Supply chain management (SCM) involved handling and optimizing the many complicated facets of a supply chain, involving goods and services. At the most fundamental level, supply chain management (SCM) is the management of the flow of goods, data, and finances related to a product or service, from the procurement of raw materials to the delivery of the product at its destination. 1
Inventory management is an integral role of the supply chain management vertical of the organization and is important for its success as a commercial venture. The whole task of syncing supply schedules, costing, and requirement assessment to maintain adequate stock requires optimum efficiency. Inventory management, especially within the healthcare industry, is required not just for the commercial success of the healthcare organization but also for the timely delivery of clinical care to patients. 2
Optimal inventory management ensures consistent delivery of better clinical outcomes, optimum use of the available resources, sustainability of quality in process and protocols proper stock balancing and no retention of perishables, and ultimately continuous and advanced patient care.2
The pharmaceutical supply chain is the means through which prescription medicines are manufactured and delivered to patients. But the supply chain network is complex, requiring a number of steps that must be taken to ensure medication is available and accessible to patients.
A wide range of stakeholders are also involved in the pharmaceutical supply chain, including manufacturers, wholesale distributors, and pharmacy benefit managers, i.e., Purchase Managers.
In such a complex process, the stakes are high for pharmaceutical companies. Drugs that are distributed incorrectly affect both the company’s reputation and customer satisfaction, as well as potential profit. An ineffective supply chain could also disrupt the healing processes of patients and produce negative effects on public health, a Kaiser Family Foundation report found.
The pharmaceutical supply chain faces its own set of challenges, including supply chain visibility, drug counterfeiting, cold-chain shipping, and raising prescription drug prices, which can significantly increase out-of-pocket costs for patients.
Pharmacies are the final step before drugs reach the patient, and arguably the most vital step because they serve as the information link between PBMs (Purchase Managers), drug manufacturers, and wholesale distributors.
The radical overhaul, according to researchers, includes more diverse product types and therapies with shorter lifecycles, new ways for assessing, approving, and monitoring medicines, increasing emphasis on outcomes, new models of delivering healthcare, and various other changes.
Overall, the pharmaceutical supply chain is vital for patients to receive the medications they need without having to deal with stress or roadblocks along the way. Although the supply chain faces various challenges, companies can take the necessary steps to ensure a smooth process from the manufacturing of products to delivery to patients.
Medical Devices are a fundamental component of Health Systems. They are essential to prevent, diagnose, treat, and rehabilitate illnesses and diseases in a safe and effective way.
The healthcare supply chain is under enormous pressure. Particularly, the supply chain in the medical device industry is getting more complex by the day as companies are on an expansion spree to align their product portfolios with the rapidly changing ecosystem. While the pandemic is a major cause of disruption in the industry, it is not the only one. Factors such as sudden unforeseen events like climate change or natural disasters, macroeconomic policy changes, political scenarios, malicious cyber threats, and financially fragile suppliers are equally responsible for bringing down the operations of medical devices in the supply chain.
To top it all, companies have to adhere to specific guidelines and regulations related to processing, packaging, data governance, and more which creates more challenges if not monitored closely and carefully. Usually, supply chain management in the medical device industry creates and manages a massive amount of data—another area of concern that comes in the way of seamless operations of the entire industry. On a practical note, this data has been managed in silos, curbing its ability to generate value. The realization that this data can drive value across the supply chain is essential to keep the operations going.
Hence, strengthening the supply chain is very much the need of the hour now. Identifying these pressure points and redefining the entire system, making it data-driven, will make the supply chain more resilient in function. 5
Considering the importance of Inventory management within the Healthcare organization, one would expect that attention would be maintained on this activity. The broken equipment or a shortage of medical tools is not just a nuisance but can delay operations drastically. In a typical healthcare facility, a nurse is at least interrupted twice in her shift to locate inventory for the operating room…. Ref: Previous functional experience & Case studies conducted with Private & public healthcare providers.
The staff allocated for continuing quality care to patients spend significant time in finding, tracking, setting up, and forecasting inventory demand. In hospitals, any simple delay in operations is a matter of life or death for patients. However, an inventory management system in the healthcare industry has been considered as an additional function. It is perceived as an area of low importance and ignored because of the vital and demanding needs of patients, which of course always takes priority. 3
With the intent to identify the pain points within the inventory management system, we have taken inputs from the different clinical support services (nursing, pharmacy, pathology labs, radiology labs, biochemistry labs, bio-medical department, and nutritional services) across multiple hospitals.
*(Ref: Author (Previous functional experience with Private & public healthcare providers & inputs from Assessment of client projects – Source Data: Interaction with stakeholders and their inputs.
PRIVATE HEALTH CARE: Care Hospitals Group, Narayan Hrudayalaya Group, Birla Hospital Group, Manipal Group, Rainbow Group, KIMS Group, Star Hospitals, Global Hospitals Group etc., and other stand-Alone Hospital Groups, Medium & Small size Hospitals and Nursing Homes.
PUBLIC HEALTH CARE: JAN Aushadhi Pharmacies, NIMS, ESI Hospitals, Railways, Arogyasree Trust Hospitals, PSUs, Semi-Govt etc.)
The most common issues identified include:
- Consumption of materials and cost of consumption is not monitored.
- Shortage of drugs, surgical, consumables, diagnostic kits/reagents, medical gases, etc. is an issue reflected frequently at all levels.
- Non-familiarity with inventory days
- Continuous training and assessment through learning and development activities are lacking, As one would expect this would lead to increased spending on material procurement, holding a higher inventory of drugs than required – leading to increased working capital requirement. This would also result in Procedures postponed and stockouts of critical medication – delayed treatment to patients in ICUs.
The cause of this mismanagement in inventory is not just a single issue, but a combination of multiple factors across different levels of the organization.
SCM Department that manages inventory in Hospitals/Health Care Facilities is usually neglected, unlike separate professional SBUs like Finance, HR, Clinical Departments, and Administration. Most of the organizations have clinician-led management/owner/govt committees and an ad hoc model with a lack of trained and qualified professionals who apply scientific tools/methods in SCM (supply chain management) without a trained well qualified professional. There is also no clarity on the process of measuring the SCM performance in a hospital setup like Priority of Deliverables/Metrics. This leads to skipping out on certain basic processes such as – a lack of tracking of material spending against the approved budget, a lack of maturity in forecasting and planning due to inefficient availability and management of data, and a lack of strategic selection of goods and services …
TOP PHARMACEUTICAL SUPPLY CHAIN CHALLENGES
Although the pharmaceutical supply chain demonstrates success, it also faces many challenges as well.
All businesses with an efficient supply chain follow a four-step process, including demand management, inventory management, and distribution, secondary production planning and scheduling, and primary manufacturing, according to a report from researchers at the Imperial College of Science, Technology, and Medicine.
The global information analytics business touched on various challenges of this process, such as lack of coordination, inventory management, absent demand information, human resource dependency, order management, temperature control, and shipment visibility.
For example, the “Forrester effect” is a business technique to analyze any supply chain disruptions and is a vital business step. But the Forrester effect is seen at the primary manufacturing site, which presents a challenge because it is the least responsive part of the supply chain, researchers said.
This makes it difficult for businesses to properly address challenges such as supply shortages, tenders for national supplies, and epidemics.
Researchers from Northeastern University and the Sloan School of Management at MIT also recently noted ways to tackle drug shortages. The research article published in Complexity stated that one common solution was to keep more inventory to ensure that more products are available to treat patients in the event that products are recalled.
Researchers also stated some tactics for eliminating the effects of disruptions, including financial mitigation, operation mitigation, and operational contingencies.
“Mitigation tactics are those in which the firm takes an action in advance of a disruption and correspondingly incurs the cost of the action regardless of a disruption’s occurrence. Operational tactics, such as inventory management, multiple sourcing, and flexibility in production are also studied in the literature on supply chain disruptions,” researchers said.
More specific challenges reported by researchers at the Imperial College of Science, Technology, and Medicine included uncertainty in the pipeline of new drugs. Specifically, which drugs will be successful in trials and what sort of dosage and treatments will be most favorable is important.
PWC also released a report this year that noted, in order to meet the demands of a growing marketplace, the pharmaceutical supply chain must undergo a “radical overhaul.”
The radical overhaul, according to researchers, includes more diverse product types and therapies with shorter lifecycles, new ways for assessing, approving and monitoring medicines, increasing emphasis on outcomes, new models of delivering healthcare, and various other changes.
Overall, the pharmaceutical supply chain is vital for patients to receive the medications they need without having to deal with stress or roadblocks along the way. Although the supply chain faces various challenges, companies can take the necessary steps to ensure a smooth process from the manufacturing of products to delivery to patients. 4
Procurement process level:
As there is no standardized procurement policy across most of the small to mid-size hospitals, there are a lot of shortages and stockouts across the year. Kneejerk reactions to shortages and stockouts lead to unplanned direct purchases – further disturbing the forecasting and planning process. In some hospitals, procurement is done based on a yearly Spend Analysis distributed across the year, leading to overstocking and shortages as consumption varies on a monthly basis.
As we go further down the organizational chain to the various stores that exist within the hospital setup, we see a simple and widespread problem – All the supplies by vendors are not on Molecule/Generic name, and companies will have the Brand name on their products and all the material requests, transactions, and billing happens on these brand names. This leads to:
- Duplications and mismatches of stocks at different stores. For example, Paracetamol has multiple brand names such as Dolo, Calpol, Crocin, etc. And many other hundred local brands. If stocks are entered under the brand name without specifying the generic name, stores will have excess stock of Paracetamol
- Issues in forecasting and tracking consumption
- Distributing procurement of the same molecule from different sources leads to inefficiencies in the procurement of that molecule
The doctors within the Hospital may not support the adoption of biosimilars from other manufacturers as they have been supported by their historical manufacturers. For example, a doctor prefers prescribing a certain brand and that brand may not be the brand that has been procured – causing an artificial shortage to exist within the inventory
There is a wide gap in both information collection and flow within the hospitals. Tracking of material receipts and payments, expiry, near-expiry, damaged, non-moving materials, and returns are done in a fragmented manner. This leads to inaccurate consumption and procurement data within the system.
Change the objectives of the SCM system: At present, the primary objective of the SCM for Hospitals, both public and private sector, is Cost reduction for the material.
THE PHARMACEUTICAL SUPPLY CHAIN AND DRUG COSTS
The pharmaceutical supply chain greatly affects drug costs. Consumers face higher out-of-pocket expenses and health plans deal with higher drug spending.
A report from the Pharmaceutical Research and Manufacturers of America (PhRMA) found that the complexity and number of players involved in the drug supply chain may one of the main reasons prescription drug costs are making headlines.
Prescription drugs greatly depend on several negotiations between wholesalers, pharmacies, pharmacy benefit managers (Purchase Managers), and insurers, according to the report. The authors noted that rebates have increased over the past few years, but out-of-pocket costs for patients are soaring.
The amount an individual pays for a brand-name drug will depend on their insurance plan, the list of drugs it covers, the size of their deductible, and the deal an individual’s insurance company has negotiated with the drug’s manufacturer, according to a Time article.
Health plans with high deductibles or coinsurance have grown more popular, which means more patients have higher out-of-pocket costs and may not be able to benefit from negotiations since their co-payment is based on the list price rather than the negotiated cost, researchers stated.
Multiple examples of how the complex supply chain can increase costs for patients were discussed in the study.
One of the examples touches on a patient who has been prescribed an HIV medication with a list price of $3,000. Even though the patient received a 20 percent rebate, her coinsurance is $612 because it is based on the list price. The patient is then forced to pay $100 above what they would have paid if the coinsurance was based on the negotiated price.
A National Community Pharmacists Association (NCPA) study said that high generic drug prices have had an adverse effect on almost everyone in the pharmaceutical supply chain.
Consumers face higher co-pays and prices and health plans are dealing with higher drug spending. Physicians are also finding the need to prescribe alternative drug therapies, and sometimes, consumers are declining their medications due to increased prices.
The pharmaceutical supply chain poses risks and challenges to both providers and consumers. But in the context of a health-conscious society, management of pharmaceutical supply chains presents complexities because it involves life-saving medicines that are vital to patients. 4
However, a holistic approach to SCM is required that can include all the relevant parameters to guide the procurement process. The parameters include
- Timely availability
- Improved Clinical outcomes
- End-user satisfaction
- Information Visibility
- Trust and Goodwill
Budget forecast: Spend analysis data for a minimum of 6 months or preferably 1-year data should be collected across all the facilities. This will enhance the forecasting and planning process. Other data including – Disease burden estimation, benchmarks, and current government policies/welfare schemes should be gathered to guide the overall budgeting process.
Give importance to the SCM vertical: The SCM vertical plays a vital role in delivering both the financial and clinical objectives of the hospital. Therefore, emphasis should be given to hiring the SCM staff with the right expertise and skillset. The performance management of this staff also should be based on standard metrics that prioritize a holistic approach to inventory management
Procurement process level:
• Utilize real-time data and analytics to give insights into the procurement policy such that procurement is done following the monthly and seasonal trends. Integration of forecasting and planning tools, procurement software, and inventory management software to ensure that stockouts, shortages, and overstocking are minimized …. However, the hospitals that do not have software support, can explore the development of spreadsheet formats for purchase negotiations has been made necessary by all the hospitals acknowledging the clear formatting of the different quotations by the companies. Nevertheless, it is a strenuous and time-consuming process to look at all the data manually and sort them accordingly by the hospital. Hence, basic training in MS Office Excel Tools/ formats comes in handy and the derived optimum solution is just a few clicks away.
Emergency purchases: Make sure that the emergency direct purchase process is as per a set protocol and that the information on the stock that is purchased on an emergency basis is added to the regular inventory. The frequency of emergency purchases should be used as a metric to measure the efficiency of the SCM system
Pharmacy & Stores level:
The usage of generic names should be standardized within the organization – the same generic name should be used while forecasting, budgeting, procurement, tracking inventory within the different stores, and measuring consumption data. This will ensure that the data collected regarding the inventory of particular materials is as accurate as possible.
IT Software: Computer technology is imperative in constant patient monitoring and health assessment already; when intertwined with stock data it enables better planning and execution of treatment as the information indicating available stock, material transfers between various sub-stores, shelf-life details, and listing down alternatives that are readily available to the attending healthcare provider. The real-time information flow is essential for exact assessment and quick alternative arrangements. Safety is reinforced as the chance of cross-medication, deteriorated products, or faulty items being used accidentally is completely eliminated.1
Supply chain management, especially within healthcare organizations, is a complex process. To guide this complex process, accurate data collection processes and systems should be maintained across the different levels of the organization. This data can be used to analyze and generate insights that can guide the different SCM processes such as forecasting, budgeting, and procurement. Automating the process of data collection, data analysis, and insight generation through robust IT systems will reap rich dividends for healthcare organizations.
Change is a constant feature that all healthcare organizations face – in terms of human resources, drugs, and devices, biomedical instruments, the IT systems. To adapt to this changing environment a well-developed and standardized training and evaluation system should be in place such that the human resources working within the organization have the relevant expertise and knowledge.
These issues are present in not only small and medium-scale organizations but also in large organizations. The situation is worse in the large fragmented public healthcare system…. in Govt sector hospitals like district hospitals, AH, primary health centers, Community Health Centres, and Health & Wellness centers. 5.
The sheer amount of wastage of resources that happens due to the lack of a well-developed supply chain and inventory management system is unacceptable. However, the recent advances through the Ayushman Bharat Digital Mission (ABDM) are a step in the right direction. Expanding the scale of the ABDM to utilize digital tools and solutions to the various supply chain processes of public health facilities across the country will unlock strategic purchasing of goods and raw materials for the entire public healthcare value chain.
5. Ref: ‘Website Information’ by TSMISDC (As on 30th Dec’2020)
6. Ref: Audit Report on ‘General & Social Sector’ by Comptroller and Auditor General (CAG)
Photo Credits: The Network Effect