Driving Supply Chain Excellence in the Health Sector

by Eugene Schneller, Ph.D.

Supply chain excellence is a distinguishing characteristic of many U.S. and global businesses. Companies as diverse as Walmart, IBM, John Deere and Costco attribute much of their success to having an efficient and effective supply chain as a differentiator.

The healthcare provider industry, while frequently depicted as having one of the most inefficient supply chains, has made great progress in recent years. Much of this progress has been due to consolidation of supply spend and healthcare systems finding greater integration because of mergers and acquisitions.

While many systems leverage their buying power with suppliers, progress has not always been easy. One barrier has been a unique characteristic of the healthcare industry — the presence of physicians as surrogate buyers who frequently demand high-cost products, which may not have superior impact to lower-cost equivalent products.

An important impediment to excellence is the inability of technology to track and trace medical devices to facilitate product recalls and to assess their comparative effectiveness. In 2013, the U.S. Food and Drug Administration proffered the Unique Device Identification Rule (UDI), which set a schedule for medical device manufacturers to have a standardized machine-readable label (e.g., barcode) on every medical device package distributed in the United States. One of the three issuing agencies accredited by the FDA to issue UDIs is the Phoenix-based Health Industry Business Communications Council.

The date for adoption of these labels has arrived. Importantly, labelers must submit medical device information to a centralized database, the FDA’s Global Unique Device Identification Database. This allows for efficient recalls for problematic products, the establishment of product registries and assessment of the comparative effectiveness of products, which can contribute to the standardization of product selection and, ultimately, to improved patient safety.

Our research reveals that few suppliers have yet found value in the adoption of the UDI technology. One of the exceptions is Cook Medical. Dave Reed, the company’s VP for operations (writing in Healthcare Business Solutions) reports UDI value to operational efficiency and process variation reduction and that “recall management and patient safety are large value propositions …. operationally, we can deliver products more efficiently to patients through this common UDI language. UDI helps us to identify where a product is in our supply chain at any point in time. Lastly, through UDI data and outcomes-focused analytics, we can reduce procedural variation and, in turn, reduce waste in healthcare.”

Interestingly, the FDA did not mandate the adoption/use of the UDIs by hospitals and other provider organizations, although Mayo Clinic and other members of the Healthcare Transformation Group have worked to accelerate the adoption of UDI technology. But the 2017 top trends study, carried out by the CAPS Research in collaboration with the Department of Supply Chain Management at ASU’s W. P. Carey School of Business, reports that UDI implementation remains on the back burner for many healthcare organizations.

In a healthcare system characterized by more than 100,000 deaths from medical errors annually, patients deserve greater guarantees of receiving the right product, at the right time, for the right procedure. UDI — by supporting physician decision-making and assuring an efficient and effective supply chain — is an important but unrealized ingredient.

Eugene Schneller, Ph.D., is Professor and Dean’s Council of 100 Distinguished Scholar at the W. P. Carey School of Business, Arizona State University. He is director of the Health Sector Supply Chain Research Consortium, an Industry Advisory Group at CAPS Research, and co-founder of Health Care Supply Chain eXcellence.

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