Case study analysis or company analysis related to dupply chain mangment
HEALTHCARE SUPPLY CHAIN MANAGEMENT
HEALTHCARE SUPPLY CHAIN MANAGEMENT
Rossetti (2008) defines supply chain management as the process through which suppliers, manufacturers as well as ware houses and stores are efficiently integrated in a manner that guarantees the production and distribution of merchandise in the correct quantities and their subsequent destination to the right locations in a timely manner. The organization process is not only meant to reduce system wide costs but also to meet the needs at the service level. The purpose of this study was to try to outline and further discussthe pertinent issues that relate to inventory management within a typical healthcare supply chain. Particularly, the report focused on areas that offer better chances with regard to minimizing costs and upholding high standards in service delivery. First and foremost, the report sought to review the status of the healthcare industry in Gulf Cooperation Council (GCC)together with accompanying reforms that have characterized the sector over the past few years. Of meticulous focus was UAE which is one of the members of the GCC. The report aimed at giving a detailed review of the existing literature with a deliberate focus on the alternative approaches in managing the value chain of healthcare in UAE. Of particular interest also, in this study, was to understand the grey areas with regard to UAE’s public healthcare and point out the areas that have the capacity to alleviate astronomical costs related to healthcare management should satisfactory research be conducted.
The proposed measures include adopting new products with technological inclinations especially in cases where such products are likely to have an immense impact on the existing supply chains. The adoption of improved demand forecasts for better service delivery while reducing the inventory at the same time is expected to not only boost the country’s economy but also make healthcare more affordable to the Emirates. Further, better inventory management techniques that leverage on derived demand will be considered for application in the healthcare supply chains.
Lambert et al. (2006) observes that countries that make up the Gulf Cooperation Council –United Arab Emirates, Saudi Arabia, Qatar, Oman, Bahrain and Kuwait — are poised to face unprecedented and unparalleled rise in healthcare demand in the next few years. The spending on healthcare is also projected to rise threefold as the region seeks to treat affluent disorders that are currently on an upward trend. The ease of access and availability of healthcare in government run clinics and hospitals remains overly wanting (Health Authority Abu Dhabi, 2009). Most of the facilities have been found to lack the necessary managerial skills required to effectively run them – matters are even much complicated and worse especially among hospitals accommodating patients with terminal diseases like heart diseases, diabetes and cancer. It is almost an accepted norm that the UAE government is either unable or poorly prepared to meet the healthcare needs of the aging members of its population.
Concept Evolution, Historical Background, Current Trends and Context
The past two decades have witnessed an increase in studies aimed at understanding operational issues related to the general management of supply chains in the UAE (Lambert et al., 2006). A good number of the research work has focused solely on multi-echelon inventory forms. In this context, the management of multi-echelon inventory the coordination of various distribution processes and inventory review at different levels of the supply chain was with a view to enhancing competition while at the same time meeting customer requirements. Such changes are visible within the healthcare sector in UAE and the larger Gulf Cooperation Council. Consequently, the purpose of this report is to not only outline but also discuss critically all the issues relating to the management of inventories in healthcare supply chains. This will entail an in depth examination of the organization processes touching on operating models along supply chains. Further, research topics that seek to enhance management of inventory within healthcare supply chains will be interrogated.
Toba et al. (2008) argues that supply chain management falls into two main categories – inventory management on one side and distribution on the other. In addition to the two areas many supplementary critical decisions like facility location, procurement of materials and adaptation to system or environmental changes among others are equally required to effectively streamline the process. In spite of inventory management as well as distribution being among the fundamental aspects in retail environment, they’ve been seen as low value areas when it comes to healthcare management (Rossetti, 2008). On the contrary, recent researchers have proved, beyond reasonable doubt, that a good chunk of potential revenues and cost savings could be possible with improved inventories and distribution systems. Both (Rossetti, 2008 & Toba et al., 2008) agree that, a hospital could considerably reduce its expenditure by approximately two percent through enhanced distribution and inventory management.
PROJECTED PERCENTAGE INCREASE IN HOSPITAL BED DEMAND BY 2025
Figure 1: Data adapted from (Lambert et al., 2006) Healthcare: Challenges and Opportunities, Gulf Cooperation Council.
HEALTHCARE EXPENDITURE RATIOS TO THE GDP AMONG GCC COUNTRIES
Figure 2: Adapted from Ram, 2014, ‘Management of Healthcare in the Gulf Cooperation Council (GCC) countries with special reference to Saudi Arabia’, International Journal of Academic Research in Business and Social Sciences December 2014, Vol. 4, No. 12 ISSN: 2
Description of the Supply Chain Practices
Towards the end of the twentieth century, healthcare developments involved both horizontal and vertical integration, management of care pressures, restructuring of federal reimbursements as well as growth in e-commerce (Ram, 2014). Horizontal flow was used to examine the traditional vertical but functional structures with a view of identifying activity interconnection right from the suppliers, through the organization then to the end recipients, customers(Thompson et al., 2010). According to Ram (2014), however, more changes relating to healthcare supply chain management have since followed these developments. To start with, provider institutions like hospitals and related systems have been integrated vertically into the business of health insurance through internal health maintenance and ambulatory support practices. This has witnessed the development of integrated delivery networks where attempts for downstream integration have been deliberately designed to capture patient flows in addition to insurance premiums. Secondly, significant attempts have also been made to horizontally consolidate every major stakeholder into the existing value chains(Lambert et al., 2006).As a result, a number of hospitals have merged to form formidable hospital systems or even joined other established systems. Thirdly, there is the rise in e-commerce that has impacted majorly on the way trading partners communicate amongst themselves. Importantly, transactions have been speeded up through the incorporation of web technology in quest to enhance product and information visibility along the supply chain (Ram, 2014).
The Main Supply Chain Drivers
Supply chain drivers fall into two main categories(Gulf Cooperation Council, 2014). The first category, referred to as logistical drivers is made up of the inventory, facilities and transportation where the second category referred to as cross functional drivers is made up of product information, sourcing in addition to pricing. Among the GCC member states, with particular regard to healthcare management, the major supply chain drivers have been identified as information provision, facilities handling, transportation as well as inventories (Ram, 2014). Notably, at Qatar Teaching Hospital the inventory and the resultant inventory costs have been found to increase with a corresponding increase in the number of facilities. However, as Dittmann (2015) cautions, rare settings have been witnessed elsewhere in which case, increase in facilities points to a loss in the economies of scale for inbound transportation, this means an increment in facilities is likely to translate to a direct increase in transport costs. This is because a consolidation of the facilities available allows a given firm to fully leverage on economies of scale. It is for this reason that the total logistical costs involve a summation of transportation, inventory and facility costs incurred in the chain supply network (Rossetti, 2008). However, this number has got to be balanced carefully to ensure the available facilities help minimize total logistical costs as has been witnessed in Qatar Teaching Hospital. For any given firm or institution to effectively exploit this phenomena for optimum pricing of its products in quest to sustain profit margins, then deliberate efforts have got to be made in sourcing the right and up-to-date information with regard to the nature of healthcare supply chains. Gulf Cooperation Council (2014) explains that reliable information structures ensure the retailer is able to avail the correct customer data even when the inventory remains at the custody of the manufacturer from where the product is sourced.
Figure 3: Adapted from Gulf Cooperation Council, 2014, Healthcare and Public Health Sector Government Coordinating Council Charter, Gulf Cooperation Council, UAE
The Supply Chain Process
Purchasers (Distributors)e.g. Group Purchasing Organizations (GPOs)
Healthcare Service providers (Retailers) e.g. Physicians, Pharmacists, Hospitals etc
Manufacturers for drugs, major stakeholder into the existing value chains devices etc
(Customers)Payers e.g. government, employers, patients etc
Raw Material Suppliers
1 Administration fee
2 Service fee
University of ArkansasInventory Management Issues in Healthcare Supply Chains, Figure 4: Adapted from (Rossetti, 2008)
Analysis of the Supply Chain Process
Typically, a healthcare supply chain constitutes a rather complex network made up of different parties at varying stages along the supply chain process. As Rossetti (2008) opines, the players, in this case, fall into three major categories – Raw material Suppliers, product manufacturers, product purchasing organizations (wholesalers who are often seen as the ultimate distributors) and healthcare service providers. Manufacturers concentrate on making the products; distributors and GPOs aggregate a number of hospitals in the quest to leverage economies of scale and still fund joint operations using distribution and administration fees. Often cases, manufactures will comprise of the people making the drugs and the medical equipment used in the administration of these drugs. The manufacturers get the raw materials from which to produce the product from the suppliers; therefore, this group forms the first cohort in the supply chain. The third level is made up of the distributors who purchase products directly from the manufacturer and it includes Group Purchasing Organizations (GPOs). This group then forwards the products to the retailers (healthcare service providers) who then handover the goods or services to the end user, customer. In this arrangement, the healthcare service provider i.e. the hospital consumes the products in its quest to provide healthcare services to the patients whereas the financiers (employer or the individual patient) foot the bill for the services rendered. It is within these healthcare supply chains that various products like drugs and related devices are stored, distributed and eventually morph into healthcare provision to the individual patient (Gulf Cooperation Council, 2014).
Supply Chain Strategy cum Distribution Network
Though a number of distribution strategies have been employed across the world in sourcing and distributing cargo, member countries of the GCC have commonly relied on one of the most fundamental distribution strategy often referred to as direct shipment where products or goods are obtained directly from the manufacturer then sent to the end customer or even the retail stores (Lambert et al., 2006).This strategy is preferred by powerful and big retailers who make use of fully loaded trucks to beat the critical distribution aspect i.e. lead times. Moreover, the distribution strategy that is direct shipment has been found to be overly advantageous in that its lead times are low and the retailer is pretty able to avoid the expenses that are associated with the operation of an individual distribution centre. However, according to Dittmann (2015), the strategy is disadvantages in that it negates the effects of risk pooling with increased transport costs on part of the manufacturer and the distributor as well.
Retailers and Customers
Ram (2014) argues that retailers and customers make up the commonest design of healthcare distribution network within the GCC member states where the inventory is kept at the local retail stores. This means customers have the option of either placing orders online or even picking them physically right from the retail stores. However, this comes with storage which has been found to considerably and unnecessarily raise the inventory costs; commonly, this affects the fast moving items whose local storage has been found to result in marginal increases with regard to the inventory (Gulf Cooperation Council, 2014). The good thing is that transportation costs are much lower due to the inexpensive transport modes applied in replenishing retail store products. Nonetheless, in this case facility costs are much higher owing to the high demand for local facilities. Further, since customers, simply walk in to place their individual orders, the information infrastructure required is quite minimal though order visibility remains an extremely important aspect in this case. Lambert et al. (2006) opines that since returns are handled at the site of pick up, returnability has always been high enhancing better revenue collection among the healthcare service providers. The biggest advantage noted with the use of local storage networks has been the low delivery costs coupled with faster responses.
Gulf Cooperation Council (2014) points out that the stakeholders in the supply chain need to be informed of customer needs and wants in order to address them accordingly. The council further observes that customers need also to be informed about the available products so that they can order what satisfies them since the supply chain and its stakeholders do not have all what people need therefore they must get it from external suppliers. This is evident in UAE healthcare system where customers have occasionally raised concerns over poor communication with players in supply chain (Ram, 2014). Further, as Thompson et al., (2010) observes, product influence customers’ choices and reflects preferences quality and attitude towards a supply chain. There should, therefore, be a wide range of products for customers to choose from based on quality and price regardless of the time or place of need. Customers should be able to receive information of products clearly and get them faster after ordering.
Key Aspects of Customer Satisfaction
Rossetti (2008) observes that customer satisfaction within the healthcare industry has been found to have a direct bearing on the revenues collected by the healthcare service providers. Further, he notes that the profitability of any delivery network is based on the ability to satisfy customer needs while at the same time managing costs. However, Gulf Cooperation Council (2014) argues that there are specific organizational elements which have a direct influence on the distribution network and consequently have to be incorporated in the quest to enhance the quality of healthcare among GCC member states. One of them is the response time which is the time lag between customer placement of a need and the subsequent delivery of the product or service. Secondly, is the product variety that entails the different product configurations dictated by customer requirements from the distribution network. Thirdly, is the product availability which determines the possibility of having a product ex-stock by the time a customer order is received. Fourthly, is customer experience which is defined as the ease with which customer instructions are received and executed without unwarranted delays. Fifth is customer visibility which refers to the customer’s ability to take track of their orders right from order placement to the delivery. Lastly but not the least is return ability which basically is used in reference to the ease with which a client is able to communicate and have poor quality or unsatisfactory merchandise returned and replaced on a timely manner.
Benefits, Costs and Risks of Healthcare Supply Chain Practice
Gulf Cooperation Council (2014) points out that a number of both direct and indirect measures are likely to bring in more benefits when incorporated in the Healthcare supply chain. The indirect measures will include: collaboration with world’s experienced hospitals; initiation of stringent regulatory reforms and partnerships with the private sector. The direct measures that could as well be included in restructuring the system will include: availing good on demand and up streaming of customer information.
According to Gulf Cooperation Council (2014), despite the immense benefits that are likely to come with a fully developed healthcare supply chain, a number of drawbacks have continued to raise their ugly heads. To start with, the bottom up flow of information as well as the consultative forums, normally, do not auger well with the senior executives. As Dittman (2010) observes the top members of the management prefer the status quo and consequently frustrate any measures that are likely to either alter or shift their power bases. In addition, regulatory initiatives by governments are much likely to frustrate market share for insurance companies and thus eat into their profit margins (Lambert et al., 2006). In the event that insurance providers are denied the opportunity to explore unlimited market shares for their benefit packaging there is real risk of sales volume dwindling hence making it difficult for such companies or institutions to record meaningful profit if any. In the long run, some of these insurance service providers may be forced to close shop prematurely leading to massive job losses and leaving a section of the populace vulnerable.
Further, it is important to appreciate the fact that the healthcare value chain, as described, is characterized by glaring and inherent flaws (Rossetti, 2008). This is because third party GPOs are able to negotiate in place of providers under manufacturer’s financing based on sales percentages. This state of affairs raises serious questions with regard to the competence for a GPO in negotiations since the better the negotiations are, the lower the resultant revenue potential gained from the producer or manufacturer. Since the chief full-service distributors have a tendency of operating based on distribution fee percentages, the distribution fee of a small sized but fact moving item would cost the hospital dearly when compared to a bulk but slowly moving item. Matters aren’t even helped by the fact that major producers are also in the distribution of the same products giving them a rare opportunity to leverage on the self manufactured goods and consequently discount the fee associated with the distribution processes. More often than not, such distributors cut the level of inventory for competing products on knowledge that they can support substitutes for stock outs with profitable and self manufactured products. Such a trend could easily force hospitals to resort to readily available supplier of manufactured goods, however inferior (Lambert et al., 2006).
UAE/GCC Trends in Implementing the Healthcare Supply Chain Practice
The Gulf Cooperation Council has already instituted several healthcare reforms by way of restructuring the insurance requirements across member states (Dittmann, 2015).The aim of the council is to provide affordable basic healthcare packages to the general populace with an aim of making it virtually free in the long run. Moreover, as Dittmann (2015) observes the respective GCC governments’ move, aimed at making healthcare services affordable to all, by regulating premiums charged to the citizenry as well as foreign expatriates has been successful.
Collaboration with the World’s established healthcare service providers — Some of the hospitals that have benefited from the initiative for Healthcare include Qatar Teaching Hospital that is under the able support of Cornell and Emirate of Abu Dhabi Cancer Centre at Tawam which operates in collaboration with Johns Hopkins Hospital in the US (Gulf Cooperation Council, 2014).
Initiation of regulatory reforms — policy regulators across the GCC countries have moved with speed to initiate comprehensive regulatory reforms that will standardize the quality of healthcare (Gulf Cooperation Council, 2014). This has gone a long way in weeding out incompetent service providers who have, for decades infiltrated the county’s healthcare sector. Consequently, services are not only timely but also efficient and affordable to the common citizen.
Partnerships with the Private Sector — the governments of GCC countries have also established formidable relationships with the private sector to ensure quality standards of healthcare services are provided to the citizens. This is one of the initiatives that have streamlined the supply chain to a considerable extend as products are not only produced to the same quality but also supplied from centralized sources making shipment processes cheap and efficient (Dittmann, 2015).
Competitive Factors in Healthcare Supply Chains
Healthcare related products, just like any other Consumer Packaged Goods (CPG), force companies to engage in unending battles as they seek to gain and retain market share as well as claim space in the retail shelf (Toba et al., 2008). Bearing in mind that one of the key weapons in gaining the upper hand is use of price points, dealers on healthcare products have sought to leverage on lean logistical operations in their unrelenting quest to provide cost assurance (Rossetti, 2008). Since packaging and branding decisions are made by marketing and sales departments before flowing upstream, in absence of logistics and packaging professionals, resultant inefficiencies often contribute to cost inflations. Design for packaging, has nevertheless been improved and made considerably possible among the GCC countries by way of product standardization which guarantees product quality across board (Health Authority Abu Dhabi, 2009).
Table 5: Adapted from (Lambert, et al., 2006) Healthcare: Challenges and Opportunities, Gulf Cooperation Council
GCC Projected Increase in Treatment Costs by the year 2025
Design and Implementation of Healthcare Supply Chain Practice – Direct but Key Issues in Ensuring Lean Practices
Dittmann (2015) opines that the building and management of a lean supply chain encompasses a number of attributes – six in total. These aspects are key in enhancing a lean and effective supply chain that not only minimizes wastage of limited resources but also guarantees affordable and timely access of services or products by prospective customers. One of the major attributes of lean is to ensure that services or products are only availed when there is need for them – based on demand from the final customer. In the quest to ensure effective management of demand, there is need to use data right from the point of sale which is then conveyed upstream through all the members of the supply chain. This involves the downward reception of customers’ demands which are then converted to a usable product by the upstream partners. Secondly, we’ve waste reduction and cost management which necessitates careful balancing to avert negative impacts on the customer. This aspect covers resources like tangible materials, time and process redundancy. Thirdly, is process standardization. This attribute is very important as it facilitates continuous flow (of both products and services) within an institution or company and consequently forms an important characteristic of any lean production process. It is through the standardization process that flow is regularized by way of eliminating unwarranted complexities in the supply chain. Fourthly, is the adoption of the prevailing industry standards. Process or even products among business partners can still lead to unnecessary losses; this is because homogeny leads to the loss of a products proprietary nature rendering other competitive factors like efficiency of supply chains more important (Rossetti, 2008). It is for this reason that most companies as well as institutions are obliged to differentiate themselves from their peers by being unique in product or service presentation. The fifth element that cannot be wished away easily is the prospect of cultural change among the supply chain partners. This necessitates close collaboration between upstream suppliers and customers downstream. The management must first understand the concept and accept it before it is imparted on the general workforce by way of inclusive discussions and consultative meetings. Last but not least is the cross-enterprise collaboration. This aspect entails the incorporation of teams that are not functionally focused or oriented on the activities of mother organization. Instead, these teams have got broader perspectives and only pursue that which is right with respect to the supply chain (Thompson et al., 2010).
Table 6: Adapted from Dittmann, JP 2015, Best practices for managing cost in the healthcare supply chain-Part 1, Global Supply Chain Institute at the University of Tennessee healthcare.ups.com
Ways of Reducing the Inventory
Avoid Spoilage of Products
In light of the myriad challenges facing the healthcare supply chain management in UAE and the GCC at large, I draw and propose the following recommendations to healthcare management executives:
Ensure automated shipment notice (ASN) of all inbound receipts. According to Ditttman (2015) such an initiative will guarantee timely notification of distribution centers of any deliverables since it is sent in electronic form. In the long run, inventory accuracy will be improved considerably and receiving costs reduced.
Careful balancing of costs against customer satisfaction. This is because, as Thompson et al., (2010) argues, in most cases, reverse logistics that is normally treated as an afterthought in many institutions provides an opportunity for a company or institution to objectively gauge the quality of services rendered to clients.
Embrace ABC Zoning or profiling since this serves as a prerequisite to efficient and satisfactory operations (Ram, 2014).
Select the appropriate automation level so as to accurately fill orders from customers. Voice picking could be an appropriate technology to apply in this case.
Gross docking where items are received from the manufacturer and sent out the same day eliminating the need for a warehouse.
World over there is already a growing concern over healthcares cost that have continued to skyrocket with each passing day (Lambert et al., 2006). It is against this backdrop that healthcare supply chain professionals must be in the fore front when it comes to matters of cost management in their companies or institutions. This calls for careful balancing between the two main aspects that define supply chain management – effective and efficient customer service and the management of the inventory. By so doing, shareholder value will be greatly improved by way of enhanced cash flows.
However, it should be understood that supply chain management has never been an easy task but just like its counterpart, lean manufacturing, it’s a destination is usually worth the walk (Ram, 2014). It’s a journey aimed at increasing awareness with a view to improving the modes of operation. Importantly, from the discussion it is clear that inculcating these attributes among all the involved parties, in healthcare supply chain management, will go a long way in not only reducing healthcare costs but also serve to strengthen the global economy!
Dittmann, JP 2015, Best practices for managing cost in the healthcare supply chain—Part 1, Global Supply Chain Institute at the University of Tennesseehealthcare.ups.com
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