What Are the Best Ways to Control Costs in the Healthcare Supply Chain?

Healthcare Supply Chain
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Healthcare companies have always had healthy margins, but those margins are now at risk due to the industry’s changing landscape. Healthcare businesses realize that they need to find solutions that will allow them to manage their operations more efficiently. To promote process improvements, they need to increase product security and improve supply chain efficiency all within the regulation plagued healthcare industry. To do this effectively, healthcare companies need to improve their visibility to make smarter decisions that integrate the entire supply chain.

Reforms continue to force businesses in the healthcare industry to find other ways to increase effectiveness and cut costs. Many companies overlook the supplies and processes required to keep them going. After labor, which is the largest and fastest-growing expense for healthcare providers, the supply chain costs are second. However, supply chain management is the key to creating better visibility into the products, supplies, and devices that are used in healthcare. With the right third-party logistics provider, they can get better visibility and save time within the supply chain.

Supply Chain Best Practices to Control Costs

When it comes to managing a supply chain in healthcare, it’s not just about the supplies anymore. The matter has grown more complex to involve more partnerships, consolidation, and technology within the logistics community. Since it is important to save more money and remain efficient at the same time, we present you with some of the most effective ways to improve cost savings in the healthcare supply chain.

Manual processes should be automated

A supply chain is error-prone, and costs may arise in data collection, ordering, and other processes. Healthcare companies that want to reduce supply chain expenses should find ways to automate as many manual processes as possible to eliminate the risk of human error. By automating invoices, purchase orders, and requisitions, suppliers and providers will be able to remove manual processes, which often lead to higher costs. Some healthcare organizations are turning to eCommerce solutions as a way to automate manual processes. Others are establishing partnerships with 3PL organizations which are already equipped with the software for capturing and managing data throughout the logistics process.

To automate manual processes, companies can benefit from expense management software. This can create important connections across functions and organizations to provide better data visibility, enabling them to manage it better and avoid errors resulting from data that was incorrectly entered into the system. The key to reducing costs includes accurately capturing data at the beginning, including accurate charge capture, demand forecasting, inventory management, comparative effectiveness management, and recall management. By utilizing technologies that provide various systems benefits healthcare companies can save money and invest their savings into personnel and equipment that enhance patient care.

Reducing waste

With these technologies, suppliers and providers get a clearer picture of how much product is needed and when to take their supply chain data and turn it into actionable information on supply use and levels. This can lead to less product loss due to expired, missing, or wasted supplies, which means more savings. Through better analysis, planning, and control of the purchase and use of goods, many healthcare providers can reduce supply chain costs by 5-15%, which translates into a revenue increase of 2-7%. This can be achieved by using streamlined programs that allow organizations to track and monitor their product inventory thanks to instant access to product, order, pricing information, and enhanced inventory tracking and visibility.

Accurate data capture for driving greater compliance and efficiency

The right technology can help accurately capture and share data necessary to drive greater compliance and efficiency. For example, if a healthcare company accurately records data about the medical products and devices used during a certain patient procedure, it can use the data to populate that same information in other areas (e.g., electronic health record). In other words, the data that has been captured once can have a multitude of applications, driving greater efficiency.

How can healthcare providers achieve this? They can do it by identifying:

  • What products they most frequently purchase and at what prices;
  • What products are purchased off-contract
  • Like-products and determining if they can group them onto contracts for future purchases;
  • Assimilating these items onto supplier or GPO (group purchasing organization) contracts.

With accurate capture of data, organizations can lower costs (due to better contract alignment), reduce errors to achieve significant savings, as well as use more accurate data to help the business run more smoothly.

Establishing efficient partnerships

Healthcare providers can benefit from establishing the right partnerships with their trading partners and third-party logistics providers. Customers, partners, and suppliers should build relationships with one another, and each party should have a specific role in the supply chain. This ensures everyone contributes to the movement of data, products, and funds, all with the aim of getting the product to the patient (end-user). Keeping the contracts flexible allows the players to move, continuously looking for lower-cost solutions or better options. These kinds of partnerships keep the profits up and costs down. Creating an efficient healthcare supply chain is always the result of a collaborative effort; it’s not a one-player game.

Treating Inefficient Healthcare Supply Chains

Inefficient delivery systems and processes are a major contributor to increasing healthcare industry costs. The universal complexity of the healthcare supply chain is a significant driver of overall costs. However, there are ways to reduce costs and efficiencies in healthcare logistics that enable the delivery of quality healthcare at a reasonable cost.

While other industries have implemented order accuracy controls, electronic ordering, product scanning, and other processes to improve their supply chain’s efficiency, healthcare manufacturers, distributors, and providers still struggle with a large error rate and lag behind. If practitioners run out of a certain product, they often reach out to the supplier and place a rush order (otherwise, they risk disrupting service). This may lead to stockpiling to make sure they won’t run out again in the future.

Lack of data standardization is an issue that must be addressed because it’s a common barrier to maximizing the efficiency of a supply chain. Healthcare providers may use up to one-third of their annual operating funds to support their supply chain needs.

Hiring a third-party logistics company can be of great help and is an excellent way to address these important issues. It does come with some associated cost, but once the quality and efficiency of processes improve in other areas (thanks to the help of your third-party logistics provider), total costs will go down. Your supply chain will operate more efficiently, fewer products will get spoiled, and the overall investment can lead to increased savings.

By making some of these changes, healthcare providers will undoubtedly benefit from addressing the pain points in their current supply chain. In 2018, reports showed that healthcare spending consumes 17.7% of the U.S. GDP, and it is expected that they will keep rising. To meet evolving customer needs, these pressures will cause healthcare providers to change their supply chain strategy. In turn, this could mean that more will rely on third-party logistics partners.


In terms of logistics and supply chain, the healthcare industry is not as mature as other industries that have been feeling the pressure of increased cost for years. Since it is projected that healthcare will grow from 18% of GDP to 26% in the next 20 years, healthcare organizations need to find ways to control and reduce their costs. They are trying to forecast and identify their needs for 5-10 years from now, and we are seeing more organizations forming groups to work together. They are also looking for third-party logistics partners to bring in the expertise and lessons learned in other industries with cost-conscious and tight markets.

Teaming up with the right 3PL can help healthcare organizations lower costs and identify long-term solutions. For many healthcare companies, this puts the focus on improving visibility while making the supply chain leaner.

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