Standing at the Crossroad of Lean Manufacturing and Healthcare

Willie Sosa, SVP- Global Manufacturing, Cardinal Health
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Willie Sosa, SVP- Global Manufacturing, Cardinal Health

The scope of manufacturing goes beyond the attributes of the product, or simply the cost to produce. Helping hospitals improve safety, quality of care and cost requires a holistic approach to the value chain, including the delivery of product at the right time in the right place–and at the right cost.

Defining the point of use or the patient’s bedside as the final destination of product, instead of an internal or external warehouse, can help guarantee the right product, at the right time, at the right place. Visibility to consumption in real time helps dramatically reduce waste in the supply chain–imagine having this insight at the manufacturing site to see when the product is used–by reducing forecasting errors and unnecessary inventories at several points of the supply chain.

  ​One finding from lean methodology is that we tend to manufacture and plan based on convenience 

Today, to ensure enough inventory is available when product is needed, a forecast is developed and transformed into production schedules at the plants. The manufacturer needs to produce enough product to maintain the levels of inventory at the distribution center and may also have some safety stock on their warehouses or sites. The signal to trigger the process is the Purchasing Order (P.O.) issued by the customer; this signal accumulates the consumption anticipated for some days, weeks or even months and will take into account inventories at the site. When the distribution center reacts to the order, it will replenish from their inventory based on the distributor frequency of shipment. Extra inventory is held at the distributor for fluctuation on the purchasing pattern of the facility. At the end, the process is batch-oriented and inefficient. Waste and extra inventory exist over the different supply chains–in part due to the uncertainty on the demand signal, which also leads to product obsolescence.

In certain businesses, the manufacturers are working from the information they get from distributors and providers. There can be a lot of variation—that is often driven by standard case quantities or order methodology—that doesn't exist. For instance, a hospital may require eight of a certain item per day, but because the item comes in packs of 20, the manufacturer or distributor doesn’t see it as eight a day, but as 20 every second or third day. The closer distributors and manufacturers can get to what hospitals actually use every day, the better the entire supply chain can respond to it.

One finding from lean methodology is that we tend to manufacture and plan based on convenience instead of what’s actually used. The extended supply chain in healthcare is generally based on this model—we build it and ship it and hope it all gets used. However, we know that supplies expire or become obsolete and we end up throwing product away. We need a model that will actually allow us to replenish supplies based on true demand.

Demand amplification is very costly to a healthcare system due to poor information transfer, which leads to too much or too little on-hand inventory and inaccurate forecasting. It's time to take a different approach to the supply chain.

In a fee-for-service reimbursement model, the supply chain’s job was to ensure product availability. With the rise in consumerism and the evolution toward fee-for-value reimbursement models, the supply chain not only needs to ensure “right product, right place, right time,” but needs to work holistically to reduce the total cost of care delivery.

The first step in building trust is improving the transparency of how products move through the extended supply chain. Greater visibility reduces the opaqueness that exists today—opaqueness that leads to misgivings between partners and the inefficiencies that follow.

We now have technology, enabled by RFID, which allows us to capture the point of use demand signal and share the signal throughout the continuum of care through a robust cloud-based analytics platform. This tracks information from patient bedside back to the manufacturer.

To respond to evolving needs and delivery models, the healthcare industry needs to go through the same sort of supply chain transformation that revolutionized retail and other industries. We need to focus on the first moment of truth and move toward a patient-driven supply network. We need to extend our thinking beyond our own four walls (be it provider, manufacturer or distributor setting) and think holistically.

The principles and processes that allow the manufacturing industry to increase efficiency and reduce waste can be effectively applied to healthcare, such as Toyota’s lean methodology and Kanban, a system that pulls inventory as it is actually needed.

Patient Driven Supply Network (PDSN) creates a demand-driven supply chain for medical products, using lean principles and tools (e.g., RFID and Kanban) to create superior value for providers and manufacturers. The benefits are experienced for all stakeholders.

To capture the benefits of PDSN, manufacturing professionals need to:

• Understand how product moves across the value chain

• Improve responsiveness by eliminating freeze periods and moving to a lot size of one, so they can quickly adjust production schedules based on consumption and not forecast

• Take ownership for total system inventory and challenge their teams to reduce by a significant percentage

• Ensure all teams in manufacturing have service to the customer as part of their management objectives (not just traditional metrics like schedule acceptance and adherence)

The technologies required to make this a reality are available through the use of RFID and Kanban systems, and today is the right time for our industry to make this necessary advancement. By eliminating the inefficiencies we all know exist in our healthcare supply chain, we can ultimately help improve patient care and outcomes through an improved supply chain.

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