Healthcare case study

Supply chain transformation for a major German hospital group, achieving 20% savings potential

Healthcare industry, transformational change

Situation

Major German healthcare provider with 12 general hospitals, all with similar footprints combined with a degree of specialisation.

Annual revenues >€1bn, 400,000 patients and 12,000 employees.

Ongoing healthcare reforms requiring further efficiency gains across all areas.

Supply chain management responsible for some 30% of overall budget, with 650 suppliers, 13,000 SKUs, 150,000 invoices and multiple warehouses.

Approach

A three-stage approach was used as follows:

  • Full Potential Analysis: end-to-end value chain mapping of all supply chain management processes, including key suppliers and distributors, following the process from production to patient.

International benchmarking of organisation, processes and costs, revealing further improvement potential.

Design of new target operating model, quantifying the impact on all performance levers, including service levels, costs, cash flow, etc.

  • Proof of Concept: general hospital selected to trial target operating model prior to roll-out.
    Product costs reduced by standardisation around clinical pathways, rationalisation of suppliers, introduction of unit dose and other best practices.
    Inventories reduced by outsourcing of central warehouse to a 3PL, rationalisation of local warehouses, introduction of vendor-managed inventory and application of kanban at ward and theatre level.
    Process reengineering and zero-basing preceded restructuring of the organisation with greater emphasis on delivering world-class performance levels from a centralised supply chain function.
    The need for time-consuming administration by clinical staff was virtually eliminated.
  • Roll-Out: tendering processes were held for the key providers for the new operating model, prior to hand-over for the roll-out to the wider group:
    • A 3PL provider with the ability centralise the warehouse function for the group and deliver replenishing of kanbans at ward and theatre level
    • An IT infrastructure provider with the ability to design and run the outsourced infrastructure necessary to manage the workflow efficiently

Provisional plans were developed for the new sourcing function to offer the service to third party hospitals and other healthcare providers in the region, transforming it from a cost centre into a profit centre.

Results

20
%
Potential savings
50
%
Reducing transaction costs
80
%
Inventory reductions
50
%
Warehouse space reduced
75
%
Reduction in carbon footprint
10
%
Reduction in purchase prices from improved procurement

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