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Supply Chains for Healthcare Products: Are They ‘Wacky’ or Not?

Supply Chains for Healthcare Products: Are They ‘Wacky’ or Not?. Leroy B. Schwarz Krannert School of Management. Goals of Research. Understand how the supply chains for healthcare products work Medical/Surgical Supplies Pharmaceuticals Devices (e.g., stents, pacemakers)

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Supply Chains for Healthcare Products: Are They ‘Wacky’ or Not?

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  1. Supply Chains for Healthcare Products: Are They ‘Wacky’ or Not? Leroy B. Schwarz Krannert School of Management

  2. Goals of Research • Understand how the supply chains for healthcare products work • Medical/Surgical Supplies • Pharmaceuticals • Devices (e.g., stents, pacemakers) • Understand why they work as they do • Seek “leverage points” for improvement

  3. Improve Efficiency (i.e., lower $/unit in delivered cost) Improve Quality and Safety of Healthcare Delivery Expected Impact

  4. SUPPLIER MANUFACTURER DISTRIBUTOR RETAILER GOODS GOODS GOODS GOODS CUSTOMER ORDERS ORDERS ORDERS ORDERS What is a Supply Chain? Historically (and typically), these chains have been managed independently

  5. ORDERS Information ORDERS Information GOODS GOODS Information Information ORDERS Information GOODS Information GOODS Information What is Supply-Chain Management SCM)? SUPPLIER MANUFACTURER DISTRIBUTOR RETAILER ORDERS Information CUSTOMER Supply-Chain Management means managing the chain as a chain

  6. The benefits of Supply-Chain Management Smaller Inventories Less Capacity Required Shorter Leadtimes Typically: More influence Buyer Influence Over Supplier Supplier Influence Over Buyer Why Supply-Chain Management (SCM)?

  7. The “Gold Standard” is: Why Supply-Chain Management (SCM)?

  8. “Customers” that decide what products to buy and where to buy them “Retailers” that Decide what products to “sell” Negotiate with Manufacturers or Distributors on Prices Understand the “Payoffs” from Strategic Sourcing and Procurement But “Also-Ran” Supply Chains Involve:

  9. Moderate Levels of Information-Sharing Moderate Use of Information Technology in Procurement and Logistics But “Also-Ran” Supply Chains Involve:

  10. Total US Expenditure on Healthcare: $2.1 T 16% of Gross Domestic Product (growing at 6.8%) US Expenditures on Devices, and Medical/Surgical and Pharmaceutical Products: $275 Billion (13% of Healthcare Expenditure) 78% on Pharmaceuticals 22% on Medical/Surgical Supplies & Devices For Hospitals, the 2nd-Largest Expense Economics of Healthcare Supply Chains

  11. Group Purchasing Organizations (GPOs) Negotiate with Manufacturers on Behalf of “Member” Hospitals Do NOT take possession of products Different “Players” in HC Healthcare Supply Chains

  12. Account for 72% of Devices, Med/Surg and Pharmaceutical Products Sold to GPO Members (or Hospitals) Major “Players” Novation Premier Med Assets More on GPOs

  13. Earn Revenue by: Charging “Marketing Fees” to Manufacturers Charging Fees to Distributors for Products Sold “off contract Also offer Additional Services Purchasing/Logistics Services “Networking” Services Learn About Member Purchases From Distributors More on GPOs

  14. Distributors Purchase Products from Manufacturers, Warehouse, and Distribute Them to Hospitals, Clinics, Pharmacies Earn Revenue by Charging Manufacturers for Information about Sales of Manufacturers’ Products Don’t Typically Earn a Margin on Sales “Charge-backs” to Manufacturers Different “Players” in HC Healthcare Supply Chains

  15. Account for the Majority of Devices, Med/Surg and Pharmaceutical Products Sold to GPO Members (or Hospitals) Ex: 63% of Pharmaceuticals Major “Players” Owens & Minor Cardinal Medline More on Distributors

  16. Supply-Chain Management Modeling Expertise Economics Expertise: Mechanism/Incentive Design Health Policy/Regulation Expertise Disciplines Involved/Help Wanted

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