The Role of the Supply Chain in Healthcare

Mar, 2021 - by CMI

The Role of the Supply Chain in Healthcare

Healthcare is probably one of the most expensive industries in the US. With that in mind, medical facilities are always looking for ways to reduce healthcare costs to improve the level of service and provide quality and affordability at the same time. Operational expenses deliver a massive hit to the healthcare system every month, mainly because of the supply processes. The role of the supply chain in health care is very important, and it dictates both hospital business operations and the level of service. Let's see what the main problems are and how we can improve the supply chain in healthcare.

What is the supply chain in healthcare?

The supply chain in healthcare refers to managing supplies, packing and shipping medical equipment, and delivering products and services to healthcare providers and patients. It is a complex process that depends on multiple outside and inside factors.

The supply chain flow in healthcare includes an array of participants, from insurance companies, manufacturers, medical providers, hospitals, healthcare organizations, and regulatory agencies.

Why is the supply chain in healthcare so complex?

When we have so many parties responsible for a very complex process, it is crucial to understand that every stakeholder has their interests at stake. For example, a manufacturer's goal is to sell their products. However, the healthcare providers usually want to use specific products, and they don't want to purchase everything that a manufacturer offers. Or, they typically purchase from a different manufacturer. At the same time, hospital executives are in charge of the financial budget, and sometimes they cannot buy what the provider wants. Instead, they purchase more affordable goods and pick a manufacturer based on the cost of their products. Finally, we have patients who sometimes can afford a specific medicine or treatment and sometimes cannot. If a healthcare provider is too expensive, they will look for an alternative. If the medicine is too costly, they will ask for a cheaper substitute.

As you can see, we have four parties with different agendas, and they are all a part of the same supply chain process. That's where the complexity comes from.

The supply chain in healthcare from start to finish

To find an efficient solution, let's explain the entire supply chain process from start to finish.

The manufacturer of medical products is the first party. They produce items and supply distribution centers. Depending on the nature of the product, a distribution center or manufacturer can either sell it directly to the hospital or create a contract with a purchasing organization that later sells the product. That organization is usually the middleman between the hospital and the manufacturer.

Once the purchase is complete, the logistics department dealing with healthcare-related shipments delivers the products to a healthcare organization. They stock the inventory and distribute medical equipment and other products to healthcare providers and patients. A healthcare organization must keep track of everything and make sure that every party receives essential medical products.

While all of that is happening, there is another party working in the background. Those are regulatory agencies, like Federal Drug Administration. A regulatory agency's role is to give the green light to a medical product. If they don't find it fit for the consumers, the product cannot be sold. Furthermore, depending on the nature of the product, the FDA also decides if the healthcare providers will be reimbursed when selling a product.

How to improve the supply chain in healthcare?

Before we can look for a solution, let's discuss some of the common cases that the supply chain issues can cause:

  • hoarding of medical products by the providers;
  • prioritizing specific products from a particular manufacturer;
  • piles of out-of-date products;
  • delays in the delivery of supplies;
  • dealing with the invisible costs when the providers manage their own supplies without informing the hospital;

When we have misaligned actions within healthcare supply chains, the problems will snowball and cause significant operational and financial issues.

Cost transparency is a must

One way to start dealing with the issues mentioned above is to provide cost transparency to all parties. This will allow for a more open and flexible process of inventory management. Furthermore, it enables the executives to re-evaluate contracts with the manufacturers and organizations and develop a solution that will help reduce costs while providing the same level of care.

The benefits of a supply chain management software

The only way to have complete insight into all the costs and processes is to use supply chain management software. Versatile features allow transparent and straightforward management of orders and inventory. At the same time, you can forecast future demands based on the current orders and consumer requirements.

Automation of the hospital processes

Providers need insight into inventory levels, consumer demands, and product consumption. By introducing automated processes, they can streamline orders, use a more efficient entry system, and increase the communication of all the departments within a hospital.

The internal communication processes

All departments within a hospital need to work on communication. The idea is to reduce redundancies and waste and boost performance while cutting costs. The supply chain affects all departments, and a delay in any of the processes will cause a chain reaction. With that in mind, the communication must be on the level, so everyone receives information when a problem occurs.

Better customer care through improving the supply chain in healthcare

As you can see, the role of the supply chain in healthcare is to move the products from a manufacturer to a provider while passing through the streams of different parties. Finally, the providers must receive all the goods on time to properly treat patients. Furthermore, the level of supply chain management directly affects the level of customer satisfaction. With that in mind, make sure that there are no hiccups in any segment and promptly deal with any problems. The health of the patients is at stake.