For your healthcare supply chain, right-sourcing is the right call

Several variables influence healthcare's high internal price tag. One that carries the most weight, however, is an individual provider's choice between maintaining in-house logistics or outsourcing certain services.

Organizations determining which option to pursue should know there is no conclusive answer for which approach works best. Over time, it is likely that each healthcare organization must regularly audit its strategy to adapt to new third-party offerings and the changing logistics landscape.

According to a study published in The Journal of Outsourcing and Organizational Information Management, four dynamics should factor into those assessments: outsourcing reasons, outsourcing obstacles, outsourcing best practices, and hospital management implications. These four considerations can conflict, but the study says "there are 'best practices' that can provide offsetting benefits to the hospital."

In balancing in-house and outsourced approaches, theory is simpler than practice. Instead of debating between the two, try a strategy that accounts for provider costs, patient care, and functionality: “right-sourcing.”

Taking a case-by-case approach

As consolidated integrated delivery networks, or IDNs, grow in scope and complexity, strategic insourcing now focuses on distribution. IDNs can leverage economies of scale in both volume and data for standardization, contracting, bulk buys, efficient demand planning, system-directed processes, and envisioning a health network's total inventory.

Still, outsourcing or insourcing is rarely all or nothing. Certain products still require both group purchasing organizations and distributors, roles that can change based on geography, demographics, and volumes. Third-party providers must factor a hospital’s bottom line into their profit margins and assess the value added by outsourced services.

When rationalizing what to keep in-house and what to outsource, prioritize potential financial impact and overall customer experience. For example, customer service can distinctively affect each patient, which means organizations should keep it in-house.

Meanwhile, right-sizing consignment activity is an example of leveraged outsourced logistics activities that are extraneous to direct patient care. Employees expect inefficiency from insourcing, which is not the case when assessing how IDNs are growing in size and complexity.

Those savings are exponential for larger IDNs because consolidated services benefit from economies of scale. While saving money is never the only goal, right-sourcing can help bring those logistic issues into focus and under budget.

From cost savings to superior service

When instituting new initiatives, it's easy to look for tried-and-true metrics to assess effectiveness. In the case of right-sourcing, the "soft ROI savings" (i.e., less concrete values) are tantamount to traditional success measures.

For instance, right-sourced logistics enables nurses to allocate more time to their patients. Operations become less dependent on the knowledge of a few specific individuals, meaning organizations can continue to function at a high level when personnel changes inevitably occur.

Optimized logistics also allows healthcare organizations to use less physical space when storing excess supplies, lending greater transparency to inventory. Perhaps most importantly, consolidating in-house and outsourced logistics practices introduces a process and structure that is conducive to continuous refinement and improvement.

To make thoughtful decisions regarding right-sourcing in your healthcare organization, consider the following three steps to maximize ROI and ensure pleasant patient experiences.

1. Conduct an organizational review. Start by assessing your organization’s appetite for disruption. If a hospital has a long history of outsourcing, for example, personnel might balk at the idea of bringing certain services in-house. To overcome this obstacle, focus on the services that directly affect your operation while considering interdependencies between the services you want to bring in-house and the ones you want to outsource.

The status quo will always be the baseline. By establishing control, you ensure that any changes to logistical services improve operational efficiency. Assess how deep into the supply chain you want to delve - whether it is at the loading dock, in an internal department, or the actual point of use for a service.

2. Assess the potential consequences. Determine where you want a project to have the most significant impact, and then identify the data that can measure that impact. Differentiate between hard and soft savings, ensuring you have a way to fill in the blanks when data is not readily available.

Identify the possible effects of each scenario, ranging from conservative to optimistic. Whenever possible, have a trusted partner benchmark these assumptions and get a cost estimate from potential suppliers as well as from internal groups like IT teams.

3. Pursue promising projects. Ideally, these initiatives make a significant difference while minimizing any disruption to day-to-day operations. That sometimes means forgoing areas that demand significant improvement in favor of smaller wins that you can deliver effectively and efficiently. If a third party does not offer a service or does so at an unreasonable price, it could be an opportunity for your organization to meet that need at a lower cost and with higher quality.

Your choice between in-house and outsourced services should be unique to your organization, but the overarching parameters that frame these decisions will serve as an excellent guide throughout the journey.

Richard Martin is the senior director of point-of-use solutions at Tecsys, where he works with healthcare organizations to transform their operations with end-to-end supply chain visibility. Richard has participated in numerous logistics reengineering projects within large hospitals, and he has contributed to several research projects in the healthcare sector with HEC Montréal’s CHAÎNE research group. Before joining Tecsys, Richard was a hospital logistics consultant with Cardinal Health.