Docs Should Care About Supply Chain Management

Edition: June 2002 - Vol 10 Number 06
Article#: 1257
Author: Repertoire

If doctors in hospitals are too preoccupied to worry about supply chain management, those in their offices are just as distracted. For the most part, doctors are oblivious to the opportunities to be gained by smart buying, storing and disposing of medical products. Peter Mike hopes to change that.

Mike has built a Tucson, AZ-based business – Solutions JIT ( to provide supply chain assistance to physicians and their staffs in the non-hospital market. He is well qualified for the job, having served as the executive leadership in materials management at Tucson (AZ) Medical Center until 1997. He has been consulting in acute and alternate-site healthcare materials management ever since.

Recently, Repertoire spoke with Mike about the difficulties and opportunities facing physicians and their suppliers in the area of supply chain management.

Repertoire: How do you help physicians in supply chain management?
Mike: A large part of what we do is show physicians how to use current technologies to cost-effectively procure supplies. Two of these are bar coding with “scanning,” and using a business-to-business Internet portal for the storage and retrieval of accurate, reliable and timely data – something that's sorely missing in most doctors' offices.

Why is that information important?
Most physicians' offices have bench stock or tabletop stock, located in drawers, exam tables and so forth. This constitutes a good portion of their total supply stock. In addition, most have either a fragmented storage area or a central storage area, which feeds the exam rooms.

From my experience in acute care – and this is proving out in physicians' offices – about 15 percent of what is stored doesn't need to be there. The problem is, physicians' offices order supplies based on their ordering history and accounts payable records, not on what has been used. If they had ordering information based on actual usage, they wouldn't have that excess 15 percent of products on hand.

How can they get point-of-use information?
We help them by conducting periodic inventories. We count inventory every 15, 21 or 30 days – however many days' inventory they want to carry. Using bar code scanning technology, we calculate the usage of individual products over the particular time period and arrive at a proper ordering quantity.

Why do physicians have trouble keeping supply management under control?
Several reasons. First, most have a splintered staff focus on the supply challenge. For example, we went into a large integrated practice several weeks ago. We found that the accountant was generating purchase orders as well as wearing two or three other hats. Two nurses were handling the supply duties. It's a splintered process. What's more, nothing is written down, so everybody does things his or her own way. We help them analyze their processes, smooth them out and decide what is the most consistent way to handle things.

Second, they often lack the dollars to buy inventory control technology, such as bar coding.

Third, their purchases tend to be small-volume. Everyone has convinced them that the only way to get better pricing is to generate higher volumes. But that's not necessarily true.

Finally, not many people in doctors' offices have much of a knowledge base in materials management. Nor do they have a lot of time to gather such knowledge.

Why don't physicians' offices spend more time improving their supply chain practices?
They think that the dollars are just not there. But that's because they lack accurate and reliable information. I have read that an office can spend 30 percent of its operating budget on supply chain issues – ordering supplies, receiving them, resolving problems, etc. If their annual operating expenses are $90,000, that would mean $27,000 is spent on supply-related issues. We believe they can save 15 percent of that the first year; that represents $4,050 – or 5 percent of their annual operating budget.

One family practice with three physicians, for which I did an assessment, spends $78,000 annually on supply purchases alone. Their operating expenses are considerably more than $90,000; therefore the savings potential is a lot higher.

How do doctors' offices select distributors, and are they making the best use of their distributors?
What I find is that most sales reps spend their time being order-takers. They also spend an inordinate amount of time counting inventories, correcting errors, expediting orders – not the kind of things that a professional sales consultant should be doing. If the kind of system I'm talking about can be implemented in an office, the sales rep can get into areas where help is really needed – introducing new products with lower usage costs, or for better prices than what is currently being paid.

What else can physicians' offices do to make better use of their distributors?
I address it in terms of how offices can get better deals from their suppliers. The first way is by instituting a competitive bid process. Although this is good to do, in the scheme of things, it's really the least important.

The second way is to reduce the supplier's cost of doing business with you. It's estimated that between 2 percent and 5 percent of the price of a product is used to offset the cost of rework, mostly as a result of customer errors. Either they order the wrong thing, or they have the wrong price, or they make some error in receiving – any number of errors due to the lack of automated, accurate and reliable data.

The third way is to listen for information about what kind of deals are out there. That means networking with other offices, or getting pricing data from third parties.
The final way is to exert some influence on other practices to buy from one supplier; perhaps through communication at [the Medical Group Management Association], [the Professional Association of healthcare Office Management] or another professional organization. If practices can bring this to the table, they will have more influence.

How about commitment? Can a practice or group of practices offer real commitment to a supplier?
Yes, but there has to be more in the deal than a better price. But to counteract the influence of better pricing elsewhere, the distributor has to strategically roll it out. I'm talking about things like reliable and accurate data, or introduction to new, cost-effective products.