Signs You're Underinvesting in Supply Chain

Have you ever heard the idea that “cheap is expensive?"

That's not just a line to sell you extended warranties on electronics. It's a concept that also applies to your approach to hospital supply chain management.

Supply chain leaders have been backed into a corner in recent years—cutting investment in many areas, including supply chain management. And in the face of an exploding pandemic, this made sense. But as many of the threats to your organization are leveling out, it's likely time to rethink and refresh your approach to supply chain management strategies.

Issues like inefficiency are incredibly subtle, depleting your resources in ways you likely can't even see. Consider that nurses have been found to spend 58% of their time on indirect care activities. As the cost of nursing professionals has risen, this means this “normal" inefficiency is costing more by the day.

You're likely sitting on multiple opportunities to revive your supply chain—but before we get into that, let's cover some red flags that signal a need to take a new approach to your supply chain strategy.

Your staff is stressed

Clinicians need every chance they can get to relieve stress. Even before the pandemic, physicians were experiencing rates of burnout that were twice as high as in other fields. Things have only gotten worse in recent years. Almost one out of every three nurses is considering leaving the field—an exit that's being fueled by burnout and stress.

The concerning news is that your supply chain might be a contributing factor. Several studies connect work-related stress with work process inefficiencies—meaning that if your staff is stuck unnecessarily digging and searching for supplies, you've likely got a problem. Unfortunately, around 80% of the hospital C-suite think they're doing a good job managing the supply chain—but at the same time, 86% of nurses say their existing supply chain documentation systems are a source of stress.

When your staff doesn't have the time or mental space to take a critical look at supply chain processes, they miss opportunities to uncover savings.

Your margins are suffering

This is an almost universal warning sign. The American Hospital Association (AHA) reported in March 2022 that hospital and health system operating margins dropped by a staggering 11.8% in February and year over year, by 26.7%. The source, Kaufman Hall's Operating Margin Index, reports that margins came in at -3.45%—a number that's improved, but still sits below sustainable levels.

For a lot of these hospitals and health systems, there's a good chance their supply chain management practices could be a contributing factor. For example, a McKinsey study found that using Artificial Intelligence (AI) in supply chain management could cut forecasting errors by 20% to 50%—an improvement that can help address workflow efficiency and reduce the expenses that come from over-ordering.

Variation and waste are out of control

This is a pretty blatant one, but worth covering on its own. If your staff isn't able to identify and use items before their expiration, you likely have an opportunity to see a serious return on investment (ROI) from improved investment in your supply chain.

You'll find a similar opportunity in physician preference items (PPI) that are unnecessarily high cost. But also take a look at hospital-wide standardization, especially in categories like surgical PPI. Since it makes up 40%-60% of a hospital's total supply cost, a lack of standardization here can be a glaring sign of missed opportunity.

Inefficiency is everywhere

This is a recurring theme, meaning it should be a priority when you examine your potential improvements in supply chain management—after all, 42% of clinicians of report supply chain as their biggest time waster.

Inefficiencies are a major sign that your supply chain is dragging down organizational performance. For example, supply disorganization is a primary driver of delays and inefficiencies in the operating room (OR). This means that supply chain management platforms that improve process efficiencies can result in increased operating room throughput, which, in turn, boosts revenue. For instance, if your OR nurses are leaving patients during procedures to run down supplies, you might be sitting on untapped potential. To move forward, look for opportunities to reduce and optimize the time your staff spends on supply management and simplify time-consuming clinical workflows.

The ROI for supply chain improvement is clear

The good news is that even if you're seeing all of these red flags, you've already got a strong business case—supply chain management is something hospital executives know pays off.

A pre-pandemic survey of 100 healthcare C-suite and supply chain executives found these leaders report that supply chain management improvements can increase margins by more than 1%. They also believe that the ROI of supply chain analytics is unmistakable. Of those executives, 52% said it can increase margins by at least 1% to 3% and a full 35% believed it could increase margins by over 3%. Meaning that a hospital that sees $900 million in revenues could realize a boost of between $9 million and $27 million just by refreshing supply chain performance.

The survey also found that many hospitals were not using data analytics to identify areas for improvement, instead relying on low-tech approaches like Excel or other Microsoft tools to track margins on a per-case basis.

But this was the state of things before the COVID-19 pandemic. For many organizations, the potential improvements are likely even greater today. For example, healthcare logistics solutions have evolved to provide more insight into shipping spending, offering huge opportunities to ensure savings optimization and program compliance.

The AHA weighs in on a solution

The answer to all this, according to the AHA, is a strong and reliable medical supply chain. It suggests solutions including:

  • Supporting advancements in reuse and reprocessing technologies, such as Sustainable Technologies, a Cardinal Health business
  • Developing and adapting data standards to support early detection and mitigation of shortages
  • Moving away from a “just-in-time" approach to supply chain logistics
  • Investing in virtual inventory technology that supports product visibility and monitoring supply capacity

As the AHA continues to encourage the federal government to offer more support, start exploring solutions such as our healthcare supply chain optimization services which open the door to people and process workflow optimization.

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