Hospitals generally deal with high freight costs because of the nature of their operations. Most shipments are inbound, and a large percentage ships via expedited service. In Rockford’s case, for example, about 83 percent of shipments were either overnight or second-day.
“In healthcare, many products are too expensive to hold in inventory,” explains Geiger. “Our staff can go online to order products as needed, and those orders go directly to vendors.”
This means 2,000 Rockford employees may be ordering products and supplies at any given time—an approach that can lead to excess inventory and poor purchasing visibility. Implementing better controls helps trim the fat.
“Facilities have to determine which items they truly need to receive overnight, and which ones can wait,” says Geiger. “Sometimes an item is needed for surgery scheduled for the next day, but other times the shipment can travel via ground, which significantly reduces shipping costs.”
5. Improve Your Flexibility
Hospital supply chains must be able to adapt to changing needs, while still delivering reliably. Consider Stryker Medical, a medical equipment manufacturer that faced an efficiency problem requiring some supply chain agility.
Stryker’s inventory consists of thousands of large items such as hospital beds and furniture, stretchers and transport devices, ambulance cots, and evacuation equipment. In the past, it manufactured and stored all products at its headquarters in Kalamazoo, Mich.
Large items were often loaded onto trucks with little planning about their destination. Many times, those trucks left the dock carrying only 12 to 15 items, generating multiple truckloads to one destination.
In addition, the company annually ships more than 3,000 trial units, which prospective customers can test to facilitate the purchasing process. Delivering those items can be complex, because many require special care and coordination. Additionally, delivery and setup must be completed quickly, with minimal disruption to healthcare operations.
Stryker’s previous carrier was inflexible, and could not always meet the company’s special delivery needs. As a result, delivery times were difficult to schedule, coordinate, and predict. Stryker needed to reduce manual tasks, store and track inventory, and ensure on-time delivery.
“Working with hospitals is complex because they often change their requirements with little notice,” says Matt Bielanski, logistics team leader for Stryker Medical. “Many transportation providers can guarantee a delivery date or time, but are reluctant to change at the last minute, or ensure their driver can meet with a sales rep to coordinate prior to delivery. But, because our business centers around customer need, the availability of special staff, and access to additional labor to transport patients or equipment, carrier flexibility is critical.”
Stryker Medical began looking for a new transportation provider that could partner with its sales force, work professionally with customers, and maintain flexibility in the face of rapid changes. The company chose Chattanooga, Tenn.-based third-party logistics (3PL) provider Kenco.
Kenco helped Stryker develop a ZIP code-based transportation management system (TMS) that streamlined deliveries. It also helped develop a distribution network that has grown to include nine regional distribution centers. Today, all of Stryker Medical’s equipment is still built in Kalamazoo, but it is then matched up with complementary items and moved to one of the DCs, which are strategically located to provide one-day transit time to 85 percent of the U.S. population.
“Kenco helped us determine ways to put more beds and stretchers on trailers so we could reduce the number of shipments we moved,” says Jim Krawcyzk, senior director of customer care for Stryker Medical. “The 3PL also configured racking systems and special handling equipment within the trailers to help move beds and stretchers with minimal damage. The TMS helps us coordinate shipments, and regional distribution centers make it easier for us to get products to customers more quickly.”
Today, Stryker has reduced the number of trucks it uses per delivery, and consolidated trial unit storage. In total, the company saves $1.6 million annually through reduced fuel, labor, and outsourcing.
“Even as our volume has grown, overall freight spend has remained flat, thanks to innovative problem-solving and data analytics,” says Bielanski. “From a qualitative point of view, our sales force has seen a great increase in the responsiveness of our downstream supply chain.”
To coordinate deliveries, Stryker Medical sales representatives contact the closest regional DC. “Our sales reps have developed good personal relationships with the drivers and staff at each regional distribution center,” says Jeffrey Vander Ploeg, director of distribution and logistics at Stryker Medical. “We have solved 99 percent of our delivery coordination issues.”
“Stryker’s on-time delivery rate falls just below 100 percent, and the regional DCs allow us to retain a small business approach that serves hospitals’ unique delivery needs,” Bielanski says. “They enjoy doing business with us because we make it easy.” Kenco’s solutions have also helped Stryker present a more professional image to customers.
Hospitals across the board are now looking at transportation and logistics costs as a key driver of economic stability.
“All hospitals are being pinched for costs, and many are moving to 3PLs to mitigate transportation and logistics expenses,” says Krawcyzk. “In our case, we were able to clearly demonstrate the value of using a third-party logistics partner to manage and deliver our products. Many hospitals and healthcare systems are turning to outsourcing logistics because it helps them address their cost issues.”
With reform still in its infancy, it’s likely that today’s healthcare systems and hospitals will continue to face cost-reduction pressure for years to come. Those that can streamline logistics and boost their supply chain strength will improve their chances of a healthy future.