The transformative hospital supply chain - balancing costs with quality (page 1 of 3)

"In the MENA region, healthcare accounted for 3-5% of GDP in 2008 and has been rising rapidly at an average annual rate of approximately 15% since 2005. The region's healthcare systems, like many others around the world, has so far been unable to develop a successful formula for providing high-quality, universally accessible healthcare at a cost that is sustainable over the long-term," said Jad Bitar, a Principal with Booz & Company.

Containing Costs and Improving Care

Successful hospital supply chain management (SCM) is the capability to execute broad functions—from planning to working capital management—that are involved in obtaining any product or service that hospital staff needs to care for a patient. Implementing SCM can help to contain costs while improving care; in hospitals, SCM covers medical and non-medical items as well as operational and capital expendi-tures.

Maturing Hospital SCM

"Hospital administrators strive to improve operations in their facilities because of the far-reaching, broadly positive impact it can have. Administrators should look first to streamline and optimize their hospital's supply chain, which accounts for between 20 - 30% of a hospital's budget," said Gaby Chahine, Partner with Booz & Company.

"Hospital SCM typically goes through three stages of maturity, and even in mature markets, few hospitals have made significant progress toward the most advanced level."

These stages are:

Foundation Model: The first and most basic model aims simply to ensure supplies are in stock. This often is a minimalistic SCM with a focus on operations and materials management and limited strategic capabilities. At this level, hospitals usually adopt a segmented approach, fulfilling each department's needs in a vacuum rather than taking a hospital-wide view, achieving few synergies or efficiencies across departments.

Optimization Model: This more advanced model uses a hospital-wide approach to reduce costs and improve efficiency. Hospitals take a more strategic approach to SCM, building capabilities that will allow them to improve supply predictability and control. This model mandates close collaboration among departments to reduce costs via hospital-wide synergies and economies of scale; it requires leaders in the supply chain function to analyze expenditures, outsource non-core SCM functions, and push for standardization to improve efficiency.

Transformation Model: The most mature SCM model is fundamentally different from the optimization model, aiming to balance cost control with patient outcomes. Organizations that operate under this model typically have engaged in cost optimization efforts and now realize the importance of focusing on increasing overall value for the hospital. This is a daunting prospect, given the inherent contradictions of reducing costs while improving outcomes and satisfaction. But SCM organizations can rise to this challenge by adopting a collaborative approach, especially with clinicians. The goal is to engage them in identifying items that offer the best outcomes for patients based on evidence compared to costs. This collaborative model hinges on strong governance structures, such as establishing product standardization committees.

In sum, hospital SCM models can evolve and shift focus from simply ensuring required items are in stock to developing integrated processes and systems that aim to reduce costs, improve efficiency, and enhance patient safety and clinical outcomes.

The Transformation Model in Practice

Three different enablers are crucial to facilitate the development of the transformation SCM model.