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Isn’t this the most interesting time in US healthcare? Actually, in healthcare across the globe? Because no matter how your healthcare system is funded, the containment and management of supply chain costs is a constant business reality we are all facing. To that end, supply chain is finally coming into its own in the C-Suite of most organizations. We are realizing, as an industry, that what has worked in the past will no longer work in our emerging reality — on all sides of the business equation. Everyone has to participate in the change.

 

Now, talking business focus and discipline is not always a welcomed topic when clinical services are involved. There is the variance and urgency of care delivery coupled with the true life-or-death nature of many clinical areas. However we can still leverage the lessons of other industries to begin to hone in on the best business practices that can support the delivery of “exquisite care”. A big part of the challenge is finding the balance between a more disciplined businesslike approach and the unique demands of clinical care.

 

Improving, or maintaining, operating margin is a basic business fundamental and critically important to care-delivery sustainability. At this point most organizations have fully implemented cost cutting programs which will continue to provide incremental margin contributions, but at diminishing rates. So where do we look next to close the spend? What can we adopt from other industries? How do we balance the opportunities or gauge organizational tolerance for risk?

Well, at this point, risk is not an option! Or as one of the speakers at the recent Becker’s Hospital Supply meeting said, “We cannot be afraid to make big, giant changes.” This was followed shortly afterwards by, “It is the dynamic of bureaucracy colliding with entrepreneurial energy.” Two quite aligned sound bites. Change and risk are going to drive creative processes, partnerships and approaches that in turn will turn the historic healthcare business models on their heads.

 

It is a basic business fundamental for many manufacturing, retail or service delivery businesses that the organization has to manage their “cost of goods”. These organizations do not outsource this critical element of business operations. They understand the importance of business discipline in managing their supply chain assets and the fine balance of resource management.

 

This has been translated for IDNs with the emergence and increasing acceptance of Consolidated Service Centers (CSC) or Shared Service Organizations (SSO). CSCs and SSOs are a dramatic business model change for healthcare. It reflects the collision of bureaucracy and entrepreneurial spirit. And, based on research by Jamie Kowalski and Jim Grieger that was presented at last year’s AHRMM meeting, it is a successful model. A few highlights of their findings:

 

  • Of the 21 US- and Canadian-based organizations that participated in the survey, no two CSC/SSO models were exactly the same – so it is a creative business model that can be adjusted to meet the unique needs of each organization.
  • The investment in a CSC or SSO achieved a return on investment 35% faster than projected, the mean planned ROI was 45 months and the actual mean return was 29 months – so it is a financially successful model.
  • The implementation of a CSC or SSO enhanced the standardization of products and processes – a key reason organizations often look to centralizing aspects of business operations.
  • They also found the CSC/SSO model supported cultural and operational alignment of the organization – an unexpected benefit with wider ranging impact.
  • Distributors continue to have an important role in the trading partner relationship – but it is a relationship that is evolving with the times.

 

Many folks look at the CSC/SSO model and say it is a “trend”, that “we tried this in the 80s”, and “this is too radical!” Well, given the results that Kowalski-Grieger have documented I think there is an argument that this is a successful, different business model whose time has come, not a trend. The difference between today and the 80s is the availability of technology and data that can support the transition to this new model. And yes it is radical, for healthcare, but “business as usual” in other industries.

 

If you are intrigued by this model or have questions about the fit for your organization, connect with us! We have the expertise to help you realize the supply chain of the future for your organization!

 

Thanks for reading!


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