Having had some disagreement with a previous post by Kevin O’Marah of Gartner about S&OP, I was very pleased to get his weekly “First Thing Monday” in my inbox the other day. It is titled “Healthcare Needs Supply Chain ... Stat!” Yes, it does. Like Kevin mentions, I too have played at being US President for a day and fiddled with the New York Times “Budget Puzzle: You Fix the Budget” game. These are tough choices and a lot more complex than the game suggests. But healthcare is one of the greatest contributors to the US budget deficit. Kevin refers to an article in The Guardian that points out that
… U.S. citizens are dramatically more likely to lack access to healthcare, but that spending per person is higher than it is in Britain by $7,538.
The article in The Guardian is based on a survey run by The Commonwealth Fund which shows a dramatically lower access to healthcare in the US; despite a much greater spend per person.
While the argument that the survey by The Commonwealth Fund focused on those in the US without access to healthcare and doesn't measure the overall satisfaction with the US healthcare system has some merit, the survey still points to an ineffective and inefficient US healthcare system. Last week I attended the Gartner Healthcare Exchange in Boston. This was one of the most fulfilling and eye-opening days I have spent recently on a professional basis. As Bob Ferrari comments,
…one of the most insightful portions of the program involved a lively panel discussion that included four industry executives representing Orlando Health, Dana Faber Cancer Institute, Cook Medical, and Broadline Group. It was one of the better executive panel discussions I’ve observed this year.
Some startling statistics and observations came out of this discussion which I have not been able to verify. But I will assume that they are directionally correct, if not absolutely correct.
- “Three breast implants go out by overnight Fedex, and two come back overnight Fedex.” Who pays for this? Where is the incentive to reduce this cost? Why were three implants required in the first place? I am sure this was not emergency surgery, so why were the implants sent by overnight Fedex? You can bet your bottom dollar that the operating room was scheduled some time ahead.
- “40% of nursing time is spent looking for items not on the shelf.” “15% of product expiring on hospital shelves.” Even if these numbers are off by a long way, and I have no reason to believe they are, these two statements side-by-side are a clear example of the wrong inventory at the wrong place at the wrong time. Even if we halve these numbers and assume the reference to nursing looking for items is related to the manner in which the materials are organized and the reference to products expiring refers only to drugs, these numbers add up to huge inefficiencies in the supply chain. While undoubtedly there are inefficiencies in grocery stores, there are examples from other industries, particularly grocery retail, that address many of these issues more effectively and more efficiently.
- “Hospitals think consignment stock is not a problem. They should be charging for the storage space.” At the very least the cost of financing the inventory, not to mention the cost of scrapping the inventory that has expired, will be passed on to the hospitals and therefore to the patients.
- “Most people who take care of inventory in hospitals have no training in inventory management. They are usually nurses who have been reassigned.” Let’s face it, there is a big difference in an out-of-stock condition in your local electronics store and in a hospital pharmacy. But the nurses are already struggling to find items on the shelf, some of which has to do with inefficient stocking policies. Would you get an inventory analyst to administer a morphine drip?
The 2 parts of the healthcare supply chain that distorts the system the most are the distributors and the payers, not necessarily in and of themselves, but because the demand signal is so distorted by these parties. But these are easy targets and my sense is they were being used to deflect from inefficiencies throughout the healthcare supply chain from manufacturers to distributors to retail pharmacies to HMO’s to hospitals to payers and whatever other actors there are in the supply chain, or, as Gartner prefers to call it, the value chain. But I left the conference wondering who represented the patient? No-one at the conference anyway.
The reason this is important is that Wal-Mart’s “everyday low prices” mantra is driven largely by consumers voting with their feet. Without the “voice of the customer” being loud and clear it will be left to the government to mandate change in the healthcare supply chain through legislation. Which is something no-one wants. Having lived as an adult in six different countries with six different health systems, I can state categorically that while the issues of inefficiency in the healthcare supply chain are not restricted to the US, it is where the inefficiencies are most apparent.
While I hesitate to suggest a change, end-to-end visibility of the demand signal has been demonstrated to have a dramatic effect on behavior throughout the supply chain. The famous MIT Beer Game, dating from the 1960’s, springs to mind. So let’s get started and let’s use supply chain principals from other industries as guideposts.