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Supply Chain Management in Healthcare – Concept, Agents & Improvement Opportnities

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Supply Chain Management

In today’s modern era where Globalization is the buzzword and people are thriving for excellence and head-on competition is seen everywhere, Supply Chain Management or the SCM is regarded as one of the most widely used strategies by the organization to compete in the global environment. The world is moving on the path of 3I’s i.e. Integration, Interdependence and Interrelation. With the desire to succeed and pursue excellence in the field and achieve core-competency, companies are investing largely in modernizing their supply chain with the motive and objective to provide the end users with the right goods of right quality at the right time and at a right price.

Talking of Healthcare industry which again is a highly sophisticated service industry, we can see that it is quite difficult to predict the need and requirement of the industry and due to varied people, proper and efficient SCM implementation is becoming a tedious task. As a result of which the industry is seen losing large amount of revenue due to mismanagement of inventory etc.

Read on GWI about Global Health Care Industry.

In order to eradicate the losses and make the industry a highly effective and efficient one, it is very important to re-structure the chain so that changes can be implemented. Also changes like the disaster management, security, visibility needs to be implemented so that through the value chain the co-ordination can be achieved; thus leading to the fulfillment of the objective of the healthcare industry which is:

“To transform sick patient to healthy person at a reasonable cost, in the shortest possible time with utmost satisfaction of the patient”

According to Wikipedia, Supply Chain Management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. A supply chain can be defined as the physical and informational resource required in delivering a good or service to the final consumer.

Thus in short and crisp terms SCM can be depicted by the following figure:

With the sole objective of:

  • Creating a net value,
  • Building competitive infrastructure,
  • Leveraging worldwide logistics and
  • Synchronizing supply with the demand.

In recent years, effective supply-chain management has emerged as a significant competitive advantage for companies in very different industries. Leading companies like Wal-Mart, Dell Computer, Hewlett Packard etc. are differentiated from their rivals more by the way they manage their supply chains, than by the particular products or services they provide.

Supply Chain in Healthcare Industry

Supply chain management has been implemented in industries across different sectors for efficient management and flow of goods but on the contrary Supply chain management in healthcare has lagged. This has partly been due to the fact that healthcare deals with finished products.

Agents in Healthcare Industry

Basically Healthcare industry is categorized as a services industry and has uncertain demand and supply due to which it is extremely tedious to match its demand and supply. Like supply chains in different industries, the health care “supply chain” consists of multiple independent agents, such as:

  • Insurance companies
  • Hospitals
  • Doctors
  • Employers and
  • Regulatory agencies.

The economic structures and objectives of these agents differ and in many cases conflict with each other.

Schneller says:

“Healthcare is an industry where supplies have not been seen as assets, and if you don’t see something as an asset, you probably don’t manage it”

In order for the health care industry to leverage on supply chain it is very important that the co-ordination between these agents in the chain is perfect. Standardization of products is one of the major approach which when incorporated can   help industry grow and reach heights. SCM in healthcare thus deals with the management of materials/equipments, manpower like doctors, nurses and other supporting staff.

Read on GWI Why and Where to invest in India’s Healthcare Industry.

The task of different departments is defined separately. The task of the purchase department is to procure the inventory at lower prices without compromising on the quality. Also it is aimed at reducing the lead times with the suppliers so that the goods can be supplied soon. Inventory policy links the supply of goods to the consumption patterns so that overall inventory level can be reduced thus helping in saving cost. E-procurement is done so that the database gets updated automatically subsequent to each and every issue of material /medicine etc to enhance efficiency.

Supply Chain Improvement Opportunities

Following are the key areas where process improvement opportunities can be seen:

i) Disaster Recovery

Disaster recovery planning has lagged behind in supply chain which is a big problem in healthcare because in healthcare industry lives are at stake. Simply carrying large amounts of product inventory does not solve the issue. Effective action is to develop systematic contingency plans, which includes factors like alternative production sites, manufacturing flexibility, factory-direct shipping capabilities, offsite backup and critical safety stocks.

ii) Supply Chain Integrity

Quality assurance is a crucial healthcare supply chain function as it ensures that the patients receive safe therapies. Technologies such as radio frequency identification (RFID), offer the prospect of ensuring supply chain integrity.

iii) Network Complexity

Healthcare supply chains are very complex. Hospitals are combining with clinics and other providers under common management. Manufacturers, distributors, and providers largely operate independently from one another. Thus it’s high time when Healthcare supply chains need to move towards an integrated “demand-pull” model instead of demand push, so that manufacturers have much earlier and clear visibility into actual consumption.

iv) Disintermediation

The prospect of disintermediation, moving product directly from manufacturers to providers, is growing stronger in healthcare supply chains. The explosion of network complexity is creating important opportunities for distributors to develop value-added partnerships with manufacturers and providers thus making the chain efficient. This repositioning will accelerate over time and will help them gain the market share who can facilitate the change on the other hand for those who try to stem the tide will lose both share and profitability.

v) Value visibility

The current pricing structures reinforce the inefficiency of the fragmented healthcare supply chains. Distributors negotiate volume discounts from manufacturers, and offer discounts to providers. Some distributors have driven up channel inventory by chronic forward buying against expected price increases. Clear visibility into value creation is lost in this chaos which is the precondition for major improvements in supply chain efficiency.


Supply Chain Management is not merely a buzzword rather it is a concept, a strategy and a approach which is proving its worth in hospital management not only in India but across the world. Statistically it has been seen that the hospitals which implemented SCM successfully have recorded a minimum 50% inventory reduction, while a 40% increase in on-time delivery, doubling of inventory returns coupled with nine-fold reduction in out-of-stock rates.

The supply chain can be regarded as the glass pipe where information about an order is completely visible, in the chain from top to bottom i.e., from supplier to manufacturer, to distribution center to transporter, to customer. Fully computerized procurement and distribution system let hospitals to run the SCM at the speed of thought. The tomorrow’s supply chain management will be completely developed on artificial intelligence with the advent of rapid implementation of internet biotechnologies, integrated through effective sharing of data and cost saving at every point.


Niraj Satnalika

Niraj is an MBA in International Business (Finance). Prior to this he completed B.Tech in Electronics and Instrumentation. He is currently working with Confederation of Indian Industry (CII), Kolkata in capacity of Consultant. Satnalika is actively involved with an NGO and works towards promoting education among the underprivileged.

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