted in a 133% increase in annual rebates.

Supply Standardization Success

In only four months, a healthcare consortium in Oregon successfully saved $450,000 by implementing a cardiac rhythm management device standardization initiative. The supply chain team collaborated with physicians, employing evidence-based value analysis and leveraging insights derived from product reviews, recall information, adverse events, and an extensive range of clinical literature.

Learn from Other Healthcare Supply Chain Successes

When planning for SCM improvements, supply chain managers might find it valuable to learn what peer healthcare institutions have accomplished. There are countless case studies documenting healthcare organization stories of supply chain successes from healthcare supply chains of all sizes - small healthcare facilities to multi-hospital IDNs. Here are a few places to find them:

• GHX Resource Center for case studies of supply chain teams that have leveraged SCM technology to gain greater visibility, maximize group purchasing organization contracts, reduce supply chain costs, navigate supply disruptions, maintain delivery of essential medical products to healthcare stakeholders, and facilitate the digital data collection required for analytics that support a resilient healthcare supply chain.
• AHRMM Knowledge Center features case studies, webinars, podcasts and eLearning modules with real-world examples of healthcare SCM improvements, including healthcare providers that have taken steps to better manage medical supplies, enhance inventory management, lower healthcare costs, and enhance patient care.
• Healthcare Purchasing News: Since 1977, HPN magazine has been dedicated to reporting the information, solutions and stories about medical products and systems that affect healthcare supply chain management. Each month, the magazine features articles on effective SCM.

Healthcare SCM System FAQs 

Q: What makes healthcare SCM different from other industries?

A: The healthcare supply chain is uniquely complex, involving challenges related to patient safety, regulatory compliance, and the handling of high-value medical materials that directly impact human lives. Therefore, choosing an SCM solutions provider with specialized expertise in healthcare is crucial for effective management and reliability.

Q: How long does it typically take to implement a healthcare SCM system?

A: The length of time to successfully implement a SCM system depends largely on the scope of the initiative, including reach (e.g., warehouse, clinical areas) and required IT system integrations.

Q: Can GHX solutions integrate with existing healthcare IT infrastructure?

A: Yes. GHX continues to invest heavily in product advancements to accelerate healthcare’s SCM digital transformation and harness the power of cloud computing to increase supply chain resiliency, advance frictionless patient care in more locations, and improve information sharing in real-time and over-time between health care systems and supply partners.

Q: What are the common pitfalls in healthcare SCM implementation and how can providers avoid them?

A: Common challenges encountered during SCM implementation in healthcare include lack of system integration (e.g., ERP, EHR) and poor data quality. Cloud solutions are helping bridge the gap between systems and GHX Data Connect for Cloud delivers the foundation healthcare organizations need to help maximize their cloud investment.

Sources

1. Healthcare Supply Chain Management: 2023 Global Trends Report, IIC Partners, September 2023, https://iicpartners.com/media-center/healthcare-supply-chain-management-2023-global-trends-report/
2. Optimizing the healthcare supply chain operating model, KPMG, 2023, https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2023/optimizing-healthcare-supply-chain.pdf
3. Resilience Maturity Model Scorecard, SMI, https://www.smisupplychain.com/wp-content/uploads/2022/09/rmm-2022.pdf
4. How to Improve Supply Chain Effectiveness Through Supply Chain Benchmarking, Gartner, https://emt.gartnerweb.com/ngw/globalassets/en/supply-chain/documents/how-to-improve-supply-chain-effectiveness-through-supply-chain-benchmarking.pdf
5. Resource Center, GHX, https://www.ghx.com/resources/
6. Knowledge Center, AHRMM, https://www.ahrmm.org/knowledge-center
7. Healthcare Purchasing News, https://www.hpnonline.com
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Kara L. Nadeau

Healthcare Industry Contributor

Kara L. Nadeau has more than 20 years of experience as a writer for the healthcare industry, working for clients in fields including medical device/supply manufacturers and distributors; software, solution and service providers; hospitals and health systems; and industry associations.