How COVID-19 Accelerated the Transformation of the Healthcare Supply Chain
COVID-19 has been relentless for healthcare supply chain teams. A never-ending series of shocks have resulted in rising costs (the average ICU’s medical supplies increased in cost by 31.5% since 2019[i]) and decreasing fill rates (healthcare fill rates are resting at around 82%[ii]; the average hospital dealing with 800 to 1,000 backorders per day[iii]). These and other acute supply chain challenges make hospitals more dangerous places to receive care.[iv]
With no end in sight, the interconnected web of healthcare trading partners has begun a massive recalibration of what is important to planning, production, delivery, inventory, and contracting practices. The industry is rapidly evolving the skills, capabilities and systems required for a new imperative based on an updated relationship between efficiency and resiliency.
Supply Chains Really Matter
Five years ago, it was hard to find mention of supply chain in the news. Now it’s a common topic in from the kitchen to the board room. No longer behind the scenes, supply chains are now recognized as an important part of our life-saving teams. Supply chain leaders have been celebrated for their creativity and leadership through a series of unprecedented challenges including PPE shortages, port closures, workforce changes, and increasingly frequent weather events. Lessons learned from these leading organizations include a new spirit of collaboration and a recognition that resilience is worthy of investment.
Change = Opportunity
In hospitals, the supply chain conversation has shifted from that of a problematic cost center to an opportunity for differentiation, digital transformation, and proactive measures for patient care continuity.
Founded in 2019, leaders from Spectrum Health and Mayo Clinic started the Healthcare Industry Resilience Collaborative (“HIRC”), a network of supply chain executives seeking to develop and promote best practices in partnership between providers and suppliers.
“We started HIRC because we saw a clear need for more transparent, proactive industry-level capabilities and collaboration,” according to Bill Selles, Senior Vice President of Supply Chain at BHSH (Beaumont Health & Spectrum Health) and co-founder of HIRC. “We had too many blind spots and dependencies outside our organizations, and we needed greater awareness of what’s happening from an ecosystem perspective.”
HIRC is now led by a Board of Directors comprised of leading providers and suppliers. Since COVID, HIRC membership has exploded to over 70 leading organizations and now encompasses numerous initiatives designed to build trust and collaboration across the industry. It’s not just health systems who are collaborating. Suppliers are recognizing that they can’t fulfill their mission without sharing information with their trading partners. Without demand signals, utilization information, and quality information from providers, suppliers will always be reactive in planning, marketing, and customer support. The old way of doing business is ending. A new era of trust and transparency has begun.
The Supply Chain Transformation Journey
Transparency requires transformation. HIRC and others see answers to our resiliency challenges by looking outside their own organizations to create collaborative and patient-centric value through strategic alignment and shared resources. The industry is undergoing a supply chain transformation journey that will play out over coming years.
Cost & Efficiency Focused Organizations
Most organizations in healthcare are still just beginning the transformation journey. The supply chain departments in these organizations see value creation through an enterprise-specific agenda focusing on cost, efficiency, and market share. These organizations operate in a low-trust, pre-COVID mindset of integration and centralization. “Collaboration” is mostly a buzzword and, where it exists, is mostly focused on sourcing.
Cost and efficiency-focused organizations tend to be reactive free-riders and are not actively contributing to or investing in resiliency. They are absorbed in day-to-day operations and see discrepancies as a cost of doing business. Their goal is to minimize interruptions and maximize operational continuity and transactional efficiency. They are pushing the boulder up the hill every day.
Collaborative & Patient-Value Focused Organizations
COVID has pushed more companies to recognize the value created by true collaboration and a holistic focus on patient value at scale. Resiliency is achieved through a shared value mindset. Trading partners are aligned around trust, value, risk, and outcomes. There is a leveling up of resources and competencies required for this transformation that includes technical skills, data science, digital planning, and leadership.
These high-trust organizations have leaders who see an opportunity to differentiate by investing in digital supply chain solutions, data sharing, digital planning, process improvement, and human resources that enable end-to-end visibility. These will be the first to share data that is often shared in other industries but has been off limits in healthcare. They overcome the natural fear that sharing information results in lost leverage. Their goal is proactive resiliency by way of a broad ecosystem that enables organizations to sense when things will happen, so they are in a position to mitigate or avoid negative consequences. These organizations realize that agility and resiliency is not a quarterly agenda item… it happens in real time and ultimately it will be machine to machine throughout the environment.
The Importance of Community
As organizations cross over the line between internal collaboration and trust to external collaboration and trust, the mindset becomes more about how resources (teams, systems of record, data, etc.) can be extended into the community. The community can help curate data, share signals, set standards, and generally build the trust that is required for true efficiency and resiliency. By embracing expertise in the community, individual organizations and the industry at large can accomplish operational and strategic tasks that were previously out of reach.
“Transparency is a natural outflow of healthy trading relationships,” says Jesse Schafer, Executive Director of HIRC. “Our goal is to build trust through collaboration and enable new operating models for supply chain efficiency and resiliency.”
Most organizations in healthcare are standing at the transparency line, wondering if they can cross and what will happen if they do. They’ve been operating a long time without it, and it feels risky to step into unfamiliar territory. Their current culture may not support transformation. The HIRC and other organizations like it create a necessary, supportive community that make this process easier, starting with cultivating a community of trust, and developing an understanding of industry trends and best practices. Now that these communities are becoming established, we expect the initial efforts will be followed by more robust set of data-focused collaboration initiatives. Over time, the community will surface more and more data, attracting more and more contributors. Success will create a flywheel of data making it will be easier to sense what is happening in the environment, what others are saying, and how others can help. The rising tide of transparency will lift all boats. At the end of the day, success depends not on the ERP, or inventory, or technology… success depends on people and community working together under a new banner of partnership, transparency, and collaboration. Community is the key to the transformation to a more resilient, efficient future.
[ii] GHX data from HIRC