The Three Pillars of Supply Chain Savings: Content, Contracts and Connectivity

U.S. hospitals are struggling to remain financially viable, margins are thin and reimbursements are being reduced at an incredible rate. We need to reduce costs and improve quality of care to survive.


Everyone in the business of providing healthcare is at a critical juncture right now. U.S. hospitals are struggling to remain financially viable, margins are thin, and reimbursements are being reduced at an incredible rate. The industry needs to reduce costs and improve quality of care to survive.

A vertically integrated supply chain model, which manages supply chain functions that had previously been sourced from outside parties, could be the answer. ROi, a leader in health care supply chain management, has seen great success with this model, which includes a $4.4 billion GPO with a broad portfolio of more than 1,500 contracts, a private label brand with more than 2,000 SKUs, a Consolidated Services Center (CSC) through which they manage everything from warehousing to transportation, and their Custom Pack Solutions (CPS) operations that manufactures more than 600,000 custom surgical procedure kits for multiple health systems.

The vertically integrate supply chain model can be applied to any healthcare organization, including those that rely on external business partners (GPOs, manufacturers, distributors). The key to successful supply chain transformation is data standardization, systems automation and integration, and partner connectivity. 

Today the healthcare supply chain is large and disconnected with various parties using their own disjointed systems, disparate processes (in many cases manual), and discrepant data. As a result, the business of healthcare is plagued by errors, inefficiencies and delays that not only increase labor and costs, but also can jeopardize patient care and safety. 

The industry needs healthcare providers, GPOs, manufacturers and distributors to collaborate, integrate systems and communicate in an electronic and automated manner, using common platforms, standardized processes and synchronized data. The efficiencies gained through cleaner data, accurate transactions and the elimination of re-work directly translate into real dollars saved. 

When considering all the ways that the parties to the healthcare supply chain interact with each other, and all the inefficiencies and errors that exist in their current interactions, it can be overwhelming to imagine how to fix what’s broken. 

The key to driving inefficiencies and costs out of the healthcare supply chain is for healthcare providers and their business partners to focus on three pillars: content management/data standardization, contract management/data synchronization and connectivity/process automation. These three areas are critical to overcoming the challenges facing the industry today, whether or not you are a healthcare organization that is using an integrated model. 

Content Management and Data Standardization

Nothing good comes from bad data. Rather, the use and transmission of poor quality data within a healthcare provider’s systems and to/from external business partners is a significant driver of costs throughout the supply chain. 

The item master has been referred to as the center of a healthcare organization’s universe because its content drives a broad range of business functions—from procure-to-pay processes all the way out to patient billing. Now that health systems and hospitals are using item masters to document product usage in electronic health records (EHR), improving the quality of this data is even more critical. 

Data standardization is crucial to improving communication both within provider organizations and out to external parties. A virtual item master solution can standardize product data so that everybody is speaking the same language—clinicians when documenting items, materials management during the ordering process, as well as the manufacturing, distribution and GPO functions. As a result, communication is dramatically improved. 

Contract Management and Data Synchronization

The contracting process in healthcare is extremely complex, inefficient and error prone.

There are hundreds of contractors and suppliers and thousands of prices. The four parties to a contract—manufacturer, distributor, GPO and provider—must work together to integrate and disseminate contracts and prices, which traditionally happens slowly and manually in silos with each party using its own disjointed systems and disparate processes. 

In its early days (and even still today), many company’s managed the process manually with fax and email, which resulted in delays in contract activations and miscommunication. Contracting staff wasted countless hours trying to determine when a contract became effective and if the organization was entitled to a certain price on a certain date. Everyone lost money in labor costs related to this complex and time-consuming process. 

Significant efficiency gains and cost savings can be made by moving to a four-way collaborative platform that enables all parties to a contract to agree on key terms and conditions, quickly generate an electronic LOC (eLOC), and efficiently and effectively integrate and activate contracts and prices across the entire process.  

ROi was one of the early adopters of this solution, which they believe is a game changer for the healthcare industry. A collaborative platform advances the entire industry’s approach to how it manages prices and contracts in terms of activation. By using a common, electronic platform to automate the contract management process and synchronize pricing data, supply chain partners are collectively driving out inefficiencies and costs—and that benefits everyone. 

Connectivity/Process Automation

While the use of electronic data interchange (EDI) transactions in healthcare is not a new practice among most healthcare trading partners, it remains a critical pillar in the successful integration of supply chain processes. The use of an industry-wide, cloud-based supply chain technology exchange platform where providers, manufacturers and distributors can share data, automate business processes and transact electronically is a tremendous asset and one that should not be underestimated. The efficiency and cost savings that this solution has delivered throughout the healthcare industry—and continues to deliver—is tremendous. The industry must continue to find new ways to leverage this platform and the community it enables to drive new solutions and efficiencies for the supply chain. 

Healthcare costs are rising at an alarming rate—this concerns me not only from an industry perspective, but also from a personal perspective when I think of the affordability of my own healthcare, and that of my children. We are in the middle of a national crisis and all parties involved in the delivery of care must come together to solve it.

While each party to the healthcare supply chain is busy trying to address what they perceive to be their own issues related to process inefficiencies and non-value-added costs, the whole is much greater than the parts. The integration of those parts and collaboration among the parties delivers far greater value in terms of efficiency and cost savings. 

While a vertically integrated supply chain model presents one solution for greater supply chain integration where all the various functions are internalized, all healthcare providers will continue to rely on external business partners for efficient contracting, procurement and distribution of supplies. But the current model is unsustainable. The only way for the healthcare industry to achieve significant and sustainable cost savings is for each of these parties to break out of their silos, integrate their systems and processes, standardize their data, and engage in electronic collaboration and communication using common platforms that meet the unique needs of each party. These solutions exist today. I urge others in the healthcare industry to take advantage of the opportunity in front of them to improve healthcare and reduce costs.