Maximizing value from the healthcare supply chain

The healthcare industry is experiencing massive disruption that requires organizations to rapidly adapt, while maintaining focus on better patient outcomes, improved quality of care and increased profitability.

As the industry braces for a new era of transformation and increasing margin pressure, leaders are reassessing their organization’s ability to drive value in key areas such as patient and employee engagement, access to information and operational efficiency.

Representing more than 30 percent of overall spend, many healthcare leaders are realizing that the “low-hanging fruit” for maximizing value resides within the healthcare supply chain. It is no secret that a hospital system procures everything and makes nothing. That means their reliance on suppliers, distributors and manufacturers, along with the handling of goods and services, are paramount to the effectiveness of the supply chain ecosystem. Ensuring that supplies, assets and pharmaceuticals are in the right place, at the right time, for patient treatment, however, is not an easy task given the dynamics of physician preferences, the importance of always having critical goods on hand and the imperative of regulatory compliance. Moreover, many hospital systems are turning to mergers and acquisitions to drive patient demand and compete in local markets. All of these factors create a proliferation of technology systems and non-standard processes, increase complexity and suppress efficiency across the healthcare supply chain.

Leaders are taking a broad view when it comes to maximizing value within the supply chain by looking at process optimization, new operating models and system integration for demand planning, procurement, inventory control, asset management and finance.

The source to pay process is typically the first target area for the implementation of process optimization and new operating models. There are good reasons for this focus, as more than two-thirds of healthcare organizations do not know where they spend their money. This, coupled with the fact that most organizations claim 55 percent of spend is without compliance to a contract, leads to lost leveraged spend and opportunities for cost savings. With the typical supply base growing at three percent annually, this lost savings begins to propagate year after year – a troublesome outcome for healthcare organizations dealing with increasing margin pressure. Value levers such as consolidation of vendors, centralization of contracting and procurement and streamlined flow of goods through departments top the list for maximizing value. Additional levers, such as adjusting approval levels for non-procurement professionals, elevating the buyer/planner role within the organization or implementing governance councils beyond the group purchasing organization can help organizations save. By focusing on all of these value levers, healthcare organizations are realizing up to 18 percent reduction in procurement costs and up to a 25 percent reduction in inventory. What’s more, studies show that 70 percent of this realized value is driven by an organization’s ability to change the way it works from stakeholder adoption of new lean processes, better governance of decisions and the implementation of new standard policies.

Technology enablement drives the other 30 percent of realized value. This includes access to data by frictionless flow of information from EMR to ERP systems, implementing integrated systems that can serve as a single source of truth, which provides scale, visibility and control of data and information across the health system. Many healthcare leaders are embarking on cloud-based suites to provide this level of enablement, while also unlocking IT value in terms of lower cost of ownership via eliminating maintenance, infrastructure and license costs. New operating models and streamlined processes come alive with the technology available on the market today. Providers, patients and supply chain staff can become more engaged with the use of mobile and digitized technology that simplifies interactions at the point of need. Scanning supply receipts and picking of goods at point of use, matching and reconciliation of invoices, and automating patient scheduling for streamlined demand flow are just a few areas where technology enablement provides explicit value. In fact, technology-enabled processes has been shown to unlock efficiency savings of 38 percent. The holy grail, however, is the ability to digest large volumes of data for analytics that provide proactive and contextual insights for faster and more accurate decision-making. The reality is most organizations tie up precious resources gathering and reconciling information that is mostly outdated by the time the analysis is complete. The good news is that leading ERP systems provide role-based analytics that go beyond traditional reporting as well as deep AI capabilities, leap-frogging an organization’s decision-making capability, often producing more than 15 percent in additional efficiency savings.

Taking steps to maximize value across the supply chain is quickly becoming the next big thing within healthcare ecosystems. To get started, healthcare organizations should assess their core supply chain processes and benchmark them against leading practices. Understanding the gaps and having context to identify and assign a value to opportunity areas will provide a good roadmap to prioritize optimization efforts. The results are tangible – often yielding rapid savings and positioning the organization to compete, especially in the current climate of disruption.

Author Bio:
Jeff is a Principal and leader of Grant Thornton’s Healthcare Operations Transformation Supply Chain practice. He brings 30 years of Healthcare and Life Science experience specializing in business transformation and process improvement in supply chain management, procurement, finance and human capital functions. Jeff has led some of the most complex global programs in supply chain management and procurement for Fortune 100 companies and through his work has helped his clients realize over $1B in cost and efficiency savings. Jeff is author of the book Maximizing Project Value: Defining, Managing and Measuring for Optimal Return, published by AMACOM (ISBN: 0-8144-7382-2), which is on reading lists for NASA, UC Davis, Project Management Institute and IBM. He has also published several white papers as well is an active speaker at industry events including HIMSS, PMI, AMA.

Prior to joining Grant Thornton, Jeff was Vice president at IBM where he led multiple service lines including: Digital & Business Transformation, Cognitive & Analytics, Change Management and Value Realization. In addition, he has held strategic business positions at PwC and Johnson & Johnson.

Education: B.S, Industrial Engineering and M.B.A. from Northeastern University; Executive Education Certificate from Harvard Business School in Strategy and Transformation

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