Published April 26, 2022
The COVID-19 pandemic wreaked havoc on the entire healthcare industry, with hospitals suffering from staff and supply shortages and rising hospitalizations and costs. According to Kaufman Hall’s 2021 State of Healthcare Performance Improvement Report, 100% of health systems faced challenges with clinical staff, including filling vacancies, early retirements, wage inflation and high turnover rates, while 99% experienced supply chain issues in procurement, including shortages of key items and significant price increases.
While the pandemic exacerbated these issues, supply chain management has been a sore spot for health systems for some time. Supply chain costs are the second largest expense for hospitals—only behind labor—representing over 37% of total patient care, according to Gartner. Optimizing the supply chain not only reduces costs, but also helps hospitals minimize disruptions and improve patient care. One way health systems can achieve supply chain optimization is by implementing a self-distribution strategy using a consolidated service center (CSC). Below are four ways a CSC model can help hospitals achieve significant cost savings, avoid stockouts and provide better patient care.
Space and Volume Savings
In addition to being highly limited, on-site storage space can be extremely expensive, with hospitals costing anywhere from $400 to $800 per square foot, according to Statista. Building a regional distribution center costs approximately a quarter of that per square foot, and warehouse rental rates—despite reaching a record high last year—are just a fraction of the cost, with CBRE reporting an average of $9 per square foot. According to the Health Industry Distributors Association (HIDA), a 90-day supply of personal protective equipment (PPE) for a 350-bed hospital requires approximately 5,700 square feet—the equivalent of 13-15 tractor trailers. Utilizing a CSC enables hospitals to maintain additional safety stock while maximizing on-site space for revenue-generating operations. With more storage space available, health systems can also leverage their entire network to buy supplies in bulk at a much cheaper cost.
Transportation Costs and Efficiencies
Hospitals aren’t immune to the driver shortages, capacity constraints and rising shipping rates that are plaguing supply chains worldwide. By taking control of their transportation, health systems can streamline deliveries from the CSC to each hospital or clinic within the network, reducing traffic congestion on campuses and freeing up hospital staff to focus on patient care. Establishing a private fleet to deliver directly from the CSC can also help ensure supplies arrive on time while eliminating expedited shipping fees and reducing wasteful, extra trips.
Realizing the full benefits of a self-distribution model requires the use of a robust software platform. A warehouse management system (WMS) and order management system (OMS) can optimize the picking process based on what each facility, floor and par room needs. This reduces labor, increases inventory accuracy and enables health systems to track and transfer inventory across the entire network. Additionally, with end-to-end real-time visibility and decision making, health systems can reduce waste and costs by identifying redundancies, slow-moving supplies and products approaching expiration. A comprehensive platform can also provide data on product usage and trends to help hospitals better predict demand and ensure they have the right products available at the right time.
Personnel and Patient Care
Supply chain issues are causing further strain on existing labor challenges, including ongoing staff shortages and continuing COVID surges. According to the latest Cardinal Health Hospital Supply Chain Survey, nearly three quarters of frontline providers say that searching for supplies has the most negative impact on workplace productivity. Additionally, in a recent survey by Syft, 86% of nurses said their supply chain processes cause them significant stress, with one in five revealing that they have even considered leaving their current job due to supply chain problems. As many hospitals are providing pay raises to attract and retain workers, this can significantly impact their bottom lines. Leveraging a CSC relieves hospital staff of wasteful and costly supply and inventory tasks so they can spend more time with patients.
A CSC can help health systems increase supply chain resilience, cut costs and improve patient care. As with any supply chain optimization project, implementing a self-distribution strategy requires proper planning and executive support to ensure success. Contact us today to learn more about how a CSC can improve your healthcare supply chain.