Hospital supply chain management is gaining traction in health care, as Health Information Technology for Economic and Clinical Health, or HITECH, Act mandates and health care reform initiatives call for creating efficiencies and taking out costs.
Supplies constitute a hospital's second-largest operating expense, after labor. A supply chain management system helps facilities in several ways: It optimizes inventory levels. It standardizes the systems (the newest ones use GS1 numbers that identify every piece of physical inventory, from devices to surgical instruments to such consumables as bandages and tongue depressors. Finally, it enables more favorable contracts with suppliers -- and ensures that the hospital is taking advantage of them.
For more than a decade, such vendors as SAP AG, McKesson Corp. and Oracle Corp. have sold integrated suites that cover the health care industry's needs for enterprise resource planning (ERP). These needs range from payroll and supply chains to human resources (HR). Smaller hospitals' ERP processes typically are less integrated, because the facilities have opted to piece together such applications as PeopleSoft for HR, and supply chain management systems from Lawson Software Inc.
Beyond the GS1 nomenclature, another recent development in supply chain management is hooking these systems into electronic health record (EHR) systems to further automate inventory tracking, said Vi Shaffer, a Gartner Inc. research vice president and Global Industry Services director for health care. Doing this complements integrations with such back-office systems as utilization management applications, which manage patient throughput and coordinate housekeeping, she said.
Even without the current movement to build out EHR systems, supply chain management software implementations still would be gaining ground among smaller hospitals that might not have considered it before, Shaffer said.
"Supply chain needs to be managed, and many of these hospitals have these systems and use them for rationalizing the supply chain process and materials management," Shaffer said. "I think [vendors are] getting better at it. Now we're seeing additional interest in other parts of professionalizing the supply chain, such as GS1 standards for health care."
For Bill Overby, IT director at Lakeview Hospital in Stillwater, Minn., supply chain management did come with EHRs. The 97-bed hospital, which also supports five clinics, bought Lawson software when it signed an agreement with a larger Minnesota hospital for it to provide support for Lakeview's new Epic Systems Inc. EHR implementation. The larger hospital also uses Lawson software and already has built the integration between that supply chain management system and Epic, which Lakeview can clone. "We can leverage what's already been built there," he said.
Improving supply chain optimization
Whether a hospital is managing its supply chain with dedicated software, or winging it with spreadsheets and paper, there are several key signs that an upgrade is necessary. On the most basic level, the first problem is that supplies are either overstocked or unavailable when they're needed, impeding care delivery and causing employee complaints. Can you quickly see an accurate inventory of what's on hand now, or is that a tedious, time-consuming process?
Beyond that, it pays for a hospital to compare current costs to benchmarks to determine whether it's overspending for supplies, Gartner's Shaffer said. Is your facility buying too much from group purchasing contracts? Could you cut costs by realigning your contracts or purchasing habits? Are suppliers overcharging for supplies bought under contract? Supply chain management systems can help answer those questions.
If you have an ad-hoc, multivendor ERP system that covers payroll, HR and supply chain, you also need to decide whether to rip it out or to replace it with an integrated package from a single vendor -- or to get a supply chain management system instead.
For Lakeview, a "mishmash" system of disparate applications, spreadsheet programs, and paper and pencil inspired the purchase of a whole Lawson ERP application suite, not just the supply chain management piece, Overby said. (This system has yet to be implemented.)
Lack of interoperability among existing finance, payroll and supply chain management systems has bred "a lot of hand-keying from one system to the other" for clerical staff. "None of them talk to each other. There's not a lot of integration," Overby said. With the Lawson ERP system, he hopes Lakeview can find efficiencies in entering and sharing data among applications, and reduce the time it takes to create reports for internal use (such as budgeting and management) and external use (such as regulatory filings), he said.
Getting the right supply chain management system
Whether a hospital decides to invest in a formal ERP software suite to manage its supply chain or a standalone supply chain management application, it should be sure to put out a request for proposals (RFP) and take the time to conduct a workflow analysis. This way, it can get vendor help to solve existing problems, Overby said.
Shaffer agrees: "Take advantage of additional functionality or ideas for process reengineering, so you get more value from it," she said. "If you're not managing supply chain very well and you put one of these in, you usually save a lot of . . . administrative expenses, you increase compliance with discounts and contracts, and [you] improve your process."
Once the RFP is ready, scout some bids and do a fit analysis to pinpoint the vendors that serve hospitals or health systems such as yours. Then, check references. Make sure the vendors' customers remain satisfied with the product they chose.
During the vendor demonstration stage, it's crucial that a hospital get all of the supply chain management system's future users to try it out, Overby said. This includes doctors and nurses, as well as back-office and clerical staff, warehouse workers and the materials management department.
"You can write questions up front, but when you start to see the software in the demonstration, that's when the real questions come out," Overby said. "That's when people are spurred to think about what their processes are and ask, 'Oh, so what does your software do about that?' That's where the rubber meets the road."
Finally, once you've selected a supply chain management system, use the implementation process to examine and streamline your processes for buying supplies. After all, automating a bad process doesn't make it a good process.
Let us know what you think about the story; email Don Fluckinger, Features Writer.