Hidden Costs in the Healthcare Supply Chain

When it comes to healthcare, all stakeholders agree that there is a need to prevent cost escalation and simultaneously cut expenses. Even so, an often-overlooked area in this endeavor is the healthcare supply chain. The supply chain for healthcare has many areas for savings, including hidden costs.There are abundant savings available throughout the healthcare supply chain. Healthcare entities practicing “Lean Supply Chain Management” are finding ways to lower supply chain associated costs.

A person wearing a stethoscope holds a pink piggy bank.

What Is Lean Supply Chain Management in Healthcare?

Healthcare lean supply chain management focuses on long-term supplier relationships along with a highly integrated supply chain management system. The emphasis is on improving supplier relationships along with long-term strategic alliances. As one-fifth of the United States economy is in the healthcare sector even small gains are important. The few studies done about lean supply chain management in the healthcare sector suggests that improving the healthcare supply chain using lean processes causes a better quality in healthcare companies. This improvement stems from lean manufacturing principles that methodically address quality, safety, and cost.

In the book, Wastes in Healthcare, the authors describe 7 areas of waste. They are shown in the following table.

Waste categoryDefinitionHealth Care Example
OverproductionProducing greater, faster, or sooner than
Unnecessary test
WaitingPatients and information idle timeWaiting for a page to be returned
Material MovementUnnecessary patient or material movementRestocking unused LP needle
Inappropriate ProcessingUsing costly equipmentReentering patient’s social history by the nurse
MotionAny unnecessary staff movementSearching for a manual blood pressure cuff
InventoryInformation, market, or patients in queue or in
Patients waiting in examination room
UnderutilizationUnderutilized human talent and abilityNurse changing diapers

How Does Lean Supply Management Reduce Costs in Healthcare?

There are three steps in reducing healthcare costs that are:

  1. Implementing improvement in prices and standardize the purchasing and distribution functions
  2. Reduce the number of suppliers and purchasing processes; and
  3. Align healthcare providers and their purchasing staffs to care models.

When these three steps are followed providers, their employees and their patients have increased satisfaction and improved safety as they curtail supply chain expenses.

Lean Supply Chain Management in Action in Healthcare: Battling Hidden Supply Chain Costs

Perhaps the best way to exemplify lean supply chain management in healthcare is by illustration. Following are some difficult issues that were resolved using lean supply chain management.

A critical care hospital in northern California had clinicians uncertain as to how well the purchasing department did its job in procuring supplies. Because of this mistrust, they spent more time than necessary looking for medical and surgical supplies. This wasted time caused patients a good deal of frustration as they had to wait for treatment while supplies were located. Once a lean supply chain management solution was implemented at the hospital there were outstanding results:

  • 403 square feet of space used for storage was eliminated and a patient room, formerly used for storage, was returned to patient use.
  • Supply outages were all but eliminated
  • Lost and stolen items at the loading dock were curtailed
  • 80% of expired products were eliminated and there was a 40% reduction in inventory.

A hospital in Napa Valley, California revamped its requisitioning process using lean supply chain management principles. Instead of restocking shelves as supplies were drawn (push restocking) to a pull restocking process that only filled inventory on an as-needed basis. This hospital freed up 420 square feet. More importantly, it slashed $97,000 of endomechanical products that represented nearly 30% of total inventory costs.

Every healthcare entity faces challenges for reducing costs and lean supply chain management is a welcome tool for keeping healthcare costs down.