Suppliers On Life Support: How To Rebalance Healthcare's Supply Chain, Part 3
The pandemic impacted you as a healthcare provider almost as much as the communities where you’re providing care.
(If you haven’t read Parts 1 and 2 of this series , we’d highly recommend that you do. They’re awesome, and you’re awesome if you read them. Automatically! Plus, you won't save as much if you only pay attention to this singular phase of rebalancing healthcare inventory.)
If we look at hospitals as if they were patients – assessing them to prescribe a treatment – it would be fair to say that they are still pretty sick with COVID-19.
Some things are getting back to normal. Elective procedures are largely returning, and with them come community members and even staff we haven’t seen in a long time. But the effects of the pandemic are absolutely still being felt, especially in the continued disruption to the supply chain (and, within that, the medical supply chain).
The major difference between how hospitals have experienced the pandemic and how their patients have is that healthcare providers have a cure available to them. Not just a treatment. Not just advice and some tools to avoid the disease. Providers have a full-blown cure. What is it?
Rebalancing inventory levels. (Obviously, right? We wrote this whole series to give you exactly this advice. Read on.)
Why did inventory get unbalanced?
Medical and surgical supplies are almost always a little bit unbalanced. Again, the “Why does excess build up at all?” question is a little beyond the scope of this series, but the specifics of the pandemic’s circumstances include several of the usual suspects:
- Strained financial and personnel resources
- Sudden clinician turnover
- Supplier shortages
So healthcare providers were forced to get creative. In some ways, this was massively successful in overcoming historical barriers to supply chain optimization, like supply sourcing from nontraditional vendors, as well as data sharing. (Competitors offering up their data in the name of the common good? Get outta town!)
But the sharp reaction to real or perceived supply shortages was to overorder whatever was available. Hospital A filled half its warehouse with surgical gowns, Hospital B stocked up on gloves, and C got too many forehead thermometers. These orders were placed less out of an analysis of likely demand than a feeling of “If I don’t grab this now, I may never get this chance again.”
Now that the supply chain is largely repairing itself and supplies are more widely, readily, and predictably available, these hospitals are stuck with more than they could possibly need on a very narrow category of supplies (which definitely doesn’t have to be PPE – we’ve seen it in everything from office supplies to endomechanicals – but PPE is a pretty common example).
This is the provider equivalent of long COVID, because it will continue to affect you both in terms of inconvenience and expense for the foreseeable future. Unless you rebalance your inventory.
To do that, you need vendors and other health systems to buy what you have. But that’s easier said than done.
Why would anyone buy my excess?
Everybody overbought. Everything must go. So the market is supersaturated and you can’t get any kind of value out of what you’ve got and you should just throw it away instead, right?
Not right. Very much not right. Look back at Hospitals A, B, and C. They all overstocked on a particular product, but none of them overstocked on the same product. All the healthcare providers were competing for access to the same limited pool of resources, so some of them got gowns, some gloves, some thermometers, etc. This is basic supply chain and economic studies, just executed at a tremendous scale.
Here’s the true inventory imbalance that’s plaguing the industry right now. The way to rebalance is to move supplies between facilities – just like you’d do between your own facilities – but for these supplies that are more than all of your facilities can use, you have to add on not only the infrastructure, but the ability to receive and track payments.
Most healthcare facilities are not interested in creating an ecommerce business for medical products. Hence the secondary market.
Whether you’re selling on consignment or working on an exchange model (getting credit for the product you put into a shared pool, then using that credit to get product you need from that same pool), you’ll turn product that would otherwise be a complete loss into savings.
But making a sale on the secondary market requires one crucial ingredient: buyers.
Why won’t anyone buy my excess?
Wait, what happened? Didn’t we just say that healthcare providers achieved an as-yet-unseen level of cooperation when they ran into an existential threat?
Everyone was collaborative about sourcing while they had to be. But you know how it is. You order your favorite brand of crawfish-themed snack food straight from the manufacturer while that’s the only way to do it, but as soon as it appears in your local convenience store?
Convenience wins every time. Even if it’s more expensive.
Going back to a one-click reorder of supplies straight through the ERP or another ordering system that you’ve used a thousand times before is more comforting. It’s a way of reinforcing to yourself that things are “back to normal.” And – pop psychology aside – it’s going to save you time. Even if it doesn’t save you money, having one less thing to worry about creates value in itself.
The problem isn’t that you don’t care about the ticking time bomb that is about to blow up your dumpsters and bottom line. The problem is that you have lots of other concerns, too, and you don’t have the resources to address the excess problem right now. Some days, you just can’t get rid of a bomb.
You know who else feels like they don’t have time to spare on the secondary market? Every other healthcare supply chain pro.
They’re all looking at pallets stacked with excess like you are. They’re all watching the timer tick down to that expiration date just like you are. They’re all wondering where those supplies can go like you are. They’re all thinking the secondary market isn’t such a bad option. Like you are.
But secondary market vendors cannot buy your product if you do not buy product from them.
In 2023 or 2024, we’re going to hit a point where all of these supplies expire more or less at once. There will literally not be enough dumpsters for all of the pallets of supplies that go from Usable to Loss overnight. It will be another supply chain version of the panic that hit healthcare as waves of COVID-19 overwhelmed systems nationwide. You’re going to be rushing to find a way to turn your excess into savings. But so is everyone else.
To flatten the curve (Remember that thought experiment? Still relevant.) you’ll need to treat the secondary market as a source, rather than a destination.
Why should I spend time and money on something less convenient?
Put simply: you won’t have a place to turn your excess into savings if you don’t buy from that same place.
The vendors that sell your supplies on consignment can only do so if hospitals are also buying from them. The vendors that pay you a pittance and liquidate your supplies have more creative options and outlets, but they need business from hospitals to stay afloat.
It might take you a little more time than usual to order supplies from a supply marketplace or exchange, especially at the beginning. Getting set up on any new system always takes longer, plus many vendors don’t have the advantages that Z5 Inventory has. We use the same inventory analysis that we developed to identify excess supplies to do the opposite: we can determine a health system’s inventory needs and suggest what product needs to be ordered and when. Without that, most vendors are relying on you to make your own product wishlists. To make them (and make them accurate) takes time.
But even then – even if you have to search manually between five different vendors to see who has the best price, which we don’t recommend but might be what you have to do sometimes – you will be saving money. You will be saving more than you will be spending, even in the amount of time it takes to purchase.
Time is money. We not only accept that, we revel in it. Every service that Z5 Inventory offers is designed to save healthcare providers time and money. But how much is that time worth?
Think again about the healthcare pro whose salary is $100K. If we presume they’re working 40 hours per week for 50 weeks per year, that means that each hour of their time is worth $50. That’s... not that much. (We, of course, think your time is much more valuable than that. Want a raise or a bonus? Use Z5 to help you hit your savings goals this year.)
In the unlikely scenario that you’re spending an hour to find a better price for product you need to reorder, as long as you save more than $50 on that order, you have spent that hour well. This obviously won’t work for each-quantity items that cost pennies. It won’t work for most single catheters. But if you’re buying cases of catheters, you’re about to save a massive amount.
Product is cheaper on the secondary market, and it’s of the same quality.
These medical supplies aren’t any worse – or any different – from what you’re using already. It’s not opened or gently used. (Please, for the sake of your sanity, don’t think about the catheters from Parts 1 and 2. Hey, stop! We said don’t think about them!) What we’re talking about is the finally accurate version of the car salesman euphemism “pre-owned.”
Product bought directly from the manufacturer or traditional supplier might be quicker to purchase. (Again – it doesn’t have to be, especially if you have product recommendations in place from your vendor.) But it will always be more expensive. Even GPOs and other cost-saving measures can’t match the prices of the medical supply secondary market. The only advantage these establishments provide is convenience.
Manufacturers and suppliers will continue to take advantage of how squeezed you are for time.
The worst thing that a healthcare provider can do, in the eyes of a supplier, is examine the deals that you have in place. As soon as you look at it, you’ll be able to determine whether the price – or even the overall agreement – is good or bad. With observation, you’ll be able to determine if the deal gets to live to see another day.
Why are we still talking about Schrödinger’s cat?
It’s the eternally useful metaphor.
But, just like before, we have to point to how the metaphor fails the specifics of healthcare’s supply chain. In Part 2 we pointed out how there aren’t just two options to the state of the cat / inventory. If it isn’t clear by now in Part 3, let’s point this out, too: you can’t wait to check on the cat / inventory at your convenience.
In the experiment, Schrödinger’s cat has a 50/50 chance of being alive at any point that anyone opens the box. Because he came up with a thought experiment, Erwin Schrödinger didn’t have to worry about practical things like ventilation or sustenance or waste removal. The thing about living in the real world, though, is that – from the moment the experiment begins – the cat’s chance of survival constantly goes down. Time gets everything in the end. If you wait to determine the state of your inventory till it’s expired, that’s a decision all its own.
Medical inventory – like the cat – can’t wait forever.
See? What a super useful metaphor. Plus the more we talk about it, the more likely you are to remember it. (Just remember that it’s only depressing if you want it to be. You can decide that the cute kitty is alive – as long as you act fast enough!)
Why am I still reading this?
Maybe you don’t realize this is the part where you take over and do something. Here’s where you pop open the box and determine what kind of cat is inside. Do you still feel like you don’t know where to start?
If you feel like you haven’t got enough information yet to start rebalancing your inventory, we’ve embedded lots of great links to lots of great resources (yes, some of them are our resources) in all three parts of this series. Click around and continue educating yourself.
If you feel like you haven’t got enough time or budget to start rebalancing on your own, we have two pieces of good news! 1: You’re in the vast majority, so you don’t have to feel bad. 2: We can help you.
Z5 Inventory can provide you:
- Software to count your shelves quickly and accurately
- Analytics to identify how to get the most out of your supplies
- Logistics to move, sell, and donate your excess efficiently
- Partners to buy and sell the excess you can’t use
- Staff to help with any or all of the above
(At this point, if you pretend like none of this is a problem – let alone one that can be fixed – we’re telling the authorities that you neglected some poor, defenseless kitty. They might be mad at us when they find out that the cat is metaphorical, but when they find out the amount of medical supplies that will be wasted for no reason other than convenience, they’re probably not going to be crazy about you, either.)
Special thanks to everyone from every department of Z5 Inventory who helped contribute to this series. The problems of rebalancing the supply chain touch so many different departments that we needed more varied perspectives than usual.
But you’ll never know until you look.