In an effort to improve quality control, reduce risk and significantly decrease costs, an increasing number of large hospitals and health networks are launching full-fledged self-distribution programs. Recently, we learned Michigan based Trinity Health is among the latest going self-distributed in an effort to cut costs and gain control of their supply chain.
Going "self-distributed" is an industrial paradigm shift capable of saving large hospitals and health networks tens of millions of dollars every year. Forward thinking hospital CFOs and supply chain executives are also discovering that they are already using global sourcing in their hospital medical supply purchasing programs, but don't realize it. The problem is, those products to which they could have direct access through the same factories are still arriving on their shelves from distributors with markups of 20-50 percent.
Once the commitment is made and the warehouse is up and running, global sourcing should enter the mix. With accurate, visible data on products and pricing and a partner with the supply chain expertise needed to deliver common, commoditized hospital products to you direct from the factory, you can successfully add global sourcing in a stepped approach.
Both Beaumont Health and Banner Health are examples of hospitals investing in self-distribution and adding global sourcing to maximize that investment.
Step #1 - Pick off high volume bulk buys
Your highest volume products are your launchpad to global sourcing. Odds are you are receiving the exact same products through your distributor (marked up 20 - 50 percent) that you could receive at significantly lower cost factory direct or through a 3PL relationship.
Commodity products such as personal protection equipment (PPE) have negligible variability and are often great candidates for improvement. If your distributor can't provide full pricing visibility from the factory to your point of care, this is a indicative sign that likely means you are spending too much on those products and are ready for global sourcing.
A good metric for defining "high volume" products are those with a minimum 10,000 unit annual purchase, though many large hospitals will find plenty of opportunities in products of which they buy 100,000 to 1 million or more annually. Here are three qualities of hospital products ripe for big savings.
What are some leading, first-step specific products?
Stethoscopes, PPE (shoe covers, bouffants, face masks, etc.) and patient amenity kits are three of the most common hospital products our customers use to launch their global sourcing programs. These are products in which we see relatively low amounts of conflict among clinical staff as well.
"Our new [globally sourced patient amenity] kits are a 10x increase in quality with 30 percent savings," Kathy James, Clinical Supply Manager at Northside Hospital tells us. "Our global sourcing program generates significant savings every year through 30 high volume products and growing."
What are you going to need to do it?
You are going to need stakeholder driven program goals inclusive of value analysis and a close relationship with the clinical liaison, including alignment among purchasing executives. Additionally, unless there is an experienced global sourcing resource within the hospital system, you will also need a hospital supply chain global sourcing partner who knows how to get products from overseas directly to your location or 3PL partner.
The journey to quality improvement, risk mitigation, price transparency and massive cost savings through global sourcing is well within the capabilities of large hospitals and IDNs with self-distribution programs. It begins with a single step: pick off your highest volume products.
Step 2: adopting the inside-out model to product acquisition through clinician engagement for product improvement. Stay tuned!
About the author:
Lorne Tritt is Founder and CEO of ASP Global. With headquarters in Atlanta and operations in the Pacific Rim, ASP is a leader in global sourcing strategies and programs. ASP Global's programs enable IDNs, hospitals and large group practices to take advantage of lower costs and improved quality in hospital medical supplies available through direct sourcing, an efficient supply chain model and the global marketplace.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.