Healthcare is a unique value chain. Its demand arises not from want, but from need. Orders come not from the customer (patient) but from an intermediary (a doctor). And willingness to pay is often infinite. How can the supply chain principles that drive CPG and hi-tech work here?
The answer is pretty darn well, but we’re just getting going.Hoping to understand the process of change, I interviewed Barry Blake, a colleague at SCM World who has dedicated the last ten years to helping manufacturers, distributors and providers work toward a better healthcare value chain.
Q) What progress have you seen with the injection of supply chain thinking into healthcare?
A) It started with a simple realization that the concept of supply chain excellence does in fact apply to healthcare and that it can make a real difference. Inefficiencies persist of course, and no one should expect a clean break with the past, but right now we’re in a period of radical experimentation.Pioneers like ROi, the supply chain division of Sisters of Mercy, are jumping ahead with completely new concepts of patient delivery, while holding firm on cost control. Their aggressive experimentation with Mercy Virtual could lead to breakthroughs in thinking about holistic delivery from hospital to home that deliver dramatically higher satisfaction for patients with far lower costs. It’s a data-driven, full lifecycle approach similar in concept to what many hi-tech and industrials are trying to get to with ‘X-as-a-service’ business models.
Learning from Others
Q) Why has the sector suddenly embraced supply chain thinking?
A) It hasn’t really been sudden, but it has been revolutionary. For years we always heard “pharma is different” and the like from practitioners stuck in an old model. The combination, however, of cost pressures arising from an evolving payer structure and amazing advances in biomedical science finally forced a rethink of what supply chain means in healthcare.
The will to learn from other industries has been exemplary in recent years and that has begun to show results. CPG supply chain leaders have taught healthcare about demand responsiveness. Hi-tech and aerospace have helped with lessons on commercializing innovation. Retail has shed light on customer centricity.
Examples of Excellence
Q) Can you cite a couple of examples of supply chain excellence in healthcare?
A) Kaiser Permanente, for instance, is leading the way with holistic medicine. Similar in concept to the work being carried out by ROi, Kaiser explicitly links individual patient care with public health, economic development and community growth. In its big markets like California, for instance, it’s using this approach to reduce both costs and suffering by caring for patients as part of a wider community, rather than as one-off transactions. In supply chain terms, the approach is not far removed from what Amazon Prime does in building a full lifestyle picture of customers.
Johnson & Johnson is another. By experimenting with emerging digital technologies like 3D printing, collaborative robotics and IoT, it’s developing radical new approaches to continuous manufacturing and batch-of-one production that emulate pioneers in other industries like BMW and General Electric. It’s moving very fast and looks very promising.
The Road Ahead
Q) What’s the outlook for the future of supply chain management in healthcare?
A) All good. Perhaps most important, there is near unanimity that going back ten years to a transaction-driven, fee-for-service model, is insanity. In fact, a 2012 study by the Institute of Medicine found nearly $800 billion a year of waste in the US alone due to fee-for-service inefficiencies. Value-based medicine is increasingly accepted as a better way to approach designing the healthcare value chain.This applies all over the world, too. Work underway within the SCM World community includes a collaborative effort with the Bill & Melinda Gates Foundation to equip a series of resource centers in Africa that emulate the holistic healthcare model seen at Kaiser, but scaled to fit the radically different economics and public health needs of the region.
It’s been an amazing learning journey so far. Listening to Barry gives me confidence for the decade ahead.