As 2022 culminated, the healthcare industry faced major challenges heading into the new year. Hospital gross operating revenues were down 1.2% year-over-year, while expenses were up 7.6%. Meanwhile, supply and drug costs were up a whopping 20.6% and 28%, respectively. As a result, more than 65% of hospitals were operating in the red.
At a time of chaos and uncertainty in the industry caused by everything from inflation to supply chain shortages, healthcare supply chains must strive for high-reliability performance.
Within the high reliability framework – as we discussed in October during Prodigo Solutions’ 7th Annual User Conference in Nashville – there are three guiding principles that must be evidenced: responsiveness, compliance, and efficiency. To be responsive, the supply chain must anticipate and respond in real-time to demand, supply, and financial disruptions. A compliant supply chain matches products to their intended use, identifies preferred sources of supply, and negotiates the best cost. An efficient supply chain streamlines the movement of a product from the point where it’s produced to where it’s consumed. Transactional efficiency eliminates the friction and overhead in supply chain movement of both physical and digital assets, and involves compliance across clinical, operational, and financial workstreams as well as automation, or connecting the dots inside and outside an organization.
At our present moment of uncertainty, being resilient requires proactive planning to align supply with demand and managing risk across the supply chain by sharing forecasts with key stakeholders, driving behaviors that deliver results, and understanding how trading partners impact service performance.
Additionally, healthcare supply chain has renewed its focus on sustainability and responsibility. This involves item-level considerations such as packaging, waste, and eco-friendliness as well as understanding how well vendor relationships align with the values of the communities the supply chain serves.
The top two business drivers for a digital supply chain strategy are improving the customer experience and reducing costs – which, when considered against the backdrop of our present national and global challenges, are a difficult combination. But there are ways in which the supply chain can find its balance amid competing priorities.
As we now head into 2023, here are six priorities that high-reliability supply chains must emphasize to ensure we advance our cost, quality, and outcome objectives.
Broaden the Span of Control for Supply Chain Across All Spend Categories
Supply chain discipline should be applied to purchasing activities in nontraditional procurement categories – such as pharmacy, purchased services, durable medical equipment, capital, research, and lab supplies – that have historically been managed within the departments that consumed them or have been difficult to administer through traditional sourcing activities due to the variability of demand and challenges involved in matching the contract to the invoice amount.
Broadening the span of control increases the percentage of an organization’s spend across all spend categories and purchase channels that are managed by its procurement department. This requires expanding the footprint of spend that is under the supply chain’s visibility and responsibility.
Shape Demand on Thousands of Purchasing Decisions
The supply chain must direct preferred buying decisions on thousands of purchasing decisions being made every day, while at the same time helping requesters to feel empowered with information that they are making the best choices that are compliant with the organization’s procurement policies.
Shaping demand also involves extending the supply chain’s control across an expanding continuum of care – acute, nonacute, clinics, offices, and direct-to-patient care – and responding to demand shortages and disruptions with prescriptive actions.
Rigid Formulary Control at the Point of Service
Rigid formulary control entails both standardization of the procurement process as well as the standardization of suppliers, items, and prices to ensure coverage across the demand footprint while limiting rogue options and centralizing all purchasing channels.
Health systems must strike a balance for their users between control and giving them options where applicable. During Prodigo’s latest User Conference, attendees identified the need to find an appropriate balance between exposing more approved items, so end-users have flexibility to select preferred, contracted items, and a “less-is-best” strategy that can result in increased special requests.
The critical steps for supply chain are to orchestrate demand in real-time based on factors such as product shortages, supply disruptions, and contract conversions while at the same time enforcing compliance from the front-end of the procurement process.
Improve Data Integrity by Streamlining Data Maintenance
The supply chain is the entry point for data flowing into and between internal and external stakeholders, so supply chain is the de facto gatekeeper to ensure integrity and interoperability of item and price data.
Data integrity is strengthened by improving master data management workstreams – such as item adds, edits, and deletes – to ensure the accuracy and completeness of the data. Additionally, operational efficiencies are gained through end-to-end integration of the data and by enforcing data quality across the transaction lifecycle.
Drive Efficiency Through Automation and Integration Across the Ecosystem
During the recent User Conference, half of the attendees polled cited automation as their top priority for the supply chain in the coming year. Operational efficiency is gained through the interoperability of supply chain data between external partners and internal clinical, financial, and operational systems. It is important to keep data agnostic and autonomous between the data publisher and subscriber.
Become a Data-Driven Supply Chain with Actionable Decision Support
Being data-driven means that the supply chain engages organizational participation in the actions it needs to drive to achieve the performance objectives it sets. It must understand how the dials it controls ultimately orchestrate the outcomes it is pursuing.
This includes increasing stakeholder visibility to drive performance improvements and engaging those who are – both positively and negatively – impacting operations based on valid data-driven evidence.
Proven Solutions
The path to high reliability is a journey. Each of the steps taken on this journey leads toward maturity. We will explore each in greater detail in an upcoming series of six articles on the high-reliability supply chain. As a trusted partner for many of the nation’s leading health systems, Prodigo has developed proven solutions to address today’s healthcare supply chain challenges and to help clients obtain the perfect order – the right item, at the right price, from the right vendor – every time.