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Priorities are shifting as the healthcare supply chain continues to increase in complexity, with a rapidly evolving channel and distribution network and every country in the world being part of the overall ecosystem of production and consumption. Ongoing macroeconomic and regulatory events are constantly changing the shape of the competitive and operational environment in which supply chain managers make their strategic and tactical decisions.
Limiting healthcare costs to society has become a critical priority. At the same time, the industry faces a rapid rate of change for new therapies and diagnostics and a proliferation of products, many of which require specialized distribution networks. In the U.S., generics are increasingly being sourced directly by large retailers who are procuring these drugs the same way they do other commodities. Also, new biological and human plasma-based drugs require a completely different, temperature-controlled supply chain.
The scale and scope of change is unprecedented.
Cost pressures mounting
Healthcare executives today are under intense pressure as they face increasing competition in this world of complex government regulations, product portfolio expansion, managed care policies, and patient demands to control their own care — realities that continue to diminish the comfortable profit margins enjoyed by the industry for many years.
The tradeoff equation is shifting, with boards and shareholders now expecting companies to balance product availability with cost management, moving efficiency and effectiveness in operational execution and logistics higher on the management priority list.
Many healthcare companies struggle to align their cost structure with market expectations. Participants in the most recent UPS Pain in the Chain survey say that their companies are underperforming. Over the past five years, at least half of all respondents have consistently indicated concern or lack of success with managing supply chain costs. Another study, “Fee-for-Service Contracts in Pharmaceutical Distribution Supply Chains,” from 2012 made the bold statement that supply chain management is an area that the pharmaceutical industry knows least about.
Key steps to drive efficiency
While every management team approaches challenges differently, high-performing companies can tune performance and increase efficiency by using a set of core disciplines to align their supply chain with the demands of the healthcare industry:
View the supply chain as a strategic asset.
Develop an end-to-end process architecture.
Be deliberate in designing an organization for performance.
Build an effective model for collaboration.
Supply chain ‘coming-of-age’
Clearly, the future of any healthcare business rests partly on its ability to create a supply chain that anticipates customer needs and stays ahead of them. Consequently, the choice of a logistics partner is one of the most important that a business owner will make. The wise decision maker knows that there are considerations beyond price.
The world is getting more complicated, especially in healthcare. Healthcare and life science companies have to be prepared. Smart companies pay attention to their supply chains, anticipate what’s coming, and invest and partner accordingly.
As the healthcare supply chain experiences a “coming-of-age,” more than ever before, senior management understands logistics is not only a cost center, but also a potential competitive differentiator.
Note: This excerpt was taken from “The Health of the Healthcare Supply Chain” white paper, sponsored by UPS, as a supplement to the annual UPS Pain in the Chain survey. To download the complete white paper, click here.
About the author
Shoshanah Cohen is a global thought leader in the field of supply chain strategy. She is co-author of “Strategic Supply Chain Management: The 5 Disciplines for Top Performance” and one of the original developers of the Supply Chain Operations Reference-model (SCOR®). She currently serves as director of Community Engaged Learning at Stanford University.