Strategic Inventory Alliance in the Healthcare Industry – Phase 2

1. Strategic Inventory Alliance in the Healthcare Industry – Phase 2 Research Organizations Center for Engineering Logistics and Distribution Center for Healthcare Management Research Dr. Eugene Schneller W. P. Carey School of Business Arizona State University Dr. Lawton Burns Wharton School University of Pennsylvania Dr. Manuel Rossetti, PhD, PE College of Engineering University of Arkansas Research Assistant Amit Bhonsle, MSIM D1 D1 D1 Dn Dn Dn D1 Dn Supply Chain Strategies in Healthcare Central Warehouse Healthcare Value Chain Service Center Hospital1 Hospitaln Purchaser Fiscal Intermediaries Payers • Drug Mfg • Device Mfg • Med-Surgical Mfg • Wholesalers • Distributors • GPO • Hospitals • Physicians • Pharmacies • IDNs • Employers • Government • Individuals • Employer Coalitions • Insurers • HMOs Hospital1 - Departments Hospitaln - Departments In-House Inventory, Supply Contract Management Outsourced Inventory, Supply Contract Management Spectrum of Healthcare Supply Chain Operations Complete in-house management model Completely outsourced model • Characteristics • Single location hospitals • Operational Excellence through • collaborative relationships • VMI operations • Close relationship with third party experts • Information sharing through systems and • operations integration • Characteristics • Multiple location hospital systems • Locations in adjacent states • Desire to gain control of operations • Close relationship with the suppliers • Demand aggregation leverages • buying power Inventory Management Distribution Management Inventory Management Distribution Management Supply Contract Management Project # UA/CHMR Project Objectives Research Methodology Case Study • Evaluate ways that hospital organizations • manage their vertical chain of production, • culminating in decisions regarding “make • versus buy” and inventory stocking policies. • Provide health care managers with information • that will allow them to make better strategic • decisions about inventory and distribution to • improve the performance of their organizations. • Mercy Health Systems , St. Louis, MO • Nebraska Medical Center, Omaha, NE • Conduct case study research on the two healthcare supply chain strategies • Develop simulation models replicating the supply chain operations of both the strategies • Understand best practices from both operations • Develop alternative supply chain networks using the best practices from both strategies • Compare supply chain performance • Develop a system of performance measures to assist managers in taking informed decisions Mercy Health Systems Nebraska Medical Center Suppliers Mercy Location Mercy Health Systems, Supply Chain Network Model (Supply Chain Guru) • Next Steps (Phase 2): • Mercy Network Sensitivity Analysis NMC Operations Study • Demand ▪ Outsourced model OPR study • DC Locations ▪ Simulation model development • Size of Network opportunity evaluation • Phase 3: • Understand/Study the strategic decision making process and justification characteristics • Phase 2: Mercy Health System, Simulation model run results (500 products) • Total transportation cost - $899,330 • Warehouse operation cost - $1,729,820 • Average system fill rate - 99.63% • Average inventory investment at warehouse - $4,117,294