Topic: Purchasing and Inventory Management
Describe the role of either supply chain, purchasing, or material management within healthcare. Next, assess the overall impact this area of management has on inventory, optimization, and cost minimization?
Describe the role of either supply chain, purchasing, or material management within healthcare.
Supply chain management (SCM) is an important part of any business operation including health care. The supply chain is about the supply and demand of goods and services in an organization and its process involves how goods move from the manufacturer, their procurement, storage, transportation and to them being stored as inventory (Langabeer & Helton, 2021). They supply chain management works together with suppliers, intermediaries, third party service providers, and customers. SCM is more concerned in reducing costs through the chain, by reducing inventory holding costs and to improve customer satisfaction. According to (Arora & Gigras 2018), the efficiency of the supply chain management is improved processes, good use of resources, and effective treatment. The mission of supply chains is “providing the right goods, at the right time, to the right location, at the right price, in the right condition” (Langabeer & Helton 2021, p. 208). The role of SCM are the following;
To provide an end-to-end integration of business process and system. If well executed, SCM will ensure the availability of medical supplies at the right time, minimize inventory waste, improve patient quality of care, minimize human error, streamline workflow (Arora & Gigras 2018). SCM ensures that there is sufficient inventory so it can be readily available in times of need and for economic viability. There are limitations in failures and monetary loss due to shortages of resources or supplies, faulty equipment that can not be replaced, and expired medication due to poor inventory management in the supply chain.
Assess the overall impact this area of management has on inventory, optimization, and cost minimization?
“The product flow of the medical resources includes the supply of pharmaceutical, medical, surgical consumables, medical devices, hygiene consumables, food supplies, equipment and other supplementary products required to support doctors, nurses, and patients of hospitals” (Lucchese, Marino, & Ranieri 2020). The SCM has several components as mentioned before, but there are only two main components that make healthcare more function in the supply chain process, the manufacturers, and the distributors. An effective use of these two components will help an organization in inventory management and will minimize costs.
Inventory and optimization – the supply chain starts with the manufacturers who produce a hospital’s goods or what will end as its inventory. A hospital purchases goods from manufacturers and distributors and keep them as inventory especially when they are not ready to be used or resold due to the uncertainty of demands. This inventory represents the dollar value of materials, and they are the manufacturer’s assets until they leave their possession to the next stage of the process. By dealing with distributors instead of directly with manufacturers, a hospital saves time and resources because it will not have to deal with multiple vendors in negotiations which require contracts, legal and administrative resources, making things easier for a hospital in the purchasing and inventory management. Langabeer & Helton, (2021) state that distributors hold inventory for their customers to speed up the total order fulfillment cycle time.
Cost minimization – SCM reduces costs through distributing companies by using the concepts of economies of scale and their purchasing power. Since distributors purchase in bulk than what an average single hospital could, it saves hospitals money by purchasing through distributors since they can sell them goods at 20 percent less than what the manufacturer would (Langabeer & Helton, 2021). The increase in the demand for medical services has led to the increase in medical supplies, therefore, organizations focus on maintaining the balance between acquiring sufficient supplies and keeping costs down at the same time (Lucchese, Marino, & Ranieri 2020). When distributors keep inventory for healthcare providers to simplify the purchasing process, there is a charge incurred. Therefore, medical units adopt a strategy where they have their own warehouses, purchasing offices, internal distribution system so that they share transactions with different suppliers and a large quantity of medical supplies is purchased.
“Go to the ant, you lazy bones, consider its ways and be wise. Without having any chief or officer or ruler, it prepares its food in summer, and gathers its sustenance in harvest” Proverbs 6:6-8. Just like ants, health care managers have to manage their supplies or inventory wisely, so they are never short even in tough times, but keeping in mind not to hoard supplies
In general, the supply chain refers to the resources required to provide goods or services to a consumer. Managing the supply chain in healthcare is generally a difficult and fragmented operation. Obtaining resources, managing supplies, and delivering goods and services to doctors and patients are all part of healthcare supply chain management. Physical items and information regarding medical products and services often pass through a variety of independent parties, including manufacturers, insurance companies, hospitals, providers, group buying groups, and various regulatory bodies, to complete the process. Hospitals and medical practices, on the other hand, may offer significant cost-cutting possibilities by improving efficiency in the healthcare supply chain.
Consider what medical professionals use on a daily basis to treat patients. Syringes, prescription drugs, gloves, pens, papers, and computers are among the tools used by healthcare providers. Employees in healthcare supply chain management are in charge of stocking organizations with the items that providers require as well as inventory management (Getele, Li, & Arrive 2020). Managing the supply chain, on the other hand, is more complicated than just ensuring that providers have adequate gloves (Getele, Li, & Arrive 2020). (Ecclesiastes 5:11) “When goods increase, they increase who eats them, and what advantage has their owner but to see them with his eyes?” (ESV 2001)Simply put, supply chain management is the management of upstream and downstream interactions between suppliers and consumers in order to provide greater customer value at lower supply chain costs.
Impact on Inventory, Optimization, & Cost minimization
Because each stakeholder has their own interests to safeguard, healthcare supply chain management is unique. Different stages of the supply chain flow may have their own objectives. Providers may prefer to utilize a certain product because they have been taught to use it, but hospital management wants to buy the most cost-effective, high-quality goods possible (Khorasani, Cross,& Maghazei 2020).
The healthcare supply chain management process can be inefficient and fragmented since supply chain goals are not always matched within an organization. To determine particular product budgets, healthcare institutions must consider a variety of demands and perspectives.
Patients have a say in how the healthcare supply chain is managed (Khorasani, Cross,& Maghazei 2020). Healthcare institutions may be able to order and store the proper sizes of gloves on a regular basis, but depending on their health state, certain patients may require more specialized medical items, such as latex-free alternatives (Khorasani, Cross,& Maghazei 2020).
Similarly, providers may have a preference for a certain brand or kind of medical device, which might result in cost issues. Providers, for example, may prioritize their personal preferences for specific goods, while finance managers want to decrease healthcare expenses and eliminate obsolete products (Khorasani, Cross,& Maghazei 2020). Hoarding or squirreling away of specific products by providers is a common occurrence in hospitals. Clinicians, for the most part, only want the items when they need them, but to make sure that occurs, they frequently stockpile or control their own supply(Khorasani, Cross,& Maghazei 2020). This might lead to hidden costs such as cost variation and off-contract spending. Time spent hunting for supplies or waiting for someone to provide what they need is another hidden cost that is sometimes ignored. Many healthcare companies’ supply chains can be disrupted by misaligned incentives and competing agendas.
Through cost transparency, several healthcare companies have had success with supply chain management. Healthcare companies can better track and manage inventories and create more informed purchasing contracts with manufacturers by leveraging pricing and utilization data.
We dramatically minimize waste and variance in the supply chain when we have visibility of product from completed items to usage on the patient and we really capture demand and consumption rather than just purchasing activities. Everyone’s inventory levels decrease. Expiration of products may be practically eliminated (Getele, Li, & Arrive 2020).
Different automated technologies, such as computerized provider order input systems, which may standardize and speed physician orders, or Radio Frequency Identification technology, which can collect quantities of data from a product’s barcode, can assist companies enhance pricing transparency (Getele, Li, & Arrive 2020).
An important approach for enhancing healthcare supply chain management is to have all hospital departments on the same page (Getele, Li, & Arrive 2020). Healthcare companies are focusing on decreasing redundancy and eliminating waste in the age of value-based care, but providers must also collaborate to successfully cut costs and improve performance (Getele, Li, & Arrive 2020).
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