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Health Care Supply Chain Dynamics

Finding room for improvement

By Luis Valadez

Health care delivery is unique from other business sectors for many reasons, so it is not surprising that supply chain concerns are unique. The pandemic brought the acute shortage and inability to deliver PPE, ventilators, vaccines, etc., to the fore. As fast as these problems were solved, new ones arose. The more people who were trying to fix things, such as mandates concerning access to health care services, the more new problems arose. The rapid development and subsequent deployment of the MRNA vaccine stretched the borders of supply chain management, as does the delivery of booster doses.

We saw prices increase by 100%-200% where we had to utilize third party local distributors..

One of the things that makes health care unique in terms of supply chain considerations is that we are in the business of manufacturing health. While it is a tangible commodity and subject to more measurement than any other industry sector, through more different lenses and metrics, it can also be extremely subjective, employing concepts such as quality-adjusted years of life. Health care supply chain dynamics are further complicated by radical variation in how and where the care is provided. The supply chain concerns of a two-physician primary care office are just as legitimate as those of the Mayo Clinic, but the scale and challenges are very different. As a teaching hospital serving many of the counties most underserved, Hennepin Healthcare System (HHS) has different demands than systems such as Allina Health or M Health Fairview, but there are also many base line similarities.

Assessing the challenges

To address the difficulties of being certain our providers have the tools necessary to deliver the best possible care for our patients, HHS has spent many years developing a department of supply chain management. To get where we are today took a methodical approach to our maturity progression spanning over five years. The mindset and determined needs are embraced by everyone on the team, and it ensures we are all in this together. We evaluated our maturity in three areas: people, process and technology.

People We needed to make sure we had top talent that embraced change. Leadership was a key factor in this progression, as we needed to make sure we kept the team engaged and involved in the decision making process. We therefore created a sense of ownership with team members. Another key factor was mindful hiring. As staff moved on to other positions, we made sure we brought in top talent to help progress the maturity journey. We looked for talent that was good fit with our existing leadership structure, as well as candidates who had forward thinking ideas about improving and committing to operational excellence and employee engagement.

Process As we evaluated the operations as a whole, the one factor that stood out was the daily inconsistency of the work we performed. Everybody had their own way of performing a task or running a report. This led to gaps in service and information that adversely affected the reliabilty of business decisions. An example is the way we reviewed our contracts. Each individual had their own style of review and timeline. We brought the group together for a working session to discuss possible improvement tactics, which resulted in an increase in completion on time from 50% to 98%. This practice is still maintained and is monitored bi-weekly. We also looked at our logistics, procurement and sterile processing departments and decided to go back to the basics. We therefore developed standard operating procedures (SOPs), as well as updating our departmental policies to reflect the future state of supply chain. Once all our SOPs were updated, the next phase was to train all staff to the new standards. This enabled us to feel confident that the continued improvement of our processes would drive efficiencies across the board and not for just one individual or shift. In addition, when asked to present data or opportunities to our executives, we knew the information was accurate and everyone was now running the same reports.

Technology In order for technology to work, you need the people and processes working in sync. Technology is meant to enhance your people and processes. If they aren’t working together, technology will be impaired. This was by far the most challenging area to drive maturity as capital funding was limited. Our approach was to inventory our existing system instead of going out to the market to find the best of the best. What we found was we already had what we needed to create a maturity path in this area. We looked at our reporting process and how we could make our customers understand the data a bit more easily. We used Power BI (Business Intelligence) to help provide a clear, one screen visual of what our reports were meant to convey. By using Power BI, rather than Excel spreadsheets, we eliminated the potential for confusion.

Our supply chain command center sometimes met three times per day

Enter the pandemic

When our people, processes and technology were in place with positive results realized daily, the pandemic hit. It was stressful at first because we didn’t know the length or impact it would have on our organization. However, by having processes and systems in place, we were able to pivot and create new processes to accommodate this new normal. We seemed to have a grasp on the demand until our manufacturers and vendors weren’t able to keep up with demand and product was dried up. Our driving force was to ensure our patients and staff had what they needed to feel safe.

We had multiple command centers open (system wide and supply chain) to keep the communication fluid. Our supply chain command center sometimes met three times per day to determine where we were able to source hospital-grade personal protective equipment (PPE) and other vital supplies and equipment. We looked at our backorders daily and worked to identify third party smaller trusted distributors from whom we could source product. This helped us grow our vendor relationships, which we would need to ensure we were prioritized for future procurement. We also quickly realized the need for updated days on hand (DOH) of our inventory to send to our hospital incident command center (HICS), as well as our departments across the hospital, to facilitate understanding of their inventory levels. We established a visual stop light dashboard (red for < 14 DOH, yellow for 14 through 29 DOH, and green for > 29 DOH). This enabled everyone within our health care system to easily identify our PPE status. By redefining and standardizing our processes we were able to pull reliable data quickly and efficiently when needed.

Rethinking the future

By having our people, process, and technology in line, we were able to come together as a team to understand the situation at hand and implement systems and processes adapted to the pandemic. As we come up on two years of the pandemic and our PPE distributors are now healthy with their inventory, we are seeing a shift in supply chain shortages which have been more disruptive than those at the onset of the pandemic. We are seeing our supply and equipment shortages move from a couple dozen items to now several hundred at any given time. Whether longer lead times to items held at ports, lack of cargo containers to transport product, lack of trains and trucks due to worker shortages, or just a sheer lack of raw material to manufacture goods, we are not seeing a pattern of specific categories being affected; rather this shortage is showing all across the board. The challenge seems to be a new backorder every day our team needs to addres.

Early on in our maturity journey we identified an opportunity to use product substitutions in the event we couldn’t obtain the original product. This initiative took several years and is still ongoing to this day. By placing clinically approved substitutions up front, we didn’t have to go through the rigor of tying up critical resources at critical times.

As we look to the future of supply chain, we learned a lot over these two years. Previously, we relied heavily on driving business and value through one distributor; diversification among distributors will help driving standardization across our organization. In the future, we want to be as flexible as possible, so we have not put all of our eggs in one basket. Neither just-in-time inventory or lean inventory will be sustainable methodologies with all product lines, as these practices will now lead to shortages and stockouts as lead times have lengthened. Another way we are rethinking future supply chain is by looking at offshore versus onshore manufacturing and distribution. Offshore will help cut down lead times and increase product reliability. However, we need to realize this new supply chain comes at a cost. Managing cost will be the biggest challenge as health systems already have narrow margins. We saw our transportation costs double, we saw our prices increase by 25% where there were raw material shortages and we saw prices increase by 100%-200% where we had to utilize third party local distributors. This will challenge health care supply chains as we continue to mature and drive non-value-added cost out of our system to accommodate the new norm. But by having your people, processes and technologies in place, it’s achievable.

Luis Valadez, is Senior Director, Supply Chain Administration at Hennepin Healthcare.