Supply Chain Leads the Way to Value in Healthcare

By November 29, 2016Uncategorized

There’s no question that the healthcare industry is going through unprecedented change, driven most notably by new reimbursement models that are turning the business model for hospitals and healthcare systems upside down. Rather than making money by keeping their beds full, U.S. hospital executives must prepare for a not too distant future when a full house is a losing proposition.  An ad campaign by Mt. Sinai Health says it all: “If our beds are full, we’re not doing our job.” The change may be most dramatic in the U.S., as a result of the Affordable Care Act, but this quest to understand what drives value in healthcare is a global phenomenon.

Meanwhile, as you would expect, the upheaval in the healthcare delivery world is having a corresponding impact upstream on medical device companies.  What’s surprising is that the increasing financial pressures on their customer base seem to be driving improvements in manufacturer supply chain performance.  That’s one of my takeaways from the 2016 Supply Chains to Admire report that will be front and center at the Supply Chain Insights Global Summit, to be held September 6-9 in Phoenix.

This is the third year that analyst Lora Cecere and the team at Supply Chain Insights have applied their unique, data-driven methodology to identify those organizations that are driving shareholder value while outperforming their peers in areas such as revenue growth, operating margin, inventory turns and return on invested capital, the latter serving as a proxy to measure the complexity of the supply chain.  Being a “supply chain to admire” is no easy task, with only 5 percent of companies across all industries meeting the criteria to qualify as a winner.  That’s why its notable that out of 16 winners and 21 finalists, four of the companies are medical device manufacturers.  Edwards Life Sciences is a winner, while Becton Dickinson & Company (BD), Coloplast and Medtronic are all finalists.

In her commentary, Lora notes that those indsutries facing the biggest challenges – high tech and electronics – made the greatest progress durimg the study period:  2009-2015.  For the reasons stated above, I would add medical device manufacturers to that list.  Lora chose to start tracking performance in 2009 because it is after the recession of 2007-8.  For healthcare companies, the timing is also very interesting because it coincides with the passage and implementation of the Affordable Care Act.

Through my association with Global Healthcare Exchange (GHX), I have had the pleasure of working with all four of the medical device companies honored in the 2016 report.  From my experience, all of these companies have taken steps to not only improve their own upstream supply chains, but also those of their customers.  In addition to automating much of the order to cash process, they have incorporated standard product identifiers, such as the GS1 Global Trade Item Number (GTIN), to further improve accuracy, visiblity and synchronization of data across systems, which can drive efficiencies for buyers and sellers alike.  This focus on downstream efficiencies may also be why two of the companies, BD and Edwards, rank in the top three for SG&A costs among medical device companies studied in another report produced by Supply Chain Insights.

Lora also recommends that medical device companies seek to learn from successful supply chain initiatives from other industries, which includes cross functional alignment. Another impact of healthcare reform is the need to better understand the role products play in improving patient outcomes and lowering the cost of healthcare, which requires greater alignment among clinical, financial and operational teams at provider locations and between commercial and supply chain functions within the supplier community.

The 2016 Global Summit is a great place to start those cross industry learnings.   This year’s summit will be the fourth I have had the pleasure to attend and every year I come away with critical learnings from other industries that can be applied to healthcare, from 3D printing to cognitive machine learning.  This year’s summit promises to be as equally thought provoking.  Check out the agenda and speakers and plan to meet me in Phoenix.

About Karen Conway

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