Providers must act quickly to prevent supply chain losses

In collaboration with Z5 Inventory -

In one important way, your average stock portfolio is the same as the stock on hospital inventory shelves.

When the economy is better, your average stock portfolio can contain a larger proportion of riskier stock, because you can afford to take the risk. But when your financial situation is headed for a cliff, it becomes time to reorganize what you have on hand. Currently the health care industry isn’t headed for a cliff. It’s hanging over it by a single finger. 

As we transition from the last emergency, where providers were focusing nearly entirely on procurement—stocking up on PPE and staying stocked on everything else despite supply chain disruptions—to the next phase, where elective procedures will once again become the cornerstone of the hospital’s financial future, physical assets need to be rebalanced accordingly. Without close attention, medical and surgical supplies can become a significant loss. 

The average annual waste at medical facilities due to product expiration tops $5 billion. That number will no doubt increase significantly for the years 2020 and 2021. 

Hastily bought products are headed for expiration because they were supposed to fill a need that never arose. Standard order products are headed for expiration because elective procedure volume dropped for an extended period. Soon-to-expire inventory will be disposed of by the tons. 

The coronavirus crisis has revealed an exaggerated version of the reactive-proactive problem that has plagued health care’s supply chain for decades. Ordering when supply levels are low, allowing supplies to expire on the shelf, and reordering to fill the space left by expired product are all examples of reactive supply chain management. 

Proactive supply chain management evaluates the likelihood of product expiration, then finds destinations for that product to mitigate the loss. Sufficiently advanced and connected supply chain management can reallocate product between health care facilities according to their needs and maximizes the amount prevented from expiration. 

As detailed in a recent presentation by Steward Health Care and Z5 Inventory via Becker’s Hospital Review, the health care provider was well within the normal range of on-hand inventory being excess: 15-30%. But Steward financial and supply chain teams were proactive in their approach to asset management, which resulted in a savings of more than $16 million. 

Put the opposite—but equally valid—way, the typical hospital could be throwing away as much as 30% of the supplies they’ve purchased. In a year where the number of health care providers operating at a loss has nearly doubled, every loss hurts more. Every savings opportunity is more valuable. 

Most health care providers—stretched for time and resources as they are—will require a partner to provide the advanced analytics and established logistics necessary to make that rebalance possible. Providers should be able to require from those partners a free inventory analysis to predict how much of their on-hand supplies are likely to expire. This was the approach taken by Steward Health Care when engaging Z5 Inventory that resulted in a massive savings for the health care provider. 

Whatever approach providers take, the time to rebalance assets has arrived. The time to be proactive is now. 

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