What is the primary mission of logistics and supply management? It is to efficiently organize, plan, and coordinate the movements of products from the point of origin (manufacturer) to the point of consumption (in healthcare, the consumer is the patient). Aligning and analyzing supply chain goals with a patient-first approach enables healthcare providers and medical-product manufacturers to reduce their expenses while providing the best care possible to patients.
Logistics and Supply Chain Management in Healthcare Explained
A supply chain is a network of interconnected stakeholders and businesses that engage with a product, such as medical supplies, to deliver it from the manufacturer to healthcare customers. The goal of supply management is to connect all those networks and organize an efficient end-to-end strategy that improves shipping speed and reduces cost without decreasing the product’s value or quality (patient).
Logistics is the generating of detailed processes that map out and coordinate the complex transportation of products by providing reliable, safe, and timely shipping. It is the heart of any supply chain and focuses on coming up with innovative ways to facilitate the flow of information and products from suppliers to healthcare customers, throughout the manufacturing and distributing processes. It only aims to increase efficiency in its material handling solutions.
In other words, a supply chain involves all aspects of a product cycle, while logistics is a component of a supply chain that addresses efficient product movement. When a healthcare organization wants to create an end-to-end approach for delivering medical products, its supply chain is efficiently managed to produce the most value. When an organization has an optimal and transparent supply chain it is set up for better collaboration between stakeholders and partners. This successful working relationship leads to greater innovation and efficacy in their logistics solutions and provides the groundwork to confront any supply chain challenge.
Healthcare Solutions Reform and Moving to Value-Based Healthcare
Value-based healthcare is an innovative healthcare model that many healthcare organizations, pharmaceutical providers, and health insurers are trying to implement to improve patient health and reduce costs.
Value-based healthcare solutions are about making a shift from the quantity of care to the quality of care. We can define it as a healthcare model based on compensation for outcomes. In a traditional quantity of care or fee-for-service system, medical providers operate on a pay-per-use type of compensation system. In value-based healthcare, the overall health and wellness of patients are crucial to ensure compensation.
Instead of taking a reactive approach to the treatment of disease, value-based care takes a proactive approach. Many healthcare providers already include elements of value-based care in their health plans, and it is a focal point of trying to reduce health costs. The rise of chronic disease and larger aging populations are driving both developing and developed countries to implement more effective healthcare delivery methods.
Improvements in Supply Chain Management as Savings Opportunities
In healthcare, patients are the healthcare customers, and their desired outcome is improved health at a more affordable price. When an injured patient comes to the emergency room, he or she is not concerned with the healthcare provider’s equipment preference or how they can make a difference in their treatment or healthcare costs. They just want to feel better, heal, and improve. Healthcare products are unlike other products in many ways, making the healthcare supply chain different from that of a consumer product supply chain. Healthcare is highly regulated, and patients’ expectations are fluid, so their supply chain management system and logistics processes need to adjust quickly in order to be more effective and affordable.
The cost of managing a healthcare supply chain is frequently one of the larger costs realized by hospitals and other healthcare systems. Healthcare executives know that reducing healthcare supply chain costs, improving productivity, and gaining supply chain visibility are top priorities for their organizations. Improvements in the supply chain are one of the areas in healthcare to offer the biggest savings opportunities. Instead of just focusing on product costs entirely, the supply chain team focuses on invisible and distribution costs as well.
Furthermore, one of the biggest factors that affect supply chain costs are the healthcare providers and practitioners themselves. Healthcare professionals, surgeons, and physicians tend to have their individual preferences for the tools and medical devices they use. Basing your distribution center and inventory management decisions on healthcare practitioners’ preferences isn’t the most cost-efficient solution. Still, many organizations allow this to affect their warehouse management and purchasing decisions. Failing to update physicians’ preferences and a lack of uniformity can lead to excess product waste, inefficient use of supplies, and increased (invisible) costs.
Data collection and analysis is another important factor that can help improve logistics processes and reduce costs. It has become critical to understand how much it costs to provide patient care. The healthcare supply chain is one of the most valuable assets for collecting actionable data. The solutions needed for accurate data capture and analysis along the supply chain can provide better insights into product needs – stabilizing inventory, reducing waste, and bringing costs down. An automated logistics system and supply chain can support a higher level of patient care by improving patient outcomes.
Benefits of Investing in Healthcare Logistics
By investing in innovative and more effective logistics systems, companies can increase the value they provide by reducing both the time and money spent on product transportation from one point to another. For those seeking opportunities to improve their health system processes, a solid logistics foundation can facilitate reliable, timely, and safe delivery of medical products at a reasonable cost.
Daily logistics operations can vary but typically consist of tasks such as shipping, warehousing, and order processing. This may include air freight, air cargo, or ocean freight if operations involve global logistics. This may also involve partnering with trucking companies equipped to transport healthcare products. Furthermore, logisticians also collect and analyze data to deliver summaries to their supply chain solutions partners. This is done to increase the visibility of products as they move through the supply chain cycle.
To increase transparency and trust between logistics partners, all parties involved need to establish open communication lines and coordinate live tracking updates to improve customer support. In the health system, timing is everything because products are potentially life-saving devices. Therefore, your supply chain must run as effectively as possible to reliably ensure that products will reach your healthcare organization on time (without incurring additional costs).
Steps to Effectively Navigate Healthcare Logistics in 2020
From providing patients transportation (to and from the doctor) to delivering prescriptions, innovation in healthcare logistics can facilitate the evolution of your supply chain. Shipping, device sanitation and maintenance, storage and inventory management, and waste management are some of the biggest challenges in healthcare logistics. When dealing with frustrating, manual procedures (that must be carried out by healthcare physicians), increasing labor costs, and lack of efficient storage space, building an alternative logistics solution can be challenging.
Let’s take a look at several key solutions to the logistics challenges that healthcare organizations are facing today.
- Overnight product shipping
Many medical device and pharmaceutical companies are stuck with a one-size-fits-all mindset. Relying only on overnight shipping costs can add up over time, while the expectations for a faster delivery are rising on a global level. To meet the pharmaceutical logistics demand for overnight shipping, healthcare organizations experience higher costs. Furthermore, different products vary in demand, the value per unit, service expectations, and profitability, so relying on just one supply chain process with different characteristics causes inefficiencies (short supply for some products and high inventories for others).
This problem can be solved by leveraging a decentralized warehouse network that allows for cost-effective and faster delivery of medical products (even in urgent situations). With a lean supply chain, healthcare organizations can segment their product base by customer requirements and product characteristics to develop a more efficient transportation plan. And thanks to a decentralized warehouse system, they can fulfill orders with smaller and more frequent shipments.
- Lack of automation
Highly manual processes and a lack of visibility lead to increased costs throughout the supply chain. Organizations are not reaping the benefits of data-based decision making because they rely on manual data management and entry, which also leads to higher labor costs and a higher risk of inaccuracies. In the healthcare industry, we are facing a lack of data standardization, including data processes, interchange, and capabilities.
By automating their manual processes, healthcare providers can reduce costs that arise in data collection, ordering, and other processes. They can automate purchase orders, invoices, and requisitions, which will help them manage their data better and increase data visibility. Establishing a partnership with a 3PL (third-party logistics) company can help them easily automate these processes because 3PLs already have the technology needed to do so.
- Inventory shortages or excess stocks
Inventory shortages (as well as excesses) occur due to the unpredictability in the medical product market. Healthcare manufacturers must align their production cycles with the patient-demand patterns and manage the manufacturing frequency accordingly. Slow-moving products and long-lead times can lead to decreased visibility that doesn’t support the demand for some products.
However, the use of supply chain technology will allow medical manufacturers to see what products are on-hand and what needs to be supplied. The more transparency there is in the healthcare supply chain, the gaining of supply chain visibility becomes easier as does avoiding excess costs that result from incorrect inventory numbers. With this technology that can be provided by 3PLs, organizations will be able to prevent excess stocking of products, all thanks to the ability to track and monitor product inventory via increased visibility.
Technologies That Can Help Improve Healthcare Logistics
Today’s technology is experiencing exponential progress, meaning that innovative solutions addressing main pain-points in healthcare logistics are emerging faster and more frequently. To automate their supply chain management, healthcare organizations can rely on technologies such as:
- Product tracking tools
By adopting Auto-ID and Data Collection (AIDC) technology, you can improve the accuracy of data capture while automating the entire process. It will also allow you to track which patients use which products so that you can avoid stocking up on unnecessary products with short expiration dates.
- Logistics optimization tools
Since healthcare is expected to become more personalized and is moving beyond the walls of medical centers, healthcare organizations have started to leverage artificial intelligence and machine learning by adopting various AI-supported logistics tools. UPS and Amazon are some of the leaders in the development of these tools that are designed to help drivers to, for example, take the most optimal routes or get clinicians, patients, and products to the right locations at the right time.
- Smart logistics platforms
Real-time pricing services and freight bookings are some solutions that healthcare organizations can use to lower labor and material costs (in procurement) and boost their efficiency. Smart logistics platforms are designed to connect shippers and carriers, helping everyone involved reduce the inefficient and lengthy process of locating and booking new freight capacity.
By hiring the right 3PL provider, healthcare organizations can leverage their partner’s smart logistics technology to operate more efficiently.
- AI and IoT
AI is being integrated into different technologies because of its ability to leverage Big Data to predict healthcare patients’ future needs. In logistics, AI-based applications are used to ensure the availability of products by helping to predict shortages and backorders. Also, IoT applications bring their own benefits to healthcare logistics, allowing for faster and more accurate collection, analysis, and visualization of actionable data.
How Can 3PLs Help Improve Healthcare Logistics?
More and more healthcare providers are deciding to partner with third-party logistics companies specializing in healthcare. Some of the advantages that come with a 3PL partnership include:
- Access to smart logistics technologies
Third-party logistics companies already have the technology required for streamlining supply chains, and as their partner, you gain access to it. This means a more automated and streamlined supply chain management thanks to tech features such as transportation management systems (TMS), freight audit and payment solutions, route and consolidation optimization tools, data analysis, real-time order tracking, and more.
- Decentralized warehousing
Having a half-full warehouse is an unsustainable solution because you will need to spend money on maintaining the entire infrastructure, even the parts not being used. Third-party logistics companies have their own warehouse infrastructure you can use or they can help you store products in a shared facility. In both cases, this solution will help you eliminate unnecessary expenses and control your costs.
- Specialized logistics expertise
If you are not acquainted with the best practices and trends in healthcare logistics, hiring a 3PL that is specialized in healthcare logistics can be majorly beneficial in the improvement of your logistics process. Third-party logistics companies already understand your needs and have an established network of carriers and other partners, which will contribute to more efficient overall operations.
- Benefits of using a qualified network of carriers
A 3PL is most likely already in touch with thousands of carriers with whom it maintains good relationships. With such a diversified network of trusted personnel at your disposal, you can rest assured that your products are safe and sound in their hands.
Ultimately, a 3PL will take many daily and time-consuming tasks off your shoulders, leaving your health practitioners with more time to focus on the most important work – helping patients. Tasks like order tracking, driver and facility communication, performance reporting, and various administrative tasks won’t be required of your healthcare professionals anymore. At the same time, you will benefit from a more efficient supply chain management.
At a time when demand for quality healthcare is rising, healthcare systems across the globe face depleting resources. Governments and healthcare organizations face growing pressure to reduce costs while maintaining the quality of their services. According to the OECD and World Economic Forum, U.S. health expenditures are expected to increase by $3.5 trillion between 2010 and 2040. The governmental response to this trend means enforcing healthcare reforms and recognizing the need for improved collaboration with the private sector.
Establishing the right partnerships with 3PL providers and trading partners is one of the key solutions to this growing problem that is shaking up the healthcare industry. Each party involved should have a defined role in the supply chain cycle and contribute to creating a frictionless logistics system. Third-party logistics providers across the U.S. are partnering with healthcare organizations to ensure they’re able to meet their patients’ needs, despite constant changes in product shipment capabilities, aptness, and volumes. By providing time and cost savings, 24/7 access, and timely responses to shipment inaccuracies and delays, 3PLs are proving their value to the healthcare industry. Lean end-to-end logistics solutions often empower employees and increase productivity because they help build a culture of continuous improvement.
To conclude, the results of 3PL involvement in the healthcare industry are evident, and the benefits are long-lasting and wide-ranging. Healthcare organizations need improved flexibility, responsiveness, scalability, resourcefulness, cost-effectiveness, and trust in order to cut down on unnecessary supply chain costs.