Trinity Health plans to build a network of distribution centers to provision its hospitals throughout the U.S. with medical supplies, joining a small but growing number of systems that have brought the function in-house to cut costs and gain more control over their supply chain.
The Livonia, Mich.-based Catholic health system has contracted with Greenwich, Conn.-based XPO Logistics to design, manage and operate the new network, which will serve Trinity's nearly 90 hospitals in 21 states. Trinity joins several other large systems engaged in self-distribution, including Nashville-based HCA, St. Louis-based Mercy and Salt Lake City-based Intermountain Healthcare.
In the initial phases of the program, Trinity expects to save $20 million in supply-chain costs, a number that will grow as additional components are implemented. Systems often find efficiencies in being able to make larger, bulk orders, manage their own transportation and have more control over their inventory.
The nucleus will be a 450,000-square-foot facility in Fort Wayne, Ind., that will serve as the single point of entry for supplies. The Fort Wayne facility will receive products from manufacturers in bulk and break them down into smaller units of measure that can be delivered directly to the point of care. Trinity expects that 80% of its medical-surgical product volume will be distributed out of Fort Wayne before year-end, and the system will build three satellite warehouses within the next five years to bring products from Fort Wayne to farther regions.
Having a single point of entry will make transportation more efficient and yield cost savings for the manufacturers that can be passed on to Trinity, said Lou Fierens, the system's senior vice president of supply chain and fixed-asset management.
The new distribution network will initially distribute only medical-surgical products but eventually will be expanded to handle all of Trinity's supply needs, including drugs, Fierens said. Medical-surgical distributor Cardinal Health will continue to be a secondary distributor of some products.
Trinity's ongoing focus on lower units of measure and just-in-time inventory of supplies reflects efforts at hospitals across the country to reduce waste and decrease the amount of time nurses and physicians spend foraging for supplies, allowing them to spend more time with patients.
Trinity's distribution will be limited to its acute-care hospitals to start but could be extended to outpatient facilities at some point, said Clay Johnson, Trinity's vice president of supply-chain operations. Some systems have found significant savings and efficiencies when they took over supply ordering and distribution for their newly acquired physician practices.
Though some systems choose to create their own logistics networks and vehicle fleets, Trinity chose to work with XPO because of the firm's ability to handle the extensive global logistics involved in moving supplies directly from a manufacturer, Fierens said. He added that XPO has “some expertise we felt like it would take us an awful long time to build.”
Construction of the Fort Wayne warehouse is a $26 million project, but Fierens declined to put an overall cost to building the new network because it is still taking shape, and Trinity's hospital footprint will likely change over the next few years with consolidation. The contract with XPO is largely based on a fee-for-service model typical of third-party logistics relationships.
XPO has over 50,000 customers in a variety of industries including healthcare, but this is the company's first deal managing a health system's supply-chain network, said Ashfaque Chowdhury, XPO's president of supply chain for the Americas and Asia-Pacific.
“A lot of the things that Trinity is trying to achieve are supply-chain techniques that have been done well in other industries,” Chowdhury said. “Trinity is looking for a transformational project, and we have a lot of customers in a similar journey.”
Clarification, March 10, 2016:
An earlier version of this story suggested Trinity's plans would end its current relationships with distributors. Trinity says Cardinal Health will continue to be a secondary distributor of some products.