The Healthcare Supply Chain in Simple TermsJanuary 3, 2017
By: Brian Hudock
Partner, Tompkins International
In the healthcare sector cost cutting is fast becoming a daily mantra, as organizations from pharma to medical products all look for ways to maintain profit margins in the face of lost patents to new healthcare reimbursement levels. However, in the supply chain simply cutting 10% of costs is not as easy as taking 10% of labor out of the process. Quality and control must not be comprised; however, process waste should not be ignored as a target for improvements. An approach of eliminating unnecessary steps, inventory, and in building the right network starts with inbound materials and flow through customer shipments. Opportunities can be found in all areas of the supply chain, but first we have to understand all the major parts of our internal supply chain.
In the materials warehouse the site logistics operations are generally supporting R&D, plant operations, site/administrative operations, raw materials, packaging components, maintenance, quality, and finished goods storage. Managing this many product flows while maintaining cGMP, product segregation, and balancing limited space generates process checks on-top of process checks to avoid any possible errors. However, when multiple levels of quality holds, inspections, lead time safety stock, risk reduction pre-buys and lot specific materials are added. The amount of storage space required far exceeds original design levels. Optimizing the warehouse layout and flow paths is critical to operations success, but inventory management to reduce quality hold delays, obsolescence and material safety stock levels will generate more payback. Other key operations that must be considered in the design include: sampling, dispensing, and partial return management.
WIP and Bulk
Often part of the materials management process, but frequently controlled by the processing groups. WIP and Bulk are highly sensitive and generally in non-standard storage mediums and specialized environments where temperatures control is also a key that must be maintained and monitored closely. The cGMP compliance and product segregation is critical to protect product integrity in and out of the process to process or process to packaging areas. This flow often crosses general material flows and may even share a common, but segregated warehouse area. There are limited options for off-site storage. Flexible warehouse space is required to handle seasonal production without comprising product integrity. The layout and material flow paths, as well as, systems to control lots, batches, and rotation are keys to minimizing risk and waste.
Finished goods both released and on quality hold are often in the distribution center, creating the need for segregation either physically or using a validated electronic hold. Lot segregation still drives location sizing, but the ability to pick eaches (bottle/pack unit level), cases or pallets creates the need for highly accessible locations and a replenishment function to achieve efficient operations. Packaging components, particularly in cold chain operations become a major space requirement factor both for refrigerated/frozen room temperature items. The use of internal or external services for order fulfillment and component management will have a major effect on costs and scalability long term, therefore, future projections must be considered closely when designing the finished goods operations.
Returns are generally found in the distribution center or outsourced to best manage the process. Returns must be processed for proper credit and then properly disposed/destroyed and fully tracked. Returns take valuable space, labor, and can have peak periods associated with recalls or expiration date issues. Due to the value of most finished products, the customer aspect of timely and proper crediting make the process one that must be staffed by those familiar with the product, able to identify fakes, and to work the returns systems efficiently.
Connecting all the operations in the supply chain from inbound materials to final customer delivery are managed by a mix of carriers, shuttle trucks, fork trucks, parcel delivery (air & ground), and contract fleets. Optimizing the cost of transportation against the critical timing required to insure product safety, product security, and risk management is paramount to supply chain efficiency and success. It is also generally the largest cost center (excluding procurement spend) in most operations.
Optimizing the supply chain overall is an art form combining performance metrics, analytics, risk assessment, and internal versus external options on a daily basis. A strong set of operational tools, facilities, systems, and awareness of future possibilities are key to allowing supply chain professionals to manage and control spend without comprising product integrity as well as adapting daily to new regulations, global demands, and the unplanned for network interruptions.
The first step is establishing your current condition and developing an assessment of gaps and opportunities. We have developed this for numerous organizations and are glad to help you understand the best approach to starting down the path to optimizing your supply chain.
- Blog: Designing Supply Chain Networks the Right Way
- Press: Creating a Successful Network Design Starts with an Operations Strategy
- White Paper: What Is Supply Chain Network Design and Why Is It Important?