Hospitals Aren’t Investing Enough in the Supply Chain and They’re Paying the Price

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A look at the challenges hospitals face due to an insufficient supply chain—and how to address them.

When it comes to supply chain management, the healthcare industry comes in last place; and it’s paying the price. Antiquated processes that create inefficiencies, unnecessary expenses, and staff dissatisfaction are contributing to financial challenges that have only been exacerbated during the pandemic.

There are so many inefficiencies in the hospital supply chain. Just one example: demand forecasting, especially helpful for pick preparations, is nearly impossible at many organizations. In some hospitals and health systems, staff spend 58% of their workday on indirect activity, such as searching for supplies needed for patient care activities. That's a serious problem.

Not to mention the feat of trying to ensure the right supplies are on hand at the right time. Thanks to so many backorder and alternate suppliers entering the market, manufacturers and medical surgical supply distributors are not accountable anymore. That’s dangerous, too, because supplies expire. That impacts not only quality of care but the bottom line.

Financial challenges to hospitals are continually growing due to lost revenue from delayed care and canceled elective procedures during the pandemic. Plus, the skyrocketing rate of overburdened nurses and staff has forced budgets to absorb expensive staffing resources as these employees opt out of healthcare work.

How hospitals can make a comeback

Hospitals can overcome these challenges. It just takes focus—in this case on the supply chain—in four areas.

  • Focus Area #1: Use analytics to reduce supply chain waste and identify opportunities to reduce variation
    Effective supply chain analytics can reduce costs by helping hospitals more proactively identify and use items before they expire. Analytics also help lower the cost of unnecessarily high physician preference items (PPI). Analytics can also help with hospital-wide standardization, especially for areas like surgical PPI, which account for 40% to 60% of a hospital’s total supply cost (excluding medications).

    A recent survey of hospital supply chain leaders found that 94% believe supply chain analytics reduce supply costs. Just over three-quarters (76%) say supply chain analytics spur higher care quality, and 61% say analytics impact staff satisfaction and retention. In addition, 43% of these leaders say they lost nurses due to supply challenges or shortages.
  • Focus Area #2: Improve supply chain efficiencies to maximize OR throughput
    One of the main drivers of inefficiencies and delays in the OR is supply disorganization. When processes are made more efficient through a supply chain management platform, operating room throughput increases, which means revenue also increases.

    Regular inventory count is a critical component of cost-savings in the OR. In addition, RFID and barcode scanning point-of-use tools can help nurses and staff document supplies more efficiently. Having non-expired inventory ready and available increases job satisfaction and efficacy of OR nurses, as they won’t have to leave a patient during a procedure to hunt down supplies.
  • Focus Area #3: Reap continual margin improvements with AI and demand forecasting
    Demand forecasting with AI technology minimizes errors and ensures more appropriate inventory volumes. This prevents stockouts and cuts expenses from over-ordering. A McKinsey study, found that using AI to enhance supply chain management could cut forecasting errors by 20% to 50%. AI and demand forecasting can also reduce the likelihood of supply shortages, which, as mentioned above, is a significant impairment to workflow efficiency.

    As hospitals investigate supply chain management platforms, they should prioritize those that include AI and demand forecasting tools, as well as real-time insights into inventory, cost variances, physician benchmarking, procedural demand forecasting, and supply standardization. They should also seek out tools that integrate with the hospital’s other technologies (such as the EHR, ERP, and MMIS), to improve margins while reducing the risk of errors.
  • Focus Area #4: Reduce staffing costs and improve retention
    While upwards of 80% of C-level hospital executives think their organizations manage the supply chain well, they underestimate how supply chain problems are directly affecting staff. For instance, a survey of nurses shows that 86% say their current supply chain documentation systems cause them stress.

    Staff who don’t have the tools to work smarter must work harder, which affects morale and job satisfaction. The addition of automation for handling manual tasks contributes significantly to retention and the reduction of staffing agency expenses.

    Integrating supply chain efficiencies to optimize clinical workflows is the secret ingredient for staffing success as supply chain management frequently translates to higher staff satisfaction.

Improving the supply chain drives gold-medal success

Hospital executives are realizing the strong connection between supply chain and finances. After suffering through a pandemic that’s lasting more than two years, hospitals deserve some record-breaking success.

Betty Jo Rocchio is Mercy’s senior vice president and chief nursing officer. Previously, she was the chief nursing optimization officer at Mercy after serving as vice president of perioperative services. Prior, Betty Jo held several leadership positions in the Mount Carmel Health System in Columbus, Ohio. These included chief nurse anesthetist, system director of surgical services, and vice president of nursing and chief nursing officer.

Lee Smith, DHA, MBA, BSN, is chief nursing officer at Syft where she is responsible for guiding customers through the implementation of the Synergy point-of-use and analytics solutions. Lee has more than 35 years of experience in healthcare, including 21 years in supply chain and information technology. In her career, she has served as director of surgical services and leadership positions at Cardinal Health, CareFusion, and BD.