The healthcare sector faces extraordinary pressure to improve customer service, material handling, and inventory management while also increasing cost savings. Due in large part to declining reimbursements for their healthcare services, healthcare companies need to look for opportunities to reduce costs without decreasing the quality of patient care and clinical operations.
The prime targets for cost-cutting measures are medical devices, and many healthcare providers are asking device manufacturers to reduce their prices. Medical product and device manufacturers need to meet these demands. Fortunately, some supply chain solutions can help healthcare companies face these challenges and meet these demands. Partnering with 3PLs (third-party logistics companies) is the key to minimizing healthcare costs without sacrificing the quality of care.
Meeting the Changing Requirements in the Healthcare Industry
Lowering logistics costs is just one of the many benefits of working with the right supply chain partner. For example, healthcare companies with temperature-sensitive shipping requirements can leverage the logistics provider’s existing infrastructure, advanced technology, and streamlined processes.
Medical manufacturers and health organizations can achieve cost reduction by eliminating inefficiencies and waste in their supply chain. To make that happen, there are several operational and “cultural” shifts they will have to make.
First, they will have to make their supply chain more streamlined by reducing the number of touchpoints to minimize product handling as much as possible. Furthermore, they will have to increase transparency so the products can be tracked better as they move from the manufacturer to the patient. While this requires investments in product-tracking technology, the long-term result is a reduction in transportation costs. Next, healthcare organizations will need to set aside more resources to meet growing regulatory requirements and stay compliant.
The healthcare supply chain is unique and, therefore, more complex. Expertise in healthcare logistics is essential for staying ahead of critical regulatory changes that make it challenging to achieve compliance. These changes are happening quickly, and just in the last five years, many 3PL companies have reported a huge increase in regulatory inspections of pharmaceutical supply and medical warehouses.
When we say cultural shifts, we mean aligning the culture of the healthcare supply chain to meet the new healthcare challenges. Let’s begin with flexibility – the supply chain must be designed to be adaptable enough to create new solutions that can support the growing changes in healthcare, from hospitals to more cost-effective locations (e.g., patients’ homes).
Also, the decision-making in the supply chain must be driven by data in order to be more insightful. This requires better use of advanced tools and innovations to establish clear demand signs that optimize inventory levels. Partners in a supply chain should find ways to be more collaborative to create more effective transportation and warehousing strategies. To manage constant changes in regulatory compliance, product complexity, points of care, warehousing, and transportation, the healthcare supply chain should be nimble and flexible enough to face disruption.
Ways in Which Logistics Companies Can Better Service the Healthcare Industry
While difficult to implement, combining best practices into a cohesive logistics strategy is essential to success in the fast-changing world of healthcare. Here are some ways partnering with a logistics provider can improve the quality of healthcare:
- Improving efficiency by taking advantage of 3PL’s or multi-tenant warehouses
The warehousing of medical devices has been fraught with inefficiency and waste. Each manufacturer builds its own warehouses and supply chain infrastructure which usually have excess capacity right from the beginning. At any given moment, warehouses may only be 60-70% full, while 100% of their infrastructure costs need to be maintained. Some manufacturers may even have two warehouses located just a few miles apart, or there may be several manufacturers in the same area – all with half-full warehouses. With increasing cost pressures, these approaches are unsustainable.
Third-party logistics providers can offer their own warehousing solutions or help consolidate an organization’s warehousing (combining inventory from several manufacturers in a shared or multi-tenant healthcare facility). This will eliminate any redundant expenses, which is critical in healthcare logistics. Regulations in the industry change frequently, so it is cost-effective to store products in a shared facility and share the regulatory costs with others.
- Access to technology
By hiring a reliable 3PL company, healthcare organizations get access to the technology necessary for automating and streamlining their supply chain. Equipped to share their technology with multiple customers, your 3PL can sustain maintenance costs and handle the investment upfront, passing the benefits on to you. Some of the beneficial technologies that a 3PL can provide include real-time order tracking, data analysis, reporting tools, route and consolidation optimization tools, freight audit and payment solutions, and transportation management systems (TMS).
Maintaining excess inventory for certain products is necessary because the health and lives of patients depend on them. Therefore, healthcare providers often require high fill rates. To achieve the top level of inventory availability, 3PLs can help by creating full visibility and tracking of products from one end of the supply chain to the other.
- Consolidating freight across manufacturers
Most freight in healthcare is transported via LTL (less-than-truckload) services, meaning that the trucks are rarely full to their capacity. Third-party logistics companies know that the most effective way to transport freight is at full capacity by combining shipments from multiple shippers whose products are heading to the same destinations. On top of that, consolidating freight means fewer product touches (compared to the traditional LTL approach), so there is less risk of potential claims and damage, leading to fewer losses and shortages.
- Industry and operational expertise
A third-party logistics provider specialized in healthcare logistics knows the best practices for the industry. They know the guidelines about pick-up and delivery windows, order configuration, equipment, scheduling, etc. They understand the needs of healthcare organizations and how to communicate them to carriers. This can make a tremendous difference in performance. Also, your 3PL has formed many industry relationships and transportation expertise within your sector, which can help improve your overall operations.
- Network capacity
Before a healthcare organization hands over a product to a driver or orders a product from a manufacturer, it must ensure that the product is in the right hands. Since vetting of carriers for qualifications, insurance, and equipment is a serious undertaking, you can rely on your 3PL partner’s already vetted, proven carrier network. Third-party logistics companies can help you secure more capacity because of their qualified network. If a 3PL is non-asset based, it has a diversified carrier base and maintains relationships with hundreds or even thousands of drivers. Thanks to their diversified network, 3PLs have access to numerous solutions and options, which can save you a tremendous amount of time.
- More time to focus on important work
When you allow a third-party company to manage your logistics, you have more time and money to focus on providing the best possible care to your patients (if you’re a health provider) or deliver medical products and devices (if you’re a manufacturer). A third-party logistics provider can help you eliminate the need to invest in staff, technology, warehouse space, and transportation to execute your supply chain management processes. Your 3PL partner will take care of staffing, auditing, optimizing, training, and improving various supply chain functions. The tasks that a 3PL can take off your plate include:
- Driver and facility communication
- Issue management
- Order tracking
- Appointment scheduling
- Identifying and booking the right service model and provider
- Performance reporting
- Billing and paperwork
Third-party logistics providers can help healthcare organizations build an efficient supply chain, saving them time and money. Implementing some (or all) of the practices we outlined here is challenging, and you will have to undertake operational changes – focusing more resources on compliance, gaining more transparency, increasing visibility in the supply chain, and becoming more streamlined. To support operational changes, healthcare organizations will have to become nimble, collaborative, insightful, and flexible.
In the long term, hiring a 3PL will help you better your services, and it makes it well worth the effort. Since healthcare organizations and medical-product manufacturers are experiencing increased pressure to reduce costs, the supply chain can be seen as an opportunity to source new savings and efficiencies through improving logistics.
When choosing your 3PL partner, make sure that they are innovating for the future. The services you need 12-18 months from now may be different than what you need today. Be sure to hire someone who is equipped to deal with the evolving needs of your industry.