The Reemergent Rumblings of Consolidated Service Centers: Does it Make Sense for your Supply Chain
A number of years ago, I was driving home from work (which was then at a Level 1 trauma center in Minneapolis) when I received a call from the disaster commander. “The 35W bridge over the Mississippi just collapsed”. Even before I was able to turn around to get back to the hospital, I was already going through the disaster checklist that was ingrained in my mind. “Move the disaster supplies to the triage area, contact our med-surg distributor and call in emergency staff.”
By the next day, I learned that the human impact of the bridge collapse was thankfully much less than expected. As supply chain professionals, we are always planning for future emergencies and disasters to ensure that all possible scenarios have been thought through and vital hospital supplies will continue to be available for uninterrupted patient care.
There’s no doubt that the current pandemic has changed the way we think about many things in nearly all aspects of our lives, both personally and in our work. For hospital and health system supply chain leaders, that means continuing to manage the large amounts of personal protective equipment (PPE) that was so desperately needed and hard to find. During the height of the pandemic, these supplies were stored in storerooms, closets, gymnasiums, hallways, and whatever other open space that could be found. This storage crisis became more permanent as states begin to mandate how much PPE hospitals were required to have on hand.
In 2020, California was the first state to write into law that every hospital must have a 45-day supply of PPE. Already, in April of 2021 California has modified that law to dictate certain hospitals maintain a three-month supply of PPE. While some hospitals have been able to acquire warehouse space to accommodate large PPE stock levels, others are exploring options such as consolidated service centers (CSC).
With so much change and uncertainty, your approach to inventory management will need to change, too.
The benefits of consolidated service centers
The typical CSC model calls for the standardization of equipment and supplies across a health system and then consolidates the inventory into a central warehouse for purchasing and distribution to individual facilities. The large storage capacity and standardization allow for bulk purchasing, including for disaster and pandemic planning. Other benefits include:
- Eliminating the need for a distributor and the associated costs by purchasing direct from manufacturers
- Improved service levels at the individual hospitals due to complete control of the system’s inventory
- Streamlined training for clinicians and repair techs using standardized equipment across the health system
- Options for relocating departments such as sterile processing, mailroom, print services and laundry services to the CSC, freeing up space that can be repurposed for revenue-generating activities
Determining if a consolidated service center is right for your health system
Making a change to your distribution methodology requires careful consideration and planning. Here are three types of questions to help you determine if a CSC is right for your hospital.
Should we?
- Be clear on what problems are you trying to solve. If your need is simply to store pandemic or disaster preparedness supplies, this distribution method may not be right for you. This is not to say that PPE storage should not be an activity within your CSC, but it should not be the sole purpose for it. A true CSC will require a warehouse management system, specialized material handling equipment, dedicated sourcing resources and high-tech product retrieval equipment, none of which are needed simply to warehouse PPE.
- Ask yourself if a CSC aligns with your organization’s strategic goals. Consider if there are plans for expansion or additional service offerings. You don’t want to be competing for capital dollars and resources if other projects will take precedence.
Can we?
- Consider if the necessary capital is available. A CSC can often show a return on investment, which is the good news. The bad news is that the return may not come quickly.
- Consider if you will need to build a warehouse or if existing space is available.
- Consider if you have existing in-house expertise. Typically, the answer to this question is “no”. This is a point where you will likely need to engage appropriate subject matter experts from outside the organization. This may include warehouse logistics experts, engineers, supply chain consultants and certainly your prime distributor.
Will we?
- It may make sense for your organization to utilize a CSC, but do you want to operate it? There are third-party logistics companies that are experts at this type of activity, and it may make sense for your organization to outsource the CSC.
- Have a conversation with your prime distributor to discuss your CSC. Distributors may be able to assist in
varying ways with your CSC:
- Some distributors will carve out a piece of their existing warehouse and allocate that space to the provider exclusively.
- A distributor may partner with you in this endeavor and provide distribution logistics from your warehouse, while you manage procurement.
As supply chain professionals, we could have never imagined having to plan for the myriad of challenges COVID-19 has had on our nation’s health system. However, I do know that we are very good at learning from the past and I believe we will learn from this.