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Digitizing Healthcare Supply Chain is Essential for Value-Based Care-The HSB Blog 1/10/22

Our Take:

Digitizing the healthcare supply chain can bring significant gains in cost-effectiveness for healthcare organizations enhancing their ability to optimize operations while lowering the costs and improving the quality of care in real-time. While a great deal of attention has been focused on digitizing healthcare’s front-end (ex: the patient experience), digital transformation extends into the supply chain as well. In fact, digitizing the supply chain may is a good way for organizations to gain experience and insight into developing digital skills (such as artificial intelligence) before applying them to clinical areas.

Key Takeaways:

  • Digitalization increases supply chain networks visibility, enables strategic relationships planning, and uncovers opportunities for establishing new relationships.

  • Prior to the pandemic, 80–90% of active pharmaceutical ingredients for certain drugs were produced almost exclusively in China or India.

  • According to the Institute for Supply Management (ISM), 59-83% of organizations reported an increase in lead times for acquiring supplies since the onset of the pandemic.

  • 88% of healthcare executives identified AI as a critical technology for supply chains in the next three years.

The Problem:

So far, the healthcare industry has been receptive to digitalization and technological innovations to address complex health problems concerning healthcare access, health equity, and health literacy. Adoption of digitalization within the supply chain will be crucial to success as the industry moves away from fee-for-service reimbursement systems to value-based care, given the need to optimize service delivery, minimize costs and reduce variability in unit costs.

At the beginning of the COVID-19 pandemic, the challenges of limited supplies of vaccines, PPE and other medicines exposed the gaps in the healthcare supply chain globally. Healthcare providers and organizations had to reimagine the role of technology and digital solutions in providing and delivering healthcare services. Along with the need to keep patients out of physical facilities, COVID made administrators and policymakers aware of the need to rapidly scale and deliver care where necessary in all fields of healthcare, and not just direct patient care.

Supply chain disruptions and its impact on the pandemic response shows the need for adopting deploying innovative digital and technological solutions that strengthen and stabilize the healthcare supply chain. Digitalization of the healthcare industry’s supply chain could change the competitive landscape by reducing costs substantially and turning these skills into a competitive differentiator.

The Backdrop:

Healthcare organizations’ entire ecosystem is interconnected with the health care industry’s supply chain. In order to optimize cost, minimize errors and foster patient centric care, healthcare organizations are establishing digital supply networks. Digital supply networks have helped the healthcare industry to reduce organization-wide cost through innovative ways of managing resources. By reducing unnecessary variation, digital supply networks reduce the likelihood of poorer outcomes caused by error and variability. The dividends of digitized supply networks include things such as minimized errors, reduced wait times and need for rescheduled appointments all of which could contribute to higher patient satisfaction as well. For instance, hospitals’ investment in electronic inventory tracking allows for automating the inventory replacement process for flagging used or expired inventory supplies as opposed to the costly and time-consuming alternatives of eyeballing or counting. This not only helps manage costs but ensures that supplies will be available for certain types of patient procedures.

In addition, with the continued spread of COVID and it’s numerous variants, the manufacturing sector has seen additional stress on the value chains and the need to strengthen them to respond to customer demand. Digital manufacturing technologies such as automation, AI and IoT became a major opportunity for manufacturers to explore. Digitalization is expected to increase the productivity of the manufacturing industry as the prolonged COVID pandemic continues to increase manufacturing costs and shrink the production workforce. According to the Institute for Supply Management (ISM), 59-83% of organizations reported increased lead times in acquiring supplies since the onset of the pandemic.

According to “COVID-19 and the health care supply chain: impacts and lessons learned” from the Council of Supply Chain Management Professionals, the pressures experienced during the pandemic impacted testing capability, care coordination, and supply rationing. The United States overdependence on offshore manufacturing of several essential health care items made the pandemic response more challenging. The U.S. struggled to procure enough face shields and masks when countries shut down manufacturing and enforced export bans. For instance, the U.S had a shortage of face masks and a large number of drugs because China manufactured 80% of all face masks and 80–90% of active pharmaceutical ingredients (APIs) are produced in China or India. To address supply chain disruptions, 88% of healthcare executives identified AI as a critical technology for supply chains in the next three years. AI-backed control towers can help an organization gain dynamic visibility across the network, improve predictions on demand changes and disruptions, support inventory management and decision-making to improve patient care.

The Implications:

With the increased digitalization of the healthcare systems’ supply chain, supply chain cost will reduce and improve provider economics in the face of lower reimbursement levels. An analysis in the International Journal of Environmental Research and Public Health entitled, “Relationships among Healthcare Digitalization, Social Capital, and Supply Chain Performance in the Healthcare Manufacturing Industry” identifies that digitalization has a positive effect on the formation of social capital (ex: networks between groups or individuals that facilitate co-operation within or among groups helping societies to function effectively). Social capital formation within the supply chain would allow efficient delivery of required resources/services that add value to the healthcare manufacturing industry. This added value would improve the performance of healthcare manufacturers and increase visibility of supply chain networks.

Digitalization also increases the visibility of supply chain networks by enabling effective planning of strategic relationships and uncovering opportunities for establishing new relationships. Despite the benefits of digitalization, healthcare manufacturing strategic relationships are crucial, as supply chain networks and production processes influence the intended use of output. For example, during the pandemic, the added benefits of AI-enabled supply chains became apparent as they allow real-time, end-to-end visibility, elevated planning and automation, intelligent forecasting, demand sensing and foster a collaborative ecosystem. These services are not only essential for securing timely and accurate information they help in managing the flow of products and services and can also aid in healthcare informatics and predictive analytics. For example, a more digitized healthcare supply chain enlightened by AI might have led to more timely and effective insights about the source and spread of COVID. In order for healthcare companies to establish a supply chain network based on digital manufacturing technology, they need to establish cross-functional teams drawing heavily on patient facing agents such as doctors or nurses to determine the most efficient and effective ways to design and track order flow patterns (doctors and nurses are crucial to identifying real-world bottlenecks and infamous for creating informal solutions). While digitization has the potential of fostering efficient supply chain connectivity and timely resource management, it must be implemented with an eye towards helping improve, not adversely impact, clinical workflows.

Related Readings:

  • How Digital Health Care Can Give Providers an Edge. Building a Digital Supply Chain

  • Relationships Among Healthcare Digitalization, Social Capital, and Supply Chain Performance in the Healthcare Manufacturing Industry

  • COVID-19 and the Health Care Supply Chain: Impacts and Lessons Learned

  • Data-Driven Decision-Making: Reinventing Healthcare Supply Chains for the Digital Age


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