Transforming the supply chain for health care providers

Part 1: Making sense of a complex web

Posted by Eileen Radis, Paul Atkins, and Kurt Banas on December 17, 2019.

Supply chain is rapidly becoming a key strategic function across the health care provider ecosystem,  with a seat at the C-suite table. Providers increasingly recognize that an effective and efficient supply chain can improve the quality of care delivered to patients and generate significant cost savings for their organization. And they can see that trends such as cloud Enterprise Resource Planning (ERP), automation, and analytics are driving how supply chain is evolving and how this can generate even more benefits. In this series, we’ll look at how health care providers can tackle the challenges associated with supply chain transformation, starting with why an all-in approach that accounts for the supply chain’s many interdependencies is essential.

Supply chain is not a linear process, but a complex web of interrelated activities that need to be taken into account when transforming even a small part of its operations. Even more, supply chain actively engages physicians and is particularly impacted by the various ways and locations in which care is delivered.

Due to the complexity of supply chain and the interconnected nature of its parts, a single, comprehensive, multi-workstream transformation approach that accounts for supply chain’s many interdependencies is more effective than tweaking only individual aspects of the function. Only by taking a holistic approach can health care providers truly shift supply chain from a purely transactional department to one that can add strategic value to the organization.
Although not an exhaustive list, the following elements are critical for executives to address when transforming their supply chain function.

Vision & Strategy
Vision and strategy are vital and fundamental considerations for transformations of any kind, including supply chain.  Operational changes to any of the supply chain web’s­ components need to be aligned to the goals of the organization or you risk operations and strategy being out of sync with each other and potentially even working against each other. To be specific, supply chain’s vision and strategy need to align with overall organizational priorities, and it needs to be clear to everyone how they are related. For instance, if the CEO’s strategic priority is to “improve patient care” then supply chain’s goal should be to source the best products for high-quality care.

Operating Model
Because the operating model provides the structure that underpins how the supply chain functions, op model changes are indispensable when transforming supply chain. The operating model connects and “organizes” each of the many supply chain components and aligns to the supply chain vision. It’s also responsible for what executives often describe as the most difficult task in any organization: namely, ensuring that the right skills are in the right place across the right team members. The operating model plays such a big role in supply chain transformation that we will be focusing on it more closely in our next blog in the series, where we’ll look at the criticality of organizational structures, capabilities, decision rights, and other talent strategies.

Process & Policy
While the operating model prescribes the “place” of the various supply chain components, processes and policies (and governance) are the “glue” that sticks them together. Process and policy connect supply chain across the organization, including to other departments (e.g., accounts payable and legal). The effectiveness of clinical processes and the quality of care delivered to patients relies on supply chain providing the access to the right product, at the right time, for the right price. That means the processes and policies that ensure that access need to be taken into account when transforming supply chain. Streamlined processes are supported by clearly defined policies to create an efficient and effective supply chain facilitating high quality of care.

Enterprise Resource Planning Applications & Digital Tools
Supply chain ERP applications and digital tools, such as robotic process automation (RPA) and artificial intelligence (AI), may be the biggest opportunity for today’s health care provider supply chain functions. Moving from on-premises to cloud ERP solutions, for example, has a number of implications for supply chain. Among others, it means there’s an opportunity to standardize processes and policies. It also means that new data insights can be generated through more advanced analytics, and this, in turn, requires new operating models.

Distribution Strategy
The distribution strategy encompasses all of the physical processes and systems that enable products/supplies/drugs to be received, inventoried, fulfilled, and returned. It’s literally where the “rubber meets the road” in ensuring the right items are delivered to the right place and at right time. As a result, many supply chain executives realize there is tremendous value in leveraging the distribution strategy to increase efficiencies and effectiveness throughout the system. As with the other aspects of supply chain, the success of the distribution strategy depends on careful integration with the other parts of the supply chain web (e.g., ERP and processes & policies).

Strategic Sourcing
Strategic sourcing is important to ensure that the right products/supplies/drugs are available at the right time for use with the right patients. It is impacted by each of the supply chain web’s components. Heightened strategic sourcing efforts, for example, will require the establishment of a robust corporate value analysis function within the supply chain department, which is responsible for how health care organizations choose supplies, services, and equipment. Strategic sourcing requires a value analysis function that balances the ability to be agile and make quick (system-level) decisions with more strategic physician engagement. It also requires superior market assessment and benchmarking capabilities and a team that can efficiently and effectively negotiate and contract with manufacturers.

At the Center: Culture & Digital DNA
For the supply chain function to truly achieve high performance, not only do its interrelated components need to work in concert, but the people behind it also need to be in sync. Rather than working in silos or addressing only individual links of the supply chain, transformation teams need to be part of a single, comprehensive, multi-workstream effort to prepare the function for the future.

Executives should also be aware that the mind-set and ways of the organization need to shift, on both the leadership and the employee level. New behaviors need to be integrated into the culture, particularly behaviors that build the organization’s Digital DNA and start to shape and enable a digital enterprise. This is true not only for transformation teams but also for all staff within the function.

In our next post, we’ll look at the supply chain capabilities needed in the future, the operating model components that should be considered in times of transformation, and the factors that make a supply chain transformation a success.

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