How 3PLs help hospitals and IDNs implement high value global sourcing programs
Global sourcing of common, commoditized hospital products delivers improvements in quality and clinical utility while simultaneously reducing costs and improving the patient experience. An increasing number of self-distributing hospitals and IDNs have made the strategic decision to invest in their own distribution centers to have more control over their supply chain including the personnel, warehousing and fleet resources. These are needed to realize lasting gains in transparency, cost control and quality control available by wresting control of their supply chains back from legacy distributors through self-distribution programs.
But without the warehousing and transportation resources required for successful implementation of self-distribution programs, many hospitals and IDNs believe accessing the advantages of global sourcing is out of reach. This is false.
We spoke with Brian Murphy, director for Ryder Supply Chain Solutions about how 3PLs can help hospitals and IDNs realize most of the benefits of self-distribution and global sourcing without having to make massive investments in staff, real estate and fleet resources.
ASP: Are 3PL relationships with hospitals vastly different from other types of customers?
Murphy: The first step for those health systems considering self-distributing was to look at their distribution relationships for opportunities to save money and drill down to control more elements within their supply chains. The traditional approach for those implementing a direct model was to jump feet-first in with money and time for warehousing, trucks, supply chain expertise, and processes around item standardization and change management.
3PL providers address all of the inherent risks for health systems, evaluating self-distribution opportunities and aligning perfectly with what we bring as value to any industry. The assets, expertise, and network of facilities are all available to "bolt-on" global sourcing without having to take on significant financial risk.
When you line up the challenges for large, self-distributing hospitals and IDNs, effective 3PL providers mitigate most of them "one for one."
ASP: How should a hospital CFO or supply chain manager evaluate and maximize a 3PL relationship, especially for first-timers?
Murphy: It's a build versus buy concern. What business are you in and how aggressive do you want to be with your resources?
In the world of self-distribution, organizations are making a fundamental switch in the way they manage their business. With respect to distributor markups and "rebates," hospital leaders are asking, "Why can't we do that ourselves?"
The biggest challenge in that shift is back-filling the pricey supply chain element that distributors provide. You could buy self-distribution "whole hog," including the cost of capital, fixed and sunk costs of warehousing, buy a new fleet, recruit and hire the supply chain expertise and staff, etc. Or, you could use a 3PL to 'buy by the drink.' This option provides organizational elasticity on fixed costs and gains on all the leverage that would have been sunk elsewhere while simultaneously providing access to the global marketplace through a partner like ASP Global.
ASP: What should the results of an effective 3PL relationship be for a large hospital or IDN evaluating or implementing global sourcing?
Murphy: When looking at warehousing and transportation, we've seen savings of 15-20% compared to customers looking to take on these functions themselves. For IDNs there is not only an opportunity for additional savings beyond what they should expect from going direct, but there is also the risk that is mitigated by employing experts who know how to implement warehousing and transportation technology along with starting up a complex warehousing and transportation environment. Additionally, when exploring the support of a 3PL, there are additional values that relationship can bring including; leveraging an existing warehousing network and creating transportation efficiencies by leveraging dedicated contract carriage.
There are multiple commercial options that an IDN can explore when working with a 3PL. Whether it be a fixed / variable, cost plus or cost per unit shipped, the IDN has input into a structure that makes sense for them. Our value provision is in operational support and the efficiency gains a customer can realize through sophisticated Lean practices. In some scenarios, where hospitals take on the operational management themselves, there is not enough support for continuously evaluating efficiencies - while getting orders out the door. A 3PL relationship solves that problem.
Net/net - Global sourcing experts like ASP Global fund the activities that we provide hospitals, health systems and IDNs through 30-60% savings on common, commoditized hospital products. We bring $6 billion in supply chain, logistic and transportation assets along with the execution on vision and strategy, based on the unique pressures of the healthcare industry. Any of the barriers or risks associated with self-distribution all revolve around things we fix.
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 that 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.