Healthcare Logistics: Under Pressure
Healthcare leaders diagnose their biggest supply chain pains and write a prescription for the Obama administration.
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The healthcare industry is feeling besieged on all sides, with companies slammed by the economy and worried about cost control as they attempt to drive innovation and ensure safety and security.
That's just for starters. Healthcare decision-makers also are grappling with increasing regulations and recognize they've had limited success so far in actually managing supply chain costs.
Those are the findings of UPS' second annual Pain in the Healthcare (Supply) Chain survey of supply chain decision-makers at small to mid-sized companies (SMBs) in the pharmaceutical, biotech, and medical device industries, as well as supply chain decision-makers at large healthcare companies with more than $1 billion in revenue.
According to the survey, top decision-makers at all-sized companies rank "managing costs" as their biggest supply chain concern.
Specifically, 55 percent of small company respondents are "highly concerned" with managing costs and fewer than half of those (46 percent) report success in addressing this area. Among the leaders at large companies, 81 percent are "highly concerned" about managing supply chain costs and only 41 percent report success in doing so.
Product damage, loss and spoilage, and meeting customers' changing demands for service rank second among supply chain concerns, with 42 percent of SMBs reporting they are "highly concerned" with these issues.
Despite the economic slowdown, many companies still plan to increase supply chain spend, although to a lesser degree than before. Forty-five percent of small company respondents will increase supply chain spending by an average of 18 percent over the next 18 months. Forty-three percent of SMBs will hold steady on spending during the next 18 months, and only nine percent will cut spending.
For those planning to increase spending, 51 percent cite a greater demand for their products and services as the reason. Among large companies surveyed, 44 percent expect supply chain spending to increase, while approximately one-third expect to reduce spending over the next 18 months.
INCREASING REGULATION: A TOP CONCERN
When it comes to business concerns among companies of all sizes, regulatory issues grab the spotlight. Numerous industry factors are driving this growing focus on regulations, including heightened concerns over security and patient safety, increased cross-border controls, and an increase in temperature-sensitive products entering the marketplace.
More than half (56 percent) of companies with $1-billion-plus revenues rank "increasing regulations" as their top business concern. At the same time, nearly one-third (30 percent) of SMB respondents rank increasing regulations as their top business concern.
Fifty-two percent of large companies report that keeping up with regulatory compliance laws is a challenge in serving global and emerging markets. The majority of large companies (74 percent) cite temperature-sensitive concerns as the top regulatory challenge from a supply chain standpoint.
For SMBs, the top three regulatory challenges from a supply chain perspective are: changing regulations in the United States and abroad; cost of compliance; and training employees on regulatory requirements.
The survey also reveals decision-makers' views on the top healthcare priorities for the Obama administration.
Small to mid-sized healthcare companies believe that ensuring product safety and security (ranked first by 33 percent) and simplifying regulatory requirements (ranked first by 31 percent) should be the top two spending priorities for the administration.
Fifty-two percent of large healthcare companies rank simplifying regulatory requirements as the top spending priority for the new administration, followed by ensuring product safety and security (33 percent).
Looking toward the future, shifts in supply chain strategies to meet evolving customer needs are apparent. Large healthcare companies plan significant changes in their go-to-market strategies in 2009, while smaller companies plan far fewer changes.
Among companies with revenues of $1 billion-plus, 56 percent plan to alter their distribution models to go direct to hospitals, pharmacies or retailers; 52 percent plan to go direct to consumers (patients or physicians); 30 percent will go direct to wholesalers; and 48 percent plan to work with a third-party logistics provider in the near future.
Approximately one in four (27 percent) SMB respondents plan to change their distribution models to go direct to hospitals, pharmacies, or retailers in the near future, while 21 percent plan to go direct to wholesalers in the near future.
The healthcare industry is increasingly embracing outsourcing, especially large companies that are outsourcing as a way to drive efficiencies across the supply chain while focusing on their core business.
The largest difference between the small and large healthcare companies surveyed are in their outsourcing plans. Forty-three percent of large companies expect to increase the amount they outsource in the next two to three years. Of the two-thirds of small and mid-sized companies that do not currently outsource any supply chain functions, no more than three percent expect to outsource in the next one to two years.