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3 Big Wins From Healthcare Companies To Contain Costs

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Healthcare costs hit the spotlight in a major way with the implementation of Obamacare in 2014. However, the cost spotlight shines even brighter now – especially with respect to supply chain costs.

A “Healthcare Supply Chain 2015” report from McKinsey and the Health Industry Distributors Association indicates that provider organizations expect reimbursement cuts to force reductions in operating margins of up to 30% through 2015. The report noted that “while all costs are on the table, supply chain is universally considered the top priority.”

Ted Stank, a professor in the University of Tennessee’s Haslam College of Business, and the Bruce Chair of Excellence at Global Supply Chain Institute at the university, believes supply chain management is a key weapon in the fight to better manage healthcare costs. “I am definitely seeing healthcare companies raising the awareness of the importance of the supply chain,” he says. “Developing new drugs and taking care of patients will always remain the top priority for healthcare companies. However, there is a daunting realization that they need to get their drugs to market and heal patients in a cost effective manner.

“C-suite executives are definitely feeling the pressure to look at both the top line and bottom line of the financials. This is ushering in a new a new era where today’s healthcare companies are proactively challenging the status quo in their supply chains. I see real progress coming out of these pressures because it forces organizations to drive innovation.”

Both UPS and DHL – big players in the healthcare supply chain – are responding with good advice. UPS’s latest Pain in the Chain survey compiles insights from more than 400 healthcare logistics executives across 16 countries.

DHL’s report, “The Smarter Cold Chain: Four Essentials Every Company Should Adopt,” also provides excellent insights.

Three Insights For Containing Costs

1. Treat your suppliers as strategic partners – not just vendors.

More and more healthcare and life sciences organizations are shifting from conventional transactional relationships to more strategic supplier relationships. The UPS report states that 57% of survey respondents are forming logistics and distribution partnerships and 52% are pursuing “vested logistics and distribution partnerships.”

Bruce Johnson, president and CEO of GHX, a software-as-a-service company with a mission to reduce the cost of doing business in healthcare by automating supply chain processes and improving visibility, stresses the importance of collaborative relationships in the healthcare sector. “Suppliers, partners and customers should form relationships with one another with each party performing a role in the supply chain, contributing to the movement of products, data or information and funds,” he said. “Having these great alliances with major players will keep costs down and profits up. Flexibility in contracts will allow for movement amongst these key players to continuously look for better options or a lower cost solution to high-ticketed or needed items.”

2. Optimize. Optimize. Optimize.

Across the board, healthcare organizations are turning to more advanced operational practices to help them optimize their supply chains. The DHL report emphasizes organizations are beginning to adopt insight-based Total Cost of Ownership approaches for understanding supply chain cost structure as well as the cost to serve new markets.

“It is easiest to think of TCO as an iceberg, with the direct cost – such as the invoice value of a service – representing only a fraction of the whole cost picture,” explains Jonathan Blamey, Vice President, Global Solution Design, DHL Life Sciences & Healthcare. “The hidden costs carry the real risk to the business.”

One way the pharmaceutical sector is tackling the issue is by constantly re-examining its cold supply chain, which is critical for biopharmaceutical medications that require temperature-sensitive logistics. Service providers are investing in innovative ways to reduce costs and damage for temperature sensitive products – all designed to reduce total cost of operations. For example, the UPS Temperature True suite of solutions is designed to decrease in-transit damage due to temperature fluctuations.

Many healthcare companies are also focusing on top line growth by expanding the countries they serve. This means working to strategically locate global healthcare distribution centers to help companies open new markets and get their products closer to patients. John Menna, UPS vice president for healthcare strategy, explains what the company is doing in this area. “UPS is making significant investments in our Forward Stocking Location (FSL) network in the U.S. This network enables surgical medical devices to reach more than 80 percent of U.S. hospital beds within four hours.”

3. Proactively drive compliance efforts.

Product security and regulatory compliance is a paramount issue in healthcare – especially in the pharma industry, which has been under pressure in many countries with regulatory regimes to impose new compliance standards and measures. Regulations such as the European Union’s Good Distribution Practices (GDP) and Brazil’s strict serialization law make compliance a top priority. In fact, regulatory compliance ranks as the top supply chain concern among healthcare companies in the UPS survey.

Proactively driving compliance efforts can reduce risks, which in turn can significantly reduce costs. DHL is responding by making investments in their supply chain network.  “In our physical network, we have Certified Life Sciences Stations close to major airports that operate to our GDP [Good Distribution Practices] standards and act as an extension to our customer’s own compliant network,” notes Michael Terhoeven, Vice President Strategy and Development, DHL Life Sciences & Healthcare. “These Certified Stations ensure that the customer’s temperature-sensitive products are held, handled and forwarded under the controlled conditions set out in the SOPs (standard operating procedures) that are compliant with government regulation. At destination, the station receives the goods, and the process of managing and monitoring against the agreed-upon SOP continues to the point of delivery.”

 Supply Chain Costs Don’t Need To Be A Tough Pill To Swallow

Stank – who is also the Immediate Past Chair of the Council of Supply Chain Management Professionals (CSCMP) and an educational advisor to the Health and Personal Care Logistics Conference (HPCLC) – encourages companies to get involved with organizations such as CSCMP and the HPCLC. HPCLC is a 90-plus-year-old organization consisting of senior supply chain managers from leading healthcare firms such as Pfizer and J&J that meets twice a year to identify and discuss ways to improve healthcare logistics. The Health Management Academy also provides an excellent opportunity for healthcare practitioners to dig deeper and network on supply chain opportunities.

Stank asserts, “These types of forums provide excellent venues for healthcare supply chain professionals to come together to find new and better ways to manage their supply chains. While individual organizations compete at the company level, all healthcare companies are facing a common challenge of how to better manage costs.

The more collaborative we are as an industry, the quicker we will solve the tough challenges we are face .”

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