How a Small Hospital Developed Lean Supply Chain Management

When hospitals start to dig into how their organizations can reduce healthcare costs without lowering care quality, many run the risk of overlooking several cost-cutting opportunities in their healthcare supply chain management process. But developing a more strategic supply chain management approach can help providers optimize more than simply their stock room procedures.

Healthcare supply chain management is the second largest expense for most providers after reimbursement management, according to a 2015 survey from SERMO Intelligence. While a mere one-third of providers described their hospital’s supply chain process as very effective, about two-thirds reported that improving the process would lead to lower overall healthcare costs, boosts in revenue, and better care quality.

A 110-bed community hospital in North Carolina recently recognized the need to improve supply chain management to reduce costs. By implementing lean management strategies the hospital saved $2.62 million in just five months by consolidating and eliminating excess supplies.

The lean management approach to supply chain also helped the hospital — now doing business under the name of Caldwell UNC Healthcare — to identify $421,000 in savings related to distribution costs as well as $366,000 associated with the amount of resources clinicians used managing supplies.

Establishing a more strategic rather than transaction-based approach to healthcare supply chain management was key to generating healthcare savings, Caldwell UNC Healthcare CEO Laura Easton told Using the help of a consulting firm in 2014, Easton learned how moving beyond the traditional supply chain strategy would help improve the hospital’s overall performance and benefit patients.

“That was the basis on my introduction as the CEO into saying ‘Hey, the supply chain is a really important value stream,’” said Easton. “It is a stream of work in our organization that creates value for us and for our patients. I have an obligation as the CEO to delve into how are we performing as a small community hospital and what do we need to do to transform and to change.”

Although not well versed in the supply chain when Caldwell Memorial Hospital started their supply chain optimization project, Easton said that the hospital’s first step was identifying the major challenges across the supply chain areas.

“From an operational point of view, we really had to look at six areas — how we source products, how we contract to purchase products, how we manage the products that we buy, how we manage the suppliers who deliver those products, how we manage our inventory, and how we manage the productivity of our employees operationally,” Easton explained. “So that is where we started to look and we did a self-assessment as to what our biggest challenges were.”

Looking forward, Easton plans on further educating hospital providers on using the “most effective product for the circumstance at the best value.” She also intends to tackle other areas of the supply chain management to drive down healthcare costs.

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