Developing, launching and managing a Centralized Distribution Center or a more diversified Consolidated Service Center can be a daunting project to start and a daunting task going forward. But a number of supply chain executives with extensive experience in working in and consulting on CSC operations ardently preach the gospel of CSC salvation if done right. Here’s what they told Healthcare Purchasing News.
CSCs are viable and can work very well. Providers that do their homework, hire the right talent and envision the entire supply chain can be successful, create value and new opportunities. It does take a different mindset. The scope of CSC value must extend into many other areas outside of hospital materials management, such as pharmacy, non-acute clinics, laboratory, central processing, operating room, clinical engineering and Home Care.
Richard Beach, Assistant Vice President, Logistics and Materials Management, Intermountain Healthcare
The truth is that CSCs can greatly improve operations, but a critical component is that standardization and product procurement need to be strategic and relentless on reducing the costs of acquisition.
James Wetrich, FACHE, CEO, The Wetrich Group of Companies
CSCs can be and are operated in a cost-effective and competitive manner, comparable to GPOs and distributors, and other operators of services handled by each facility within the provider organization, and/or commercially available. It has been demonstrated that a consolidated operation can replace an individual operation at each hospital site and provide better service, higher quality and much lower expense, even when considering the inter-site transportation factor.
Product standardization drives contracting and not vice versa. But they are mutually dependent activities.
CSC foundation investments (facilities, transportation vehicles, etc.) can be crossed utilized and can approach a no-cost/incremental cost to add other services that require a strong, reliable and cost-effective delivery infrastructure. This is especially the case for Lab, food, records and files, med/surg products, even facility engineering items.
As CSCs expand the number of services for which it makes sense (and cents) to consolidate and centralize, cross utilization of some assets and operations (parts of facilities, management, transportation [scheduled and random], information technology, etc.) can be shared and reduce the investment payback period and enhance the ROI.
Too many facilities and too great a distance from the CSC to the furthest customer destination can make the model unfeasible – operationally and financially.
Executive understanding, support and commitment to the CSC model is critical to the probability of success and sustainability. If that is not present, don’t proceed.
Capital dollars needed to set up a CSC should not be committed at least until a detailed feasibility study based on engineered operations and physical requirements (not just a ‘big building’) and financial calculations. While internal staff should be involved with such a study, a third-party resource that knows supply chain intimately, and has completed several such studies will likely provide the most informed case (for or against) the CSC, upon which executives can base a decision.
Even if the CSC projected ROI is compelling, it will have to compete for capital. With many IT and clinical service initiatives needing capital, it is possible the CSC will not be approved. Those current CSC operators have been successful dealing with this scenario by convincing the executives that the ROI has historically been achieved in a short period of time (much less than the projection, which could be 1.5 to 3 years) providing more capital (from operations-based savings of the CSC) for the clinical and IT initiatives.
There are specialty companies to which a CSC can and maybe should outsource a part of the CSC’s operations. This includes setting up and managing the distribution center, inter-site transportation, and even some segments of their items that must be purchased (maintaining a relationship with GPO), as well as others.
Economies of scale savings and CSC success are achievable through consolidation and centralization, which both allows and are possible through appropriate use of standardization of processes, products, cross-use of assets and other resources.
A well-thought-out, detailed implementation plan is critical to success and time achievement of the payback and ROI.
Technology tools will be needed to manage a CSC’s scope and scale. Plan for and obtain them in a timely manner.
Knowledge of how to plan for, set up and operate a successful CSC requires knowledge and experience that are likely not available in the current provider team. If that is the case, get that knowledge and experience, if even for a limited time, until the CSC is meeting ist objectives and goals, and the full-time staff have learned how to take the helm.
A CSC is not a supply chain strategy. It is a part of a Supply Chain Strategic Plan. Proceed only [when you] have thorough analysis and multiple site visits to operating CSCs.
A CSC is not for every organization, particularly those without the vision, courage and commitment to make one a success. Other factors include distance/time factor associated with customer site locations relative to a CSC, and even more critical, disparate philosophies (about consolidation, centralization and control) and misaligned corporate culture.
Jamie Kowalski, CEO, Jamie C. Kowalski Consulting LLC
Very few healthcare organizations are candidates for CSCs. Exhaustive financial studies and modeling needs to be performed prior to going forward. You have to “know the numbers,” not “think you know the numbers” before proceeding. You must take your time and calculate every financial input when building your models. There is no room for “guestimates.”
The best CSCs are evolutionary in their growth. It would be totally disruptive to put every element you would expect to see in a mature CSC on day one. Change, especially in areas such as Central Processing, can be very disruptive to organizations and must be implemented in a thoughtful way.
Once implemented, it is hard to go back. A system in the Midwest decided to add a centralized laundry to its operation in the early 2000s. Members of the system protested that, while costs would go down slightly for members on the western side of the state, the three members from the eastern side would see their costs increase by more than 30 percent. The Supply Chain leader had strong influence over the system CFO and the laundry was implemented. It is still running today, with the three members on the eastern side of the state continuing to pay the inflated prices.
There are savings to be garnered, but those savings are only as believable as the documentation that supports them. Operations need to be monitored by people outside the supply chain. Comprehensive Key Performance Indicators (KPIs) need to be established and invoked to monitor effectiveness before and after the CSC is put into operation.
Many IDNs develop their CSC concepts with the help and “guidance” of their GPOs and medical/surgical supply distributors. If an organization is truly considering the implementation of a CSC, the only way to be certain to reach a logical and unbiased conclusion is to employ an unbiased third party in the discovery and selection process. GPOs have two things on their minds: Retain customers and achieve contract compliance. Distributors have one: Get the business and keep the business. Unbiased consultants, for whom there is no “after-the-fact” benefit, help clients devise and utilize evidence-based tools to make the best decision for the healthcare organization or IDN.
Fred Crans, Healthcare Consultant, Business Development, Sedlak Supply Chain Consultants
Rick Dana Barlow | Senior Editor
Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].
