To Protect Patients and Revenue, Look to Supply Chain Resiliency | Deloitte US has been saved
By Paul Kreder, principal, and Jeff Petry, managing director, Deloitte Consulting LLP
A resilient supply chain that ensures patients and clinicians have access to the right supplies at the right time could help to improve everything from job satisfaction to revenue. Rather than waiting until supply chain challenges occur, we encourage hospitals and health systems to be proactive and build a resilient supply chain.
Key components of a resilient supply chain
As architects of Deloitte’s Health Care Supply Chain Management program, we have found that risk-mitigation strategies can sometimes lack prioritization and funding. Health care organizations are dealing with staffing shortages, low volume, and tight margins. But supply chain risk-mitigation can be a value-driver for health care organizations. (High-margin elective procedures are often the first to be cut when supplies start to run short.1) Our team—along with a group of six (and growing) progressive health systems—has identified several factors that can be essential for a nimble, responsive, and resilient supply chain strategy. These factors include the following:
Identify potential risks early
Digital tools such as machine learning (ML) and artificial intelligence (AI) have the potential to help humans identify potential risks and make better-informed decisions. Our CentralSight monitoring tool uses ML and AI to scour more than 1 million news sources. It evaluates potential threats through an array of 24 Risk Lenses—across 40 distinct and relevant supply categories—and alerts users of potential risks. Everything from geopolitical issues to labor issues to regulatory hurdles are considered. Last fall, the threat of a potential rail strike increased after major unions rejected a proposed contract with the rail companies.2 We identified 10 product categories that were at a high risk of wide-scale disruptions if a strike occurred. We then advised our health system clients to consider investing in at least a three-month safety stock of key and critical supplies.
Here’s another example: In the fall of 2021, our monitoring program spotted a potential national shortage of supplies used for phlebotomy. Our team identified alternative supply options and verified the suppliers. One of our clients stockpiled 120 days’ worth of supplies to help ensure that medical procedures would not be disrupted. By the time the broader market found out about the shortages, the primary manufacturers had already put all provider customers on allocation. This meant there was no longer an opportunity to stockpile or even receive outstanding orders. At the same time, some unverified third-party suppliers started to see opportunity. Some of them increased the price of the supplies by five times the normal price. The early warning resulted in $450,000 in cost-avoidance for one health system alone.
The pandemic underscored the fragility of the supply chain across many industries. The health care sector might still be trying to recover from the effects of the COVID-19 pandemic on its supply chains. This may make it difficult for some health system leaders to invest in the resiliency of their supply chains. However, we urge hospitals and health systems to take a proactive approach to their supply chain, rather than wait for something to go wrong. Now might be the time for health care organizations to develop better visibility into the risk of their most critical supplies and suppliers as a healthy supply chain could help support better revenue, stronger margins, and improved patient care.
Acknowledgements: Michelle Colacion, Ryan Nangle
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1 Supply chain strategies needed: fewer elective procedures, higher costs, HealthLeaders, September 30, 2021
2 Possibility of a nationwide rail strike looms as another union rejects deal, National Public Radio, September 21, 2022
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