On May 25th The Journal of Healthcare Contracting hosted the 3rd annual Supply Chain Consolidation Forum in Chicago sponsored by Swisslog. We had great speakers from world class IDNs telling us about their journeys into self-distribution, self-contracting and putting their supply chain destinies in their own hands.
Some of the presenting systems include;
- UPMC
- Beaumont
- Indiana University
- HCA
- North Mississippi Medical Center
- Franciscan Missionaries of Our Lady Health System
- Ocshner
For years, I have tried to do the math on how much volume a CSC must have to make sense financially for an IDN to pursue it, and frankly I struggle making the number work. It very may well save the system a ton of money or may cost them more than collaborating with a prime distributor so I don’t know that I will ever get the answer to my question. What is very clear to me is that the ones that spoke at the CSC Forum see plenty of value in having and operating their own CSC and often the value is returned by attaining increased control and visibility of their supply chain activities.
Bill Kellar from Parrallon Business Solutions (HCAs supply chain operation) presented and emphasized the importance and escalating skills of everyone in their supply chain operation. People have been talking about this is going to happen and it was great to learn the specifics of the strategy Bill had deployed in his operation for skill enhancement and operational excellence.
Mike Switzer V.P. Supply Chain for North Mississippi Medical Center gave a great keynote that gave us a front row seat to his operation. I honestly don’t know of a more autonomous health system in the nation. The metrics Mike shows are incredible and I imagine would be a stretch goal for nearly every system in the nation. The central sterilization operation they implemented is very impressive and what they are about to do with laundry will truly be state of the art world wide.
Tim Nedley from UPMC and Bill Mosser from Franciscan Missionaries of our Lady Health System tagged teamed the topic of Outsourcing vs. Insourcing. They did a great job depicting what you need to consider when deciding to make or buy a competency. UPMC seems to just keep rolling out fruitful initiatives; most recently handling their own moving and storage as well as creating a consolidate equipment depot, jointly saving UPMC nearly $9m in savings!
Many of the presenters spoke of the value of bulk buys. This sort of surprised me to be honest, because I thought bulk buys had kind of become outdated. It seems that these organizations have such good visibility that bulk buys are pretty low risk and providing big savings. Pay attention Suppliers your IDN customers may be open minded to a nice bulk buy if you make the incentives worth it.
We concluded the Forum with a tour of Medline’s Libertyville distribution where they use Swisslog’s AutoStore automated storage and picking solution. The facility was state of the art and it was fascinating to watch the technology in action. It makes it very clear to me yesteryear’s distribution tactics and strategies are not well suited for the changes we have and will continue to go through.
It was not long ago that IDNs building their CSC seemed so renegade and cavalier and were challenged by other stake holders. Today it seems like these CSC operators are just starting down a very progressive supply chain strategy and the CSC is just the foundation needed to build on. Keep an eye on the Dail-E news for information on the 2018 Consolidated Service Center Forum.
It is my (non-scientific) observation that the CSC viability hurdle rate is softer as the service catalog gets more diverse. For a simple example: $100M through-put strictly in med/surg supplies may not be enough, but $80M along with providing Laptop/Desktop imaging and deployment services for the IDN and affiliates could put a CSC over the top as the service fee accretes to revenue.
My old dad used to say “are two prunes enough? are three too many? It’s trial and error at best.”
Oh, and as an industry, we are as ADDICTED to bulk buys for quick-hit BANTA discount, just as the sales force is ADDICTED to presenting them just to sell a little guaranteed marketshare.
Thanks for the overview, nicely done.
Tim