Consolidation key in health care supply chain strategy

The Affordable Care Act has put pressure on the health care industry to reduce costs and enhance supply chain efficiency by consolidating and streamlining operations. But, as a survey conducted by Cardinal Health highlighted, there are many ways in which achieving this goal has been a challenge.

The research showed that, although the majority of hospital executives feel that better supply chain optimization would lead to more revenue growth and opportunities for cost-savings, just as many agreed their current approaches have been effective. And one function of particular concern is inventory management; 60 percent of executives said issues in this arena lead to them overpaying for transportation and shipping services.

Another problem is not having enough end-to-end visibility into operations. However, according to the source, 85 percent of "hospitals are either planning or are currently working to identify and implement new solutions that reduce supply chain waste and related costs."

And this effort has been recently demonstrated by one of the nation's biggest health care systems.

Supply distribution development
This week, XPO Logistics, Inc. and Trinity Health announced plans to execute a $26 million supply chain project intended to streamline operations and ultimately provide people with access to better, more affordable health care. Four distribution centers will be built to service the Trinity network, which consists of 90 hospitals across 21 states, with the first being developed in Fort Wayne, Indiana.

"This initiative represents an enormous change in the way we stage and move supplies to our hospitals," Trinity Health Senior Vice President of Supply Chain and Fixed Asset Management Lou Fierens stated. "The modern, world-class facility and distribution process we are creating with XPO will help us further our Lean/Kanban approach to supply chain management for the benefit of the individuals and communities that rely on us for high-value services. It also allows us to collaborate with our suppliers in a much deeper and more productive way by eliminating non-value-added work for all the participants in the supply chain, including our caregivers."

The Fort Wayne logistics hub will serve as the single point of entry for the network's suppliers and manufacturers and will eventually be equipped with satellite warehousing technology. The Northeast Indiana location, the press release said, is a low-cost region that is ideal for improving the distribution processes of Trinity Health.

This move offers the multi-institutional health care system more control and leverage over supply chain operations, a goal it has been working toward for several years. Conlan Construction was named the general contractor for the project, which will take a year to build to completion, though the preparation phase is expected to begin in the first quarter of this year. XPO will assume the role of contract logistics manager and oversee all operational and management responsibilities.

The Wall Street Journal reported that this deal marks Trinity Health as the biggest health care system to take on this level of control over its supply chain management and that, in doing so, the organization could see as much as an annual $20 million in cost reductions.

This strategy emphasizes the value in consolidating operations. The news source revealed that the health care system is nearly twice the size it was six years ago and that, by centralizing the procurement of medical supplies and standardizing inventory management throughout the network, Trinity has already seen $10 million in savings and a 20 percent increase in supply chain efficiency.

Logistics and procurement solutions for health providers
Modern Healthcare pointed out that although some businesses may want to develop and manage their own logistics centers, there is a certain advantage to enlisting the help of a third-party logistics partner, as Trinity did with XPO. For example, working with an industry expert will likely save significant amounts of time and, therefore, money.

"A lot of the things that Trinity is trying to achieve are supply chain techniques that have been done well in other industries," said Ashfaque Chowdhury, an XPO supply chain executive, according to the source.

And, given the amount of health care companies that the Cardinal Health survey indicated are struggling with supply chain optimization, these methods should probably be adopted by more organizations.

As pressures to reduce costs, increase visibility and improve inventory management processes continue to intensify, it would be wise for health care leaders to leverage the strategic sourcing solutions offered by consultant firms and procurement providers.

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  1. All of these cost cutting measures are delaying the real issue price controlling on technology and insurance company waste on overhead. Without controlling overhead in the insurance industry we are trying to get blood from a stone.