Technology strategy for supply chain management

Healthcare Purchasing News, Dec, 2005 by Jamie C. Kowalski

The history of investment in technology for hospital supply chain management is not filled with success stories. Supply chain management has not received much support when technology opportunities are considered. Clinical and financial applications have always been given priority. For a component of hospital operations that affects the entire enterprise so pervasively and has such a huge impact on a healthcare organization's financial success (35% to 45% of the operating budget), investments in supply chain management technology should be seriously considered. The payback or return on investment (ROI) could or likely would be, compelling. While not a direct cause-and-effect phenomenon, supply chain performance improvement, facilitated by process improvement and supported by technology tools, can improve hospital profitability by 1% to 3%.

Before automating a process or implementing new or upgraded information technology, ask yourself these questions: How will this technology investment move the hospital closer to its goal for supply chain management outcomes or performance? What will be done with the time saved or the new information provided?

One of the best ways to answer these questions is by completing an operational assessment and using the output to develop the overall enterprise supply chain strategy. The strategic plan can then be used to determine what role, if any, technology plays. Is technology a primary driver of the strategy, or an essential enabler? Or is it merely one of many tools that helps achieve the goals?

Next, take time to develop a technology strategy that fits with your supply chain strategy. That strategy needs to consider multiple technology applications: information technology and automation. Research on other industries' use of technology is helpful as long as the lessons learned are carefully scrutinized for application in a hospital environment, which is quite different from an industrial/manufacturing or a retail setting. Evaluating technology in light of the unique characteristics of the hospital and comparing those characteristics with other industries will require creative thinking and practical judgment. Be careful not to accept a technology simply because it works in other industries, or to reject it because "hospitals are different."

Components to include in the development of the technology plan are information technology and automation technology: Information technology. A supply chain management system must provide transaction processing accurately, quickly and productively. It also must provide data and information that facilitates analysis, forecasting, management decisions and performance management.

Supply chain management information systems should no longer be considered just an add-on component of a financial management system. Most of these "me-too" systems are not robust enough to provide the tools needed to drive supply chain management performance to the best-practice level.

Information technology strategy should include:

* Select a supply chain management information system designed for that purpose.

* Integrate the supply chain management information system with the financial management and clinical management systems.

* Select and implement the system based on the supply chain strategic plan and re-engineered operations so that best practice levels can be achieved. Do not select and use the system based on current supply chain processes and policies. Further, the selected system should be flexible, but not customized in order to do things exacdy the way the hospital has always done them. That will not likely help achieve best practice levels.

* Evaluate and select applications that include Internet and ASP tools.

Implement a system after the Master Item Catalog has been normalized and standardized, and a mechanism has been designed or acquired so that it will be automatically maintained in that condition with every transaction.

* Select a system that supports:

** Supply expense management

** Contract management/administration

** Multi-site inventory management

** Warehouse management

** Bar-code scanning and/or RFID

** Electronic data interchange and invoice payment

** Automated point-of-use data capture

** Automated integration with patient accounting system for patient charging

** Item tracking from arrival to delivery and acceptance

Automation technology. There are mechanical systems used in other industries that can be applied in hospitals given the right circumstances. The cost and availability of people resources continues to become more challenging and expensive, as does the availability of capital required for such investment. Each must be thoroughly analyzed to determine ROI, functional application and "fit." Some may pay for themselves in one year or less.

Automation technology strategy should include consideration of:

* Point-of-use (open or closed) systems that track issue transactions and patient charging, and automatically initiate restocking.

* Pneumatic tube systems to rapidly transport small items horizontally and vertically and even between buildings.