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5 Lessons Healthcare Can Learn from Refined Logistics Models

By Stephen Downey, Senior VP, Healthcare & Electronics, GEODIS

Stephen Downey, Senior VP, Healthcare & Electronics, GEODIS

There is enormous pressure on healthcare organizations to reduce costs and find efficiency in the supply chain. Healthcare can take lessons from more refined logistics industry categories for cost effectiveness, just-in-time availability, and supplier/end-user communication.

There are five critical areas where healthcare can learn valuable logistics lessons.

1. Consolidating Inbound: Major retailers don’t like receiving small parcel shipments. Ordering individual items may be necessary, so retailers use consolidation services to combine shipments. Often these are designated transportation carriers contracted by the retailer to run specific consolidation programs to receive shipments from a region of the country, bring them into their transportation stations, and combine them into larger shipments.

The individual shipments maintain their integrity and the shipping labels stay intact. Upon receipt, the retailer has one shipment to process, not thousands.

Think of a big box retailer’s product needs at each location. Consolidation services allow them to pay a percentage of shipping costs to the consolidation center, and then pay for one large shipment, rather than multiple small loads, providing meaningful cost savings in a tight margin business.

Given the time sensitive requirements of some healthcare shipments, consolidation would not work for emergency shipments. However, with proper planning for the ground shipment orders and the selection of a third party logistics provider (3PL), a consolidation-center approach could be beneficial.

"The communications between a manufacturer and the end-user are sensitive, given that a customer may switch to another provider and not return. But with open communication, patients are better served"

2. Advanced Shipping Notice (ASN): In addition to consolidating shipping, retailers want to know what is on the way, making the receiving process more efficient; ASN does just that. ASNs go from the origin of the goods to the retailer electronically with key information about the shipment, including tracking information, carrier-specific information, and what the shipment contains with part numbers, quantities, pallets, and weights. Retailers can then plan inbound space and labor by looking at the inbound ASNs for the day. Once the shipment arrives, the ASN is used to process the receipt. Receivers compare contents and can electronically file any discrepancies.

Compare that level of efficiency to a healthcare provider’s receiving dock. For most, blind shipments show up daily, with no visibility to what’s arriving and no way to electronically confirm the contents. Providing ASNs in healthcare logistics will allow healthcare providers to be better prepared for incoming shipments and assessing the shipment’s accuracy.

3. Supply Chain Data: Supply chains thrive on information. The most effective supply chains use demand-pull strategies. In retail, suppliers can tell how many of their items are sold in each store, at what price, and then correlate that information for forecasts. They can then decide to stock inventory closer to the customer and plan their logistics processes.

If healthcare providers built a supply/demand information pipeline with their suppliers, it would give both parties better information and allow for less inventory in the chain, helping lower costs.

4. Vendor Managed Inventory (VMI): Having inventory owned by the supplier at the point-of-use is an established concept in manufacturing lines. Systems recognize that the inventory is owned by the supplier, and trigger the supplier when an item is used. Suppliers know their product has a preference based on its prime-point location. They get key information on consumption and a reliable forecast based on manufacturing history, saving time and costs.

In healthcare, VMI is used on a limited basis with consigned stock. However, systems are not often configured to recognize neither this ownership nor are the usage clearly reported. The inventory is should be cycle-counted on a periodic basis and any discrepancies are trued-up per agreed-upon parameters.

5. Recall and Shortage Protocols: The relationship between a manufacturer and end-user may be the most important element in getting through a product availability crisis. Food and beverage suppliers are familiar with production challenges, recalls, or significant market fluctuations affecting their ability to meet demand. Supermarkets are told when organic milk supply will lessen so they can stock up other brands to substitute. They know consumers will go elsewhere if they aren’t prepared. Once the supply returns to normal, stores free up shelf space for those manufacturers, mostly because they trust them as partners and know that communication flows equally. The goal for both customer and supplier is a quick return to normal availability levels.

In healthcare, recalls are often large events with FDA oversight. Shortages of a vaccine or recall on drug or medical devices are handled with secrecy, leaving providers with no recourse for product supply. Given the long cycle for physician approval committees and testing, substituting alternate manufacturers may not be an option. The communications between a manufacturer and the end-user are sensitive, given that a customer may switch to another provider and not return. But with open communication, patients are better served.

Summary

Consolidating inbound, using ASNs, supply chain management, VMIs and communication during recalls or shortages are large potential cost savers and relationship builders in healthcare logistics. Many industries use these five proven process improvement methods to create a more effective logistics model. The healthcare logistics industry would benefit significantly by doing the same.

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