Canadian Shipper

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A healthy State


How SCM can improve Canada’s healthcare industry

In a presentation to the Chartered Institute of Logistics’ GTA region chapter last fall, Jim Eckler, President, Eckler Associates, discussed the issue of “unsustainability within the healthcare industry.”

Healthcare costs are rising at double the rate of inflation, and 25% of healthcare spend is supply chain related. The healthcare industry also represents 12% of GDP in Canada, Eckler noted.

“Healthcare is the largest industry in the country, and there are fundamental issues of sustainability. There are some significant success stories and solutions. When we talk about the healthcare industry what are we talking about? Wholesalers, distributors, medical equipment, service providers, hospitals, primary care facilities, governments, insurance companies, etc. At the centre of this are the patients. When it takes that much money there not much left for other spending,” he said.

Healthcare has the most complex organizational structure of any Canadian industry.

“After 12 years in the healthcare sector I have yet to be able to point to anyone who knows it all. Supply chain plays a much bigger role than most realize, consuming 25% of hospital costs, the biggest element next to labour costs. It’s incredibly immature from a supply chain standpoint.

Most decisions are made either by physicians, (who have their favourite products), and low level clerks. As medical technology has improved and demand grows, supply costs are growing at more than double the inflation rate. The science of medicine has been transplanted into the device so to speak,” Eckler said.

He said that Canada’s largest and most critical industry could be “heading towards failure.”

With physicians acting as powerful stakeholders in the supply chain process, there’s the added complexity that they are not rational decision makers.

“They insert this thing called ‘saving a patient’s life’. It doesn’t follow standard SCM practice but a more complex decision making process dependent on trusting relationships,” Eckler said.

Clinicians, vendors and administrators make up a “love triangle” and research shows that trust is not evident.

“There’s need for an orchestrator to manage the groups. There is some movement afoot- we’re starting to see certain groups establish greater centralization, with hospitals collaborating on standards, protocol, and on leveraging buying power. There’s also been significant improvement on the upgrading of skills. We also see the slow, somewhat spotty movement of supply chain management up the corporate ladder,” Eckler said.

Doctors are starting to realize they must work together to ensure the sustainability of the systems and as such the use of value analysis teams (VAT) to make decisions on best product purchase decisions, on each procurement initiative, and on the use of outsourcing are becoming more prominent.

Eckler gave the example of a case study where several British Columbia hospitals outsourced their back offices to a shared services organization, Health Shared Services BC, whose services included supply chain management.

While it involves some change management and negotiation, it’s yielding some very significant successes in British Columbia, with the advantage of more coordinated responses to increasingly frequent drug shortages.

In Ontario there are nine shared services groups, Eckler said, and these groups are also making great inroads in Alberta and Saskatchewan.

High quality supply chain leadership and capture of economic leverage are advantages.

“We are starting to see more vendors in the healthcare field getting more involved in the project. System sustainability is achievable but it will require great efforts to turn the ship,” Eckler said.