How can the healthcare supply chain adapt to a post-Covid era?
The arrival of Covid-19 has put the whole of the healthcare sector into the spotlight and there are many valuable lessons to be learned by adopting best practice warehousing logistics processes.
The UK Treasury generally invests around £148 billion (give or take) into the department for Health and Social care – which includes the NHS – each year. Last year due to Covid-19, funding levels rose by a further £63.4 billion. This is according to data published by the King’s Fund. So far in the current fiscal year, spending was originally set at £159 billion, and already a further £22.9 billion has been invested. It is a phenomenal amount of money. As the country slowly recovers from the pandemic and tries to restore ‘business as usual’ activity, it is likely that greater attention will need to be placed on supply chain operations, to find ways to streamline and improve efficiencies.
Across all industries, one of the outcomes of COVID-19 has been the speed at which innovation has occurred. Even industries that are highly regulated have had to do away with their usual cautious conservatism and quickly innovate with technology to survive. For instance, video wills became legally accepted during the first lockdown and GPs everywhere adopted telemedicine overnight out of extreme necessity. This article explores some supply chain best practices that could be adopted to allow the UK healthcare sector to become more resilient, improve efficiency levels and remove unnecessary costs in the long term.
Portfolio approach to supplier management
One early implication of the pandemic was the immediate disruption caused to supply chains. Extreme demand swings for personal protective equipment (PPE) and basic pharmaceuticals like paracetamol and even hand sanitiser stressed supply chains to their very limits. Healthcare professionals struggled to source the equipment they needed and some manufacturers even switched their production lines over to making hand sanitiser. It’s incredible to think this was happening in a world that is dominated by sophisticated digital technology and automation.
It highlighted inherent weaknesses in supply chain strategies and demonstrated that things needed to change quickly, with a portfolio approach to product sourcing across multiple geographies including more of a focus on local suppliers rather than being reliant on a single nation or supplier. This was evident when organisations overly reliant on China as a primary supplier of both finished items and components were affected by the country’s immediate shutdown in February 2020. A wider portfolio approach to supplier management is needed with a resilient supply chain system capable of withstanding, adapting to, and recovering from disruption so that it can continue to meet supply needs, and, in the case of a pandemic, can raise production to meet increased demand.
Dropshipping directly to consumers
As mentioned already, another outcome of Covid was the overnight adoption of telemedicine and virtual patient care. These new medical services also had an influence on the way healthcare supply chains needed to be re-thought. Pharmaceutical companies were required to adopt a multifaceted, dropship distribution strategy that continued working with wholesale distributors as intermediaries, but also reached their end consumers, the hospitals and clinics directly.
Streamlining distribution channels
UK healthcare organisations can take inspiration from a US case study, Mercy Health, to understand how through consolidating its supply chain, it was able to become more efficient and cost effective. What Mercy have achieved could be the future for healthcare organisations – removing over a third of supply chain costs and improving patient satisfaction.
At the start of the project, only 2% of products sourced and supplied within Mercy’s distribution channel were standardised whereas now, three years on, the figure is over 50%. During the streamlining process, the number of distribution centres in operation was cut from 14 to just two and the range of manufacturers the organisation deals with has decreased by 50%. The outcome of all this restructuring was lowered costs, Mercy reduced the cost of buying its commodity supplies by 10%.
Before the project 85% of Mercy’s supply chain staff had to procure and distribute commodity products such as gloves and clinical staff were responsible for ordering more expensive items for operating rooms. Consolidation among health systems means purchasing as a whole is carried out centrally and there is no wastage.
A further cost reduction was achieved by Mercy investing in its own warehousing facilities rather than relying on 3PLs. This gives them the flexibility to offer more of an ‘on demand’, just in time supply service rather like e-commerce fulfilment, instead of having the items delivered and then stored in bulk. It means more space is available in hospitals themselves rather than having to dedicate extra storage space.
Optimised putaway processes
Using warehouse management system (WMS) software, further efficiencies are achieved because all these warehouse processes can be fully automated. For example, Mercy implemented a new ‘put-away-ready’ process to remove duplicate processes from the supply chain. Now hospital supplies are put straight onto carts that be rolled out onto floors as soon as they leave the delivery vehicle.
Across the healthcare sector, we expect organisations will be looking to hold much smaller stock quantities in the future, relying on a far more agile, robust and diverse supply chain to deliver medical supplies as needed. Having smaller stock deliveries more frequently means the put-away processes will have to be very well structured. For example, strict guidelines must be followed to comply with regulations for storing allergens and preventing product contamination. Using WMS software, warehouse management can ensure that every item is correctly and safely stored and can be located quickly.
The arrival of Covid-19 has put the whole of the healthcare sector into the spotlight and there are many valuable lessons to be learned by adopting best practice warehousing logistics processes. Industries like retail and e-commerce have already been ‘overhauled’ as a result of increasing competition and price sensitivity. They will provide lots of inspiration to supply chain directors in the healthcare sector, with parallel issues that have already been overcome through the use of optimised processes and automation technology.