Spring convention season is winding down, and it’s a good time for all of us to reflect on our fast-changing industry. Every conversation at the national and regional events we attended drove new understanding and insight into the challenges that health care supply chain leaders face.
Health care supply chain leaders shared these “up at night” issues with us:
We’re in the era of the health system mega-merger, and the impacts to trading partners are still unfolding.
Mergers between systems, acquisition of non-acute providers and facilities, JVs with technology or pharma companies – very few health systems sat on the M&A sidelines in the last year. Supply chain leaders will be asked to boost the expected value of these transactions by rapidly integrating and rationalizing resources. Inside these sprawling, complex organizations, supply chain organizations will be stretched to accommodate so many stakeholders.
On the other side of the table, suppliers are trying to figure out how best to serve these new, cross-continuum giants. Consolidation of suppliers is likely to continue, both to maintain negotiating power vs. a market-making buyer, and to bring sufficient operational resources to be able to serve a giant customer. Health system supply chain leaders will want to ensure that their supplier base stays appropriately diversified.
Maturing health system supply chain strategies create new market segments and groups.
The diversity of supply chain strategies is clearer than ever. Large systems are willing to make large investments in supply chain resources, like consolidated service centers or self-distribution capabilities. Small systems are selectively self-contracting. Some are sourcing in regional groups, others in national groups. In the past, suppliers and professional associations could reliably segment the health system market by bed count or GPO affiliation. But today, we’ve noticed supply chain executives introducing their organizations by their strategy: “we’re a self-distributing IDN”, or “we offer services through our purchasing consortium”.
We believe there is an opportunity to gather leaders and executives into strategy affiliation groups, for conferences, professional education, or even shared services.
Just a rumor of a new entrant is enough to rattle our industry
We were surprised at the dramatic reactions to Amazon’s announcements this year, both in supply chain and in their shared venture for improved population health value, headed by Atul Gawande. As health system supply chains continue to mature and modernize, expect more new entrants, all attempting to improve value for health system customers. Historically, health care has been shielded by high barriers to entry in the supply chain, with idiosyncratic operations that discouraged change.
Our stance is that health system supply chains should adopt a learning approach to new entrants. Health system supply chains have a lot to learn from out-of-industry best practice – and new prospective partners offer a useful lens on our own performance and opportunities.
A shared theme in our conversations was that competition for supply chain talent is fierce; a new partners’ ability to augment your capacity or your capabilities can become more important than ever when growth is hiring-constrained.
Health systems expect more transparency and simplicity from suppliers
One of the themes that jumped out at us across conversations was supply chain leaders’ ability to “x-ray” supplier economics. Self-distributing health systems are doing this systematically, as they make business decisions about which distribution functions to bring in-house. But even non-self-distributing leaders are examining suppliers’ SG&A expense numbers. Supply chain leaders will push their suppliers to be more-transparent about cost drivers that have traditionally remained hidden. For health systems, cost can hide inside contract complexity, so we expect supply chain leaders to demand simpler contracts and clearer price structures, with opaque bundles of products or complex rebate or tier structures turning from an enticement into a headache.
What up-at-night issues did you hear during your spring meetings? How will industry changes impact your organization’s strategy? ASP Global is ready to support our health system clients as a direct sourcing partner, and we’re ready to help them rise to the challenge of 2018 and beyond. Connect with us for expert insight on your supply chain strategy: firstname.lastname@example.org.