This is a contributed op-ed written by Jeff Berman, principal and Healthcare & Life Science Operations Transformation practice leader at Grant Thornton. Opinions are the author's own.
What we have learned so far during the COVID-19 pandemic is that healthcare organizations were not ready for such massive waves of demand for personal protective equipment (PPE) and patient services. Most would agree that pre-pandemic conditions within healthcare supply chains were below the standards of other industries, but the pandemic exposed broken operating models, weaknesses in providing supplies to the front lines, and most of all, a greater struggle to maintain financial stability.
The shortage of medical supplies has caused stress and constraints on hospital networks, spurring the need for innovation, alternative sources of supply and alternative ways of working. Before the pandemic, the healthcare supply chain represented about 35% of a hospital organization’s expense and was loosely a focus area for CFOs.
With scarcity and cost of supplies increasing, the supply chain has now elevated its importance within the healthcare organization.
Healthcare leaders are looking to the supply chain to drive operational efficiency and cost reductions. Specifically, the focus on the healthcare supply chain has brought the following needs to the front:
Achieving cost reductions to help with decreasing revenues
Gaining access to PPE and creating better inventory visibility across the healthcare ecosystem
Establishing smarter fraud identification and increased risk reduction with vendors
Developing a more resilient sourcing and procurement process prior to a "second wave" of the COVID-19 pandemic
Getting faster distribution to the front lines
No longer should healthcare organizations try to restore supply chain service to pre-pandemic levels, but rather, they should elevate their capabilities for greater cost-effective and efficient operations to become more resilient and develop a position of strength. This will allow for faster distribution of equipment and inventory to the front lines, better integration between clinical and supply chain operations, and quicker centralized decision-making and communication across the healthcare ecosystem.
There are some emerging trends surfacing as mission-critical for the healthcare supply chain.
Specifically, technology enablers are coming to the forefront, including cloud-based ERP and advanced analytics. With such enablers, automation, digitized supply chain tools and more accurate inventory allocation can drive efficiencies across procurement, inventory management and clinical operations. In addition, it can achieve better integration and interoperability between clinical and ERP systems to synchronize item and vendor tracking and the flow of goods and costs to and from the Emergency Room.
Another trend is the centralization of sourcing, procurement and inventory management across the healthcare network, which includes new operating models, protocols, and decision-making around inventory procurement.
For the first time, many operating models used during the pandemic have included standard metrics, data and reporting. Although the accuracy of information and data has not always been clear, the need for institutionalizing these new centralized models and data has become paramount to new ways of working. Increased usage of control towers, command centers and dashboards is making information visible and timely, coordinating all parties.
However, the biggest trend is a pivot from lean practices to risk mitigation and resiliency. This includes building safety stocks with isolated allocation strategies, finding and securing alternate sources of supply, using local and onshore vendors, and innovation protocols in the reuse and/or new types of PPE.
These trends focus on achieving cost reduction, better inventory visibility, smarter fraud and risk reduction, resilient sourcing and procurement and faster distribution to the front lines.
Building a stronger and more resilient healthcare supply chain requires advancing the following four areas:
1. Demand and supply matching
Better forecasting around shortages and allocation is critical, due to sporadic demand because of a possible "second wave" of the COVID-19 outbreak.
Using advanced analytical tools to understand these demand signals and build predictive forecasting models will provide better and more accurate planning for minimum inventory levels, in addition to recall and expiration inventory. Performing inventory cycle counting and valuation is also important to reset accurate inventory by location, bin and warehouse allocation across the supply network.
2. Reliable sourcing and procurement
The shortage of medical supplies has caused stress and constraints on hospital networks, spurring alternative sources of supply, pricing variances, increased contract risk, item substitutions and non-compliance.
There are many stories about buying PPE at 400% inflated prices and receiving N95 masks not meeting regulatory standards. Now is the time to rationalize alternate sourcing strategies and update approved vendor lists. Investigate contract optimization with new alternative vendors (including terms, conditions, pricing, expiration and warranties) and put in place new vendor qualification policies to reduce fraud and risk.
To help drive these efforts, many healthcare organizations have established central procurement processes and buying approvals, and have put in place new innovation protocols to deal with reuse and substitute items.
3. Speed of data and reporting
Determining the appropriate systems and leading processes for tracking and reporting critical supply levels across hospital networks has become paramount to executives and clinical teams. Leaders are now expediting the investment and use of ERPs and artificial intelligence technologies alongside and legacy systems.
Many organizations have established central dashboards, control towers, and standard metrics for data and reporting (including governance). In addition, they are embarking on new efforts to cleanse item and vendor master data, particularly for new and substituted items.
4. Reduced operating model complexity
The pandemic has resulted in more complex operating models, especially in non-integrated healthcare organizations. Evaluating lessons learned and refining supply team response operating models should be carried out now. This includes refining decision rights, roles, processes and policies for executing activities.
Implementing pragmatic communications and change management to support a more integrated clinical and supply chain process has been a key focus of leading organizations.
Now is the time for healthcare organizations to take action and to strengthen their supply chains. The pandemic will not wait and patients are in need. Healthcare organizations must take immediate steps to maintain financial and operational stability.