Don't let these myths hold you back from direct-to-manufacturer sourcing

Health systems will push their supply chains to the brink in the next few years, asking supply chain leaders to accommodate system mergers, fluid business strategies and unprecedented savings targets.

Direct sourcing of clinical supplies from the manufacturer can be a powerful strategy to help you reach those goals. Direct sourcing connects the buyer to the manufacturer, without unnecessary intermediaries such as product companies who only apply their name brands or “white label” brands. Direct sourcing removes costly steps from the supply chain and unlocks opportunity for product customization for individual buyers.

Direct sourcing is the norm in nearly every other industry, and health systems are catching up to their out-of-industry peers. Nearly all of the largest health systems in the country engage in some direct sourcing; several GPOs have opened access to direct sourcing for their members.

If you haven’t launched your own direct sourcing program yet, it’s probably because one of these myths is holding you back.

Myth #1: Direct-to-manufacturer sourcing can’t deliver acceptable quality

Many people believe that purchasing branded products minimizes the risk of receiving low-quality or atypical goods. But many supply chain leaders don’t realize that there are usually only a handful of factories worldwide for any particular clinical supply product. These manufacturers produce items in compliance with buyer specifications, and often sell nearly-identical products, from the same factory line, to multiple US brands who then compete for health system business.

Direct sourcing allows health systems to access that same, high-quality factory without the middleman. If required, direct sourcing allows the health system to deliver their own unique specifications to the factory line, opening access to a product with better quality for that organization than any middleman could deliver.

Better quality is achieved by gathering end-user requirements and asking the manufacturer to deliver a product that meets those needs precisely. Even “commodity” items can be differentiated in product features, performance, packaging, etc. We have identified strong clinician preferences in a wide range of high-volume supplies like disposable cups, textile products such as PPE and scrubs, incontinence supplies for patients, thermometers, patient amenities including toothbrushes and toothpaste, and even emesis bags.

We’ve seen countless examples of health systems driving improved quality through small adjustments to the manufacturing process – for example, specifying improved and longer tread patterns on slipper socks to minimize patient fall risk.

Myth #2: The “juice isn’t worth the squeeze” – I’m already getting pretty good pricing

Most supply chain leaders are resource-constrained, and they work to keep their teams focused on the biggest savings opportunities. Savings from traditional strategies in clinical and commodity supplies usually deliver only 1% or 2% - and must be earned with all the work required for a product conversion or changed GPO relationship.

Direct sourcing gives you access to a new source of savings in supply categories that are often left on auto-pilot. Health systems find 15-20% improvement opportunity when they analyze the most-popular products to source globally, a selection of about 3,000 clinical supply items. This isn’t a reflection on your team’s ability to negotiate – it’s simply a function of a changed cost structure. When you go direct to the manufacturer, you take cost out of the supply chain. Direct sourcing can eliminate costs that traditional sourcing just can’t touch.

Direct sourcing also delivers savings in the form of SKU reductions and utilization improvement. When clinicians can request all required features in a single custom product, many duplicative products can be collapsed into one. Clinicians also offer a rich source of utilization improvement suggestions – for example, using custom packaging or changing product sizes to minimize waste. A direct connection to the manufacturer lets you choose the features you need.

Myth #3: Direct sourcing requires health systems to have specialized logistics and distribution capabilities

A properly-executed direct sourcing strategy does not require you to bring new capabilities in-house. The right direct sourcing program builds on your existing strengths, including any relationships you have with distributors. A US-based sourcing partner can deliver products directly to your loading dock or we can work with your distributor. Supply chain leaders often believe that direct sourcing requires the purchase of full containers of product – not true, any quantity from a case on up is available, and you control value-added services like packaging.

Few health systems are ready to select and interact directly with factory leadership worldwide, and so most health systems choose to work with a direct sourcing partner. Direct sourcing partnerships offer a single point of connection to a network of qualified manufacturers, support for customs and shipping, and expertise in quality assurance, as well as advice on opportunity identification, product design inputs, and product conversion. The right partner will minimize risk for the health system, and provide end-to-end services.

Myth #4: Direct-to-manufacturer sourcing just means “buying from China”

China is only one of the many countries that participates in manufacturing clinical supplies for US provider systems. Manufacturing facilities in the U.S., Europe, South America, and multiple countries in Asia also offer clinical supplies to U.S.-based buyers.

Surgical glove manufacturing offers an illustrative example. As the industry shifted from latex to nitrile materials, skilled manufacturing capacity became concentrated in Thailand and Malaysia. Today, surgical gloves for multiple brands in the U.S. market are produced in the same few high-quality factories in these countries.

Most of the clinical supplies your health system purchases today are manufactured overseas, then imported and marketed by a U.S.-based company. Differences in product quality, features and design are determined by the brand company. The brand company may purchase products directly from the manufacturer, or from a product broker. The brand company incurs the cost of marketing and sales for the products, which drives product prices up.

Don’t wait to try direct-to-manufacturer sourcing

Electronics, apparel, consumer goods, aviation, vehicles – direct sourcing is the norm in all of these industries. Leading health systems are building competitive advantages today by including direct sourcing as one of their value-improvement strategies. Direct sourcing can benefit a health system of any size, with or without self-distribution capabilities, for sustainable value improvements.

About the author: Lorne Tritt is the CEO of ASP Global. ASP Global serves health systems as a sourcing partner for med-surg products and patient preference items. \We help health systems to reach their savings and patient experience goals with seamless direct sourcing, giving the health system control over cost and product design.

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