Supply Chain Efficiency in the Healthcare industry

Introduction

Healthcare in US is a major area with the country spending almost 16% of its GNP on healthcare costs. The healthcare industry is expected to grow and consume a greater share in the next few years. Hospitals are complex organizations providing a multitude of services to patients, physicians, and staff. These services include dietary, linen, housekeeping, physical plant engineering, pharmacy, laboratory, inpatient treatment (nursing units), surgery, radiology, administration, and others. In the national debate over how to make U.S. healthcare more efficient, one promising area for reform is often overlooked: supplies. Whether the products are knee implants, pacemakers, or expensive medications, hospitals have long purchased whatever doctors desired with little discussion among the parties involved about cost. Healthcare supply chain system is an extremely complex “adsorption model” that moves products downstream with limited visibility into product demand at the point of use. The outcome of the current model results in products that can be out-of-stock as much as 15 percent of the time. The pressures on hospital supply chains are changing too. In the past, a hospital that managed its purchasing costs well could operate efficiently. Today, the cost of materials management can exceed 35% of a hospital's operating budget, with nearly 20-25% attributable to supply costs alone. Despite the supply chain representing the second largest expense for hospitals after labor costs, within the provider side of the healthcare industry, accomplishments appear to be limited on the supply chain side of the operations. Thus, the supply chain represents significant opportunities. Consider the following key health care industry related findings which illustrate the supply chain as a significant area for operational