An Intelligent Supply Chain at Boston Children’s Hospital – A Mechanism to Reduce Operating Costs
Supply chain represent close to a third of the average hospital’s overall operating expense. Hospitals should explore new methods for utilizing existing technology as well as implementing new systems to enable cost reduction.
The 404-bed Boston Children’s Hospital receives roughly 25,000 inpatient admissions each year and its specialized clinical programs schedule about 557,000 visits annually [1]. Having the supply chain represent close to a third of the average hospital’s overall operating expense, we realize the hospital should explore new methods for utilizing existing technology as well as implementing new systems to enable cost reduction. As the healthcare market transforms in the US and is being more focused on enhancing the quality of care, improving access, and making care more affordable for patients, the focus on a digitalized supply chain ecosystem has greater value than ever before [2].
Since assuming his position of the director of supply chain administration at the Boston Children’s Hospital two years ago, David Walsh has been focusing on technology and automation to help minimize financial waste and support more transparent, data-driven choices. Walsh has introduced Prodigo [3], a SAAS based e-procurement platform that enables the hospital to automate, streamline, and speed up requisition creation, submission, and approval processes. This solution aims to bring all departments to use the one centralized procurement system. Transparency among internal stakeholders and external suppliers, distributors and manufacturers, in real time, enable all parties to plan more accurately and thus to cut down costs and increase customer service. This enables the different parties to not only react to disruptions but anticipate them and adjust the supply chain as conditions change [4]. This new transparent ecosystem helps prevent a “bullwhip” effect and enable suppliers to be leaner and more proactive, lowering inventory and cost while improving service to customers through improved tracking and alerts, and shorter delivery times. Just as Tony Vahedian, Cardinal Health’s General Manager of Medical Services and Solutions, said: “We have blind spots. Not everybody in the supply chain can see everything. There’s a lot of cost that’s caught in the chain, whether it be with excess inventory or clinical workflow” [5]. The usage of the online automated system assists with these blind spots.
Today, all the hospital’s vendor contracts are available in an electronic system. When an order is placed in the system it is transmitted directly to the vendor, sending an electronic invoice back to the hospital. This system has been in use for the past few years, but is continuously being updated and becoming more accessible throughout the hospital. To enhance price reduction, the system supports comparisons between approved vendors and non-approved vendors and to reduce labor work and errors the whole process is done automatically. As this system contains large amounts of data the hospital should learn how to utilize the data for future decision making.
Furthermore, the hospital’s transformation to a just-in-time inventory management system increases efficiency and decreases waste. The system implemented uses weight sensors to track usage of inventory and omits the intervention of humans and ensures sufficient level of inventory. When the level of inventory goes below a sufficient level, additional products are automatically ordered. Additional systems to track expiration dates of products have also been introduced in some departments of the hospital and should now be implemented in the rest of the departments. The hospital should take advantage of this just-in-time inventory management system to enable patients to request specific medical products to enhance their treatment which can then become quickly available. Also, as inventory is minimized, the hospital may optimize the space previously used for storage [6].
It is notable that the hospital has been implementing Industry 4.0 digitizing and integrating processes within its supply chain. During the summer of 2017 the hospital received the Healthcare Supply Chain Achievement award from the ECRI Institute [7] for demonstrating excellence in overall spend management and in adopting best practice solutions in its supply chain processes. But, there is much more that can be done.
Looking ahead, the hospital should seek additional ways to reduce cost and optimize for the best quality services by utilizing the data derived from the automated and digitalized supplychain. For example, implementing an automatic tender between suppliers – as access and changes become more flexible the suppliers will have a greater incentive to keep prices down and maintain high level of service. As the hospital transferred to a centralized transparent system, different metrics should be used to measure and drive decisions and all demand and inventory is stored in a centralized database such as optimization of supply between different departments.
As the hospital implements new technologies there is a need to employee people with the right skills. Can the hospital train existing employees to work within the new ecosystem? Will these employees be willing to adapt the new digital culture or will the hospital need to hire new employees and replace the existing ones? Is there room for re-organization of the hospitals’ departments now that the entire supply chain is managed from one place?
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[1] Kat Zeman, “Boston Children’s Hospital,” August 25, 2017.
http://www.scw-mag.com/sections/healthcare/890-boston-children-s-hospital, accessed November 2017.
[2] Jacqueline Belliveau, “ 3 Most Common Healthcare Supply Chain Management Challenges,” January 4, 2017
https://revcycleintelligence.com/news/3-most-common-healthcare-supply-chain-management-challenges, accessed November 2017.
[3] https://www.prodigosolutions.com
[4] Schrauf, Stefan & Berttram, Philipp. “Industry 4.0: How digitization makes the supply chain more efficient, agile, and customer-focused,” PWC, September 7, 2016. [https://www.strategyand.pwc.com/reports/industry4.0], accessed November 2017.
[5] https://revcycleintelligence.com/news/why-executives-are-demanding-supply-chain-management-value
[6] Sophie Rutherford, ” The Healthcare Supply Chain: 2017 and Beyond“, January 10, 2017, https://www.jumptech.com/newsroom/blog/the-healthcare-supply-chain-2017-and-beyond/, accessed November 2017.
[7] ECRI Institute is a nonprofit organization dedicated to the discipline of applied scientific research to discover which medical procedures, devices, drugs and processes improve patient care
Thank you for writing this piece as it is a massive issue in both the healthcare services space as well as medical research and life sciences. As you mentioned, leveraging buying power within the organization and increasing utilization across departments substantially reduces excess waste and costs. In my career, we also assessed an interesting business that was digitalizing the supply chain for large capital purchases within hospital and health systems in Boston. Rather than focus on small dollar purchases like gloves, vials, etc., it instead focused on increasing utilization of capital equipment such as beds, tables, and MRI machines. Often times, hospitals don’t know that is in their current inventory system even for items that cost as much as several hundred thousand dollars. This business sought to use a sharing model that increased utilization, reduced waste, and gave users access to a database that enabled them to track spend across the affiliated health system. The reason the business ultimately failed is directly tied to one of your points on employee adaptation. Nurses, physicians, and procurement personnel have used pen and paper or siloed procurement methods for decades. Even when they did utilize this company’s database to look at pricing, hospital personnel were often unwilling to input their own data due to lack of training with the system, limited belief in the ROI, or a competitiveness across departments. I do believe that the future of the healthcare supply chain will be digitalized, but I think it will take leaders such as Boston Children’s to help prove the system before all stakeholders buy in.
Your essay thoughtfully documents a very difficult change management process for Boston Children’s Hospital and I believe you correctly identify what will be the biggest challenge faced by Children’s in truly implementing Industry 4.0 which will be training the myriad types of providers who will be interacting with this system and integrating it into their minute-to-minute workflows. There will need to be a highlighted focus on utilizing the digitization of supply chain management to free provider space in dedication of patient care as opposed to lowering costs, which in the the mission-driven and nonprofit context of Children’s will not be effective in motivating frontline employees to make painful change. I find your point on the necessity to adopt new metrics intriguing as well, and I wonder if there might be a way to integrate new supply chain management metrics with patient care metrics to make them more motivating to providers.
Nicely written piece. I agree that the issue of motivating employees and subsequently determining the appropriate organizational structure are critical. I also would have questions regarding the impact on suppliers’ businesses. Traditionally, the hospital supply model has focused on bulk purchasing and scale. As suppliers must adjust to smaller orders with less lead time, will there be disruptions in quality or delivery? A hospital faces a significant cost of failure, and must overcome the urge to err on the side of security over efficiency. Boston Children’s appears to be on the leading edge of the learning curve, but the path to adoption at scale is murky. Clear and compelling communication of the ROI to stakeholders is essential, as well as demonstrating how the use of data has demonstrable long-term benefit.