Supply Chain Reacts To Health Care Cost Pressures With Innovative Partnerships

By Dave Bode, VP, Health Care Solutions – DSC Logistics

Innovation defines a wide range of initiatives that supply chain leaders in life science companies are pursuing to best help their organizations meet the fundamental changes occurring in the industry….heightened regulatory enforcement, outcomes-based reimbursement, consumer vs. provider centric care, increased access to care, and new taxes.  The magnitude of these changes was made perfectly clear at a Health Care conference hosted by Gartner in November 2012.  The keynote speaker, Don Cassey, CEO, Medical Segment, Cardinal Health, declared that the health care industry must reduce its cost by 30% in order to remain sustainable.  To put this in perspective, this means that the US health care system would need to shed $5Trillion in operating cost.  The need and value of step change innovation in the health care industry will never be higher.

The supply chain, like every other function, must bear its share of cost cutting and belt tightening to meet this challenge. But, the number of low hanging cost reduction opportunities is shrinking every year. Part of this is because the focus of these opportunities has traditionally been on a)immediate expense and asset reduction, and b) activities “inside the four walls” of a warehouse.  Cost reduction through belt tightening isn’t the answer to the industry challenge and life science supply chain leaders know this. The typical buyer/seller procurement dance that shippers and logistics providers do is still efficient, but yields diminishing returns, especially for the companies that already outsource their supply chains to 3PLs.  More importantly, the extreme pressure on price is causing shippers to seriously consider awarding large contracts to 3PLs who offer major price concessions, even though these 3PLs have little to no experience with their business.  This puts the supply chain at risk.