An astonishing amount of work is required to get a pair of surgical gloves from its manufacturer to the operating room. Experts say the healthcare supply chain is so inefficient it squanders billions of dollars annually.
Several hospital companies, distributors, suppliers and trade associations are meeting each month to brainstorm a better system. Their effort is called the Efficient Healthcare Consumer Response (See chart).
As a first step, they've financed a $100,000 study to quantify waste in the supply chain and identify best practices. Results are due by September.
Teams of healthcare companies then will develop guides to help hospitals and others implement the best practices at their facilities. Their reports are slated for publication by June 1997. Targeted subjects include:
Activity-based costing, a system to account for the costs of services.
Bar codes, so products can be scanned, simplifying product tracking.
Continuous replenishment, which speeds warehouse stocking.
Electronic data interchange, so products can be bought electronically.
"Much of what we're dealing with is getting standard processes that we all agree to follow," said S. Wayne Kay, president and chief executive officer of the Health Industry Distributors Association in Alexandria, Va., one of 22 EHCR members. Another provider group and an additional trade association are expected to join shortly, Kay said.
The EHCR's goals are to reduce systemwide costs, including the volume of inventory and physical assets, and provide measures so companies can evaluate their performances.
The healthcare supply chain, which runs from the manufacture of a product to its disposal, could use some help.
Systemwide waste probably amounts to several billion dollars. For example, in one sample group, Irving, Texas-based hospital alliance VHA, the 1993 supply-chain cost of products was estimated at $12.5 billion-and the waste at $1.5 billion.
Payment for healthcare products often involves a tangle of discounts, freight-charge waivers and rebates (July 24, p. 80). "Large companies have teams, sometimes buildings, of people" sorting out such issues, Kay said.
Another example of troubles in the supply chain is its lack of a universal code for products. Manufacturers, distributors and hospitals give the same items different labels and spend huge sums of money trying to understand one another. Fed up, the U.S. Department of Defense recently told companies to adopt a Universal Product Number or lose its business (March 25, p. 96).
The grocery industry is partly to thank for the new initiative in healthcare. Fearing brutal competition from giant stores like Wal-Mart, grocery chains, food manufacturers and others teamed up in 1993 to create more efficient systems through a joint project called Efficient Consumer Response. So far, their effort has resulted in more than 20 reports on industry best practices.
Efficient Consumer Response estimated that better practices could trim the $300 billion grocery supply channel by 10%. By the end of 1994, 42% of food-industry companies responding to the project's survey had implemented its initial recommendations at least partially. An additional 30% said they were testing practices.
The success of Efficient Consumer Response prodded healthcare groups to attempt a similar initiative. "Folks started talking about what was going on in the food industry," Kay said. "So I went to food manufacturers, brokers and distributors, and I heard, `You've got to do it. If we don't do these things we won't all survive.' In healthcare, a lot of people were doing bits and pieces, but nobody was doing it all. This really does make good sense."