Optimizing Supply Chain Performance in Healthcare a unique initiative
Imagine that you’re lying flat on a gurney being raced from emergency through long hospital corridors. You’re about to enter the operating room and the orderly says, “I want to tell you that we run a just-in-time facility. We don’t stock large supplies of scalpels, gauze, needles or sutures. But trust me, everything’s here when we need it.”
You might be concerned. After all, using a just-in-time environment may be an easy decision for many industry sectors, this isn’t the case when people’s health is involved.
Many of the techniques used to improve supply chain performance in other industries are not so easily applied to hospitals and healthcare. The healthcare industry in Canada is unique, and the differences extend beyond the care of people’s lives. These public institutions have controlled revenue streams, strict levels of privacy and security, and different missions and mandates than private corporations. Consequently, optimizing supply chain performance in the healthcare industry requires a highly strategic approach.
The Need for Change
Hospitals have traditionally maintained on-site storage of medical and surgical supplies. But in this era of severe budget constraints, supply chain performance in healthcare is receiving increased attention. In November 2001, the Ontario Hospital Association issued its Task Force Report on Supply Chain Management. This excerpt from the report’s Executive Summary highlights the need for supply chain reform:
“The Report indicates that Ontario hospitals are not taking advantage of the cost savings and risk reduction opportunities embedded in the Healthcare supply chain and that, on balance and over time, the savings far outweigh the costs. This report seeks to make supply chain reform a priority by: examining why Healthcare lags behind the private sector; identifying the areas and amounts of savings available; and estimating the impact of supply chain management ‘best practices’ on efficiency improvements, reduced costs and reductions in medical error.”
When an institution’s core purpose is patient care, it’s a challenge to invest in the development of supply chain infrastructure and logistics technology. Therefore, when hospitals have initiated supply chain reform, and many Canadian hospitals have done so, they sometimes outsource to third party logistics providers.
In the mid-1990s, University Health Network and Mount Sinai Hospital, both of Toronto, outsourced their stores operations. University Health Network is an umbrella organization that supports the patient care, education and research programs of Toronto General Hospital, Toronto Western Hospital and Princess Margaret Hospital. The outsourcing program that serviced the four hospitals proved successful, achieving significant cost-savings in inventory, administration and logistics.
The program, however, had room for improvement. Due to the nature of the outsourcing relationship, the operation involved a limited number of SKUs. Also, after several years, the savings plateaued. So, in 2000, University Health Network made the decision to re-evaluate their existing logistics outsourcing business model.
Searching for a Solution
For assistance, University Health Network called upon THiiNC Logistics Inc., a Toronto-based provider of healthcare supply chain solutions. Together, they explored every possible option, including the search for a third-party organization that specialized in the hospital supply chain for medical and surgical products. The search did not reveal any organization capable of meeting all of the hospitals’ objectives. The team believed that with both internal hospital expertise and external supply chain and logistics expertise, best practices commonly applied to other industries could be adapted to the unique needs of the healthcare industry.
The resulting decision was to create a new company that would operate under a Public-Private Partnership between University Health Network and THiiNC Logistics. It was a solution that could also provide a future business opportunity — the new organization had the potential to meet the needs of other hospitals on a regional or national basis.
University Health Network hired THiiNC Logistics to manage the start-up. The initiative was dubbed Project PLUS, and the new company was named Hospital Logistics Inc. The company would provide supply chain services for medical and surgical supplies to the Canadian hospital market based on a 4PL model. Hospitals would benefit from high service levels and significant cost-saving opportunities.
Project PLUS began with a golden opportunity – Hospital Logistics could be designed from a blank sheet of paper. There were some parameters of course. The company needed to be an independent organization that operated at arm’s length from University Health Network. An infrastructure had to be built that could support a national business. And the new company needed to be fully operational in 10 months.
Two Breakthrough Ideas
Designing the strategic solution resulted in two breakthrough ideas: the nursing unit must be viewed as the customer; and the supply chain should be managed by a fully integrated technology platform.
Traditionally, the hospital has been viewed as the customer, which is one step removed from the end of the supply chain. Nursing units, clinics, and others order and receive supplies. In this model, the hospital would be the client and the various locations within the hospital the customers. Now, logistics responsibilities no longer ended at the hospital door, and Hospital Logistics Inc. would assume responsibility for managing in-hospital logistics staff. This unique element of the solution was enabled by the cooperative nature of a Public-Private Partnership.
Development of the second idea, an integrated platform, began with the need to make a decision between an enterprise resource planning (ERP) system or integrating best of breed solutions. A system evaluation team conducted an extensive vendor evaluation, searching for the optimum way to meet a diverse list of critical objectives. The solution had to be a seamless platform that provided rich functionality in all components, including Web-based applications. A flexible platform was necessary to support future changes in the supply chain and potential business opportunities, such as the addition of more hospitals. And perhaps most challenging, the system needed to be implemented within four months to support the overall project timetable.
The enterprise model was chosen and an ERP system was found that met the project’s strategic needs and goals. The evaluation team selected a Canadian company, TECSYS Inc., to provide the applications for Hospital Logistics Inc. This particular supply chain management software company was chosen for its considerable experience in distribution, and because of the features of its EliteSeries suite:
• TECSYS EliteSeries suite covers the complete platform, offering Enterprise Performance Management (EPM), Distribution Management (DMS), Warehouse Management (WMS), Transportation Management (TMS), and E-Commerce.
• EliteSeries suite provides all of the benefits of an integrated solution, while providing rich functionality in each module.
• The latest release of EliteSeries is built with the technological advantages of Web-based applications, which perfectly suits the project.
• The system supports the use of technology including Personal Data Assistants (PDA) for scanning of product in the hospitals and order creation, and Radio Frequency (RF) for all activities in the distribution centre.
As the EliteSeries suite was implemented, key modifications were made to the system for the in-hospital logistics activities (i.e. controlling the set-up, ordering and stocking of product within the nursing units). The result was a totally integrated solution – one system to control internal hospital logistics, the warehouse operation, inventory management, purchasing and financial management. This is unique in the healthcare industry in Canada. Until now, when a hospital chose to work with a third party logistics provider, different components of the solution ran on separate system platforms.
The only activity within the supply chain that Hospital Logistics does not control is managing product selection and contract negotiation with suppliers. In the industry today, individual hospitals negotiate prices with suppliers. Consequently, Hospital Logistics Inc.’s computer system is physically separated from the hospitals, and was designed with security features and database architecture that ensure that each hospital’s information and data remain strictly private. This information is shared electronically with each hospital.
All of this would mean nothing of course, unless the solution worked without compromising on service. This solution provides:
• a target of a 98.5 percent fill rate on 2,700 SKUs in a just-in-time environment;
• operation six days per week with orders being placed up to 4 p.m. and delivered the same day, beginning at 8:30 p.m.;
• rush service for emergencies.
Keys to the Strategic Solution
Public-Private Partnership combines internal hospital expertise with supply chain and logistics expertise.
Integrated Technology Platform results in a fully integrated end-to-end supply chain, starting with the nursing unit.
Stockless Inventory Program enables hospitals and the healthcare industry to benefit from cost-savings available to other industries.
Future Opportunities for Supply Chain Improvements
The Hospital Logistics operation will be fully transitioned for the University Health Network and Mount Sinai Hospital by October 2002. In the short term, the hospitals will benefit from new cost-saving opportunities and high service levels.
Over the longer term, this model holds the potential for continued value-added improvements in the supply chain. For example, data captured by the system will be used for vendor performance management and will enhance the ability to make purchasing decisions. Also, manufacturers and distributors could use the data and information to optimize their own operations and enhance the service they provide to hospitals.
Looking ahead, this supply chain model may help other hospitals and the healthcare industry on a national basis.