One of the industries that has a very good international image for Thailand is hospitals and healthcare. The first priority is to offer good care to Thais, of course, but medical tourism also makes a significant contribution to the economy and the country's reputation.
Hospitals are businesses, be they publicly or privately owned. Both benefit from effective supply chain management (SCM) to enhance both customer service as well as cost effectiveness and profitability. In this column we will share our views on the industry, and then next time we will present a case study about how the Bangkok Hospital Group is progressing in this area.
The goal of a hospital logistics system is to efficiently deliver medical supplies and pharmaceutical products to care for the final consumer, the patient.
In hospitals, logistics does not just support services such as purchasing, stores, pharmacy and food services, but also patient-care units and operating rooms. Many activities that could be carried out by conventional logistics and back-office personnel are often performed by healthcare staff. The result is that the internal supply chain is often highly fragmented and requires intensive supervision and cross-checking. Logistics accounts for a sizeable portion of a hospital's operating budget as a result.
There are two critical product types managed by hospitals: medical supplies and pharmaceutical products. Known as inventory products, these are managed and stored in the stores (or pharmacy) before being distributed to specific departments. Some hospital groups have centralised these stores to reduce inventory and improve control, issuing directly to departments across different hospitals on a just-in-time basis.
Other items are ordered directly by specific departments from the purchasing department, which oversees the purchases and delivers them: these are non-inventory or direct procurement products.
Added challenges exist with products that have a fixed shelf life, require secure storage, have returnable packaging, need segregation, are temperature-sensitive or require batch and lot tracking. Not all hospitals have an integrated system with extensive information retrieval capabilities. Information is rarely standardised, which further complicates data collection and analysis.
The key hospital logistics process can be divided into three main sub-processes: ordering and managing supplies, receiving orders, and replenishing user departments. The processes associated with inventory and non-inventory products are similar but are often quite specific for each individual hospital and department.
In any case, efficiency and quality are crucial. Many leading hospitals now use the Balanced Scorecard to ensure that mission and values are linked to customer service, innovation, internal process efficiency and financial targets.
In many Western countries labour can account for about 60% of a hospital's costs, while in developing countries the cost of equipment and medical supplies is the main financial consideration. Technology maintenance is also a major cost component in both situations.
Hospital administrators continually look for ways to improve performance, drive workflow efficiency and reduce costs. By streamlining the flow of goods and information throughout the facility, and controlling medication access and distribution, hospitals can effectively enhance the overall patient experience.
The drivers for improvement are also outside of the hospital organisation.
"Hospitals receive most of their revenue from insurance …" says Jake Groenewold, vice-president for the supply chain at the University HealthSystem Consortium (UHC) of Oak Brook, Illinois, an alliance of 102 academic medical centres and 191 affiliated hospitals.
"Third parties are continually scrutinising hospital operations, driving an imperative to operate as efficiently as possible."
However, billing rates and reimbursements don't always balance. "We can send an invoice for $3, but with our mix of managed and governed care, we might get back only 80 cents on the dollar," Mr Groenewold said in a recent interview with Inbound Logistics.
Hospital staff spend 20% of their working hours dealing with logistical duties — in every single department. There is a critical requirement to optimise the supply chain cross-departmentally: procurement, dispensary, sterilisation, operating theatre, laboratory and laundry. Consolidating the supply chain creates significant added value.
Centralising logistics and harmonising the material flow results in deliveries that are demand-driven, while customised service modules create synergies. Slimming down process flows helps increase the time that can be dedicated to every patient.
The list of opportunities will look familiar to SCM practitioners from any industry:
- centralisation of goods logistics — decentralisation of pharmaceutical and medical product know-how;
- cost-efficient supply through online connection of the single departments in basket module operation and via semi-automated picking technology;
- pan-hospital medicine and medical goods picking leads to standardisation of, in one example, a pharmaceutical directory of 1,350 medications for 18 facilities;
- standardisation of material flows;
- merging of purchase volumes.
There are many approaches to improving SCM in a hospital setting. For example, "lean management", originally from the automobile industry, has yielded tremendous benefits. Basic business process re-engineering leading to advanced IT-based solutions has also been tremendously helpful.
A study by researchers Olivier Aptel, Michele Pomberg and Hamid Pourjalali details how things are progressing in France and the United States. In a telling statement that underlines how advances rely heavily on the macro environment as much as initiatives within the industry and hospitals themselves, they write:
"In general, French hospitals reported more success in implementing advanced logistics functions than their US counterparts. US hospitals entered into outsourcing of their logistics function more often than the French hospitals. We attribute these differences to changes in financing and regulations in the French healthcare industry. We did not find significant changes in financing and regulation in the US healthcare industry."
In summary, there is great opportunity to employ the SCM body of knowledge in this industry, just like in the more traditional and expected environments. We look forward to sharing some insights into what Bangkok Hospital Group is achieving next time around.
The Link is coordinated by Barry Elliott and Chris Catto-Smith as an interactive forum for industry professionals. We welcome all input, questions, feedback and news at: Barry.Elliott@inslo.com
cattoc@freshport.asia