To Cure a Sick Supply Chain

Sept. 28, 2006
Under stress from too much complexity, wasteful practices and the competing interests of stakeholders, the healthcare supply chain is in urgent need of

Under stress from too much complexity, wasteful practices and the competing interests of stakeholders, the healthcare supply chain is in urgent need of radical surgery. Where and how to apply such a treatment is uncertain. The MIT Center for Transportation & Logistics (CTL) has launched a major initiative to find out what ails the supply chain and which cures are the most effective.

In the United States alone the healthcare supply chain involves more than an estimated 650,000 different organizations, including manufacturers, distributors, carriers, physicians, hospitals and patients, explains Mahender Singh, a CTL research associate. As if this were not convoluted enough, products and services are often combined in treatments, demand is uncertain, and there is a lack of standardization among providers. The industry is also caught up in a tangle of conflicting regulations

Supply chain failures can have life-or-death consequences, as a result “efficiency and cost concerns are trumped, often unjustifiably, by the dictate for superior patient care,” Singh says. A more effective supply chain could improve the availability of treatments, respond quickly to sudden demand surges, ensure pedigree, and raise the efficiency bar and cut costs. Another potential benefit is reduced errors rates.

The new research initiative was inaugurated this August with a roundtable of industry representatives. These discussions, and initial research carried out by CTL, have highlighted a number of areas where more research is needed to shed light on the supply chain ills that afflict the healthcare system.

Many roundtable participants shared horror stories of waste and inefficient practices. One participant described a customer who used air freight for items that went into long-term inventory. Another recounted how individuals ordered 100 units of a product which they had not even used 30 units of in the previous year. Uncoordinated buying led to different groups in the same facility paying different prices for the same goods and ordering uneconomically small quantities. Participants in the roundtable estimated that the PC/high-tech industry is 15 years ahead of healthcare on supply chain performance.

A fundamental question is how to define such an amorphous industry. As Singh points out, healthcare supply chains can be segmented based on the nature of demand flows that include products that offer nutritional benefits or overall wellness. Understanding the intricate web of relationships that make up this overall supply chain is a more complex challenge. For example, some manufacturers of medical devices possess special expertise that requires them to work very closely with physicians. At the same time the exchange of information is restricted by patient confidentiality requirements.

Singh has mapped out a basic industry structure that takes account of players that are “instrumental in shaping the core interactions in the healthcare sector and wield significant power to influence the overall supply chain network design.” They fall into six core areas: health aids, pharmaceuticals, medical devices, medical/surgical, radiology/lab and capital equipment. “There are six different types of demand triggered when a patient enters the system,” he says.

CTL is now collaborating with industry stakeholders to generate a list of primary research questions. The next step will be the launch of a healthcare supply chain research group. “We intend to find ways to improve this supply chain and in the process extend the benefits of a more efficient healthcare system to a broader community of patients and providers,” Singh says.

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