21st Century Health Care Value Chain Improvement Opportunities

21st Century Health Care Value Chain Improvement Opportunities

Health Value Chain participants (Medical materials and device manufacturers, traditional and biologic drug producers, their distributors and the healthcare systems that use them), struggle with opaque and inefficient value chains. These can stretch across 5 or more tiers of sub-supplier to OEM thru distributors to the final point of use by a care provider.

At the same time, governments (the ultimate payer in most countries) and insurance providers (primarily in the USA) create constant, irresistible downward price pressure on established products. Point of use/sale information is usually blocked (sometimes deliberately) or otherwise inaccessible. In bound supply information is commonly blocked beyond the immediate supplier or distributor’s inventory data because of heterogeneous IT systems. Even within an manufacturer or health care provider, a multiplicity of IT systems and instances inherited through acquisitions result in a ”tower of Babel” syndrome.

Conflicting regulatory requirements in every jurisdiction are the norm. Manufacturing firms with US FDA “validated” legacy manufacturing and quality processes are particularly challenged. Changes to improve these inefficient legacy systems can cost tens of millions of dollars each. Finally, these value chains usually require lot, batch and or serial numbers on each unit produced or consumed, and in the US, this requirement will become a universal legal requirement shortly.

This situation resembles that of traditional non-health related value chains of the 1980’s, and 90’s, except that enterprise wide IT solutions in health care now can cost over $200mm each, even for merely midsize Healthcare systems or pharma manufacturers. Small and start up medical firms face huge compliance, efficiency and cost hurdles if they try to develop their own customized value chain solutions. In most cases, therefore, the current Health Value Chain remains a set of highly manual and fragmented processes.

Hospitals, health systems, their distributors and suppliers therefore face serious challenges to reducing Value Chain costs while improving customer/patient outcomes.

Given these issues, how can Health Value Chain participants make strategic improvements to their specific Value Chain? Look to the positive moves made by Automotive, Electronics and Consumer Packaged Goods industries since the early 90’s. However, Today’s Value Chains have an advantage – newer configurable, commercial, off the shelf SAAS solutions are available to unify end to end Health Value Chains at much lower cost than that required by traditional custom coded solutions.

First, make the key strategic, foundational decisions.

Decide to be fundamentally end-customer driven. Only the end user decision makers are truly your customers. Not distributors. Decide to drive your value chain according to customer demand. Identify the key customers and critical enabling distributors, critical logistics links and critical suppliers and sub-suppliers that can materially affect your enterprise performance.

Viable demand driven solutions must visualize multi-party, multi-site, multi –tier Value Chain data in “real time” – this is defined as synchronized daily/nightly with true real time updates of significant information to all concerned parties. Serial and Lot traceability must be supported from site to site and tier to tier.

True demand driven solutions must encompass customer demand and distributor demand, your internal data, your key supplier’s data, critical sub- supplier’s data and logistics data between the critical path sites.

Use a configurable visibility platform to unify access to real time Supply, Logistics and Demand KPIs, regardless of the underlying ERP, WMS, QC, MES or TMS systems that contain the critical enterprise data. Viable solutions will use all existing data warehouses, EDI exchanges, etc. and will build a supervisory layer above existing enterprise systems for the purpose of real time analysis of Value Chain requirements, available inventory at all levels, rough cut production capacities at all levels, and logistics lead times and lane capacities. Again, serial and lot traceability must be respected. Late stage product identification strategies, such as product labelling and kitting in distribution centers must be supported.

Add Value Chain-wide resource planning and event management to the visibility platform.

In concept and in practice this works just as ERP does inside the Enterprise, with all the key tiers visualized for both in bound and out bound flows, you can now detect problems in quality or quantity at sub-supplier levels and address them before customers are impacted. You can see spikes in demand, and even forecasted increases in demand, before your distributors make large changes in order flows. You can be prepared. You can evaluate options openly and clearly with the affected partners or customers in order to test alternative scenarios and to choose the optimal path.

Practical solutions will be configurable, not custom programmed. Custom coding is too prone to bugs, too costly and too slow to adequately support the pace of constant change in products, sites, markets and vendors across your Value Chain. Your trained users should be capable of configuring and re-configuring their business processes as they evolve – without needed consultants to change routine workflows and vendor preferences. Discrete, process and mixed mode manufacturing must be supported.

Keep and make use of existing IT and process investments – no need to “rip and replace” any viable or validated systems. Remember, Value Chain planning and event management systems are supervisory systems that allow you to make informed decisions in real time, but then the actual decisions are passed back to your and your partner’s systems of record (ERP, WMS, TMS, MES etc) for actual execution. This is strategically simpler to implement and avoids regulatory complications that arise with modifications to validated manufacturing systems or systems that contain HIPPA protected patient data. The Value Chain resource planning system will not contain HIPPA data or it European equivalents.

Make it easy and inexpensive for partners to participate in the Value Chain management solution. Capable SAAS vendors will allow partners to upload required daily data in the Partner’s own native format and to receive data in their native format or nomenclature daily. Capable vendors will have robust master data management tools built in to their platform that will automate this process without requiring expensive, hard coded and “brittle” adapters.

Be strategic in your choice of active partners. Do not attempt to “boil the ocean” – that is to say, do not try to visualize absolutely every customer, supplier, manufacturing site, distributor, etc in a single project. Start with a particularly painful product line or business unit, then work sequentially down the priority path to cover the truly required visibility. Stop modelling where the process or site or data is routinely substitutable by multiple commercially available alternatives. Additional processes or sites can always be quickly added at a later time if needed.

These solutions can turbocharge your Sales and Operations Planning process.

These tools can dramatically enhance the accuracy and relevance of you existing Sales and Operations planning process. Demand data is now available to validate sales teams’ projections. These demand flows can be tested against critical rough cut capacity plans to ensure bottlenecks are identified and fixed – before plans are missed!

Finally, use these solutions to manage Value Chain risk. The data gathered in these system is perfect for analysis using a variety of “big data” tools. Proactively analyze key choke points and risk factors using “what if” scenarios. Use these tools to intelligently reassign product away from potentially compromised production sites or logistics lanes before customers are harmed.

Today’s Health Value Chains face great challenges – but they now have a unique opportunity to leapfrog ahead by adopting new Value Chain wide visualization, planning and execution solutions.



Multi-tier / Multi-Site Supply & Demand Planning, with Collaborative Response / Execution enable the highest levels of customer satisfaction and shareholder profitability

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