Does Supply Chain need a
freight awakening?
by Rick
Dana Barlow
When
it comes to managing freight — including inbound and outbound packaging,
shipping and transportation — just how efficient are healthcare facilities
in doing it really?
In the short run, overnighting stuff can
cover and hide a multitude of inventory management, demand planning or even
last-minute, sweat-inducing product needing sins. In the long run, however,
(the boundary between short and long runs can be fuzzy and thin) excessive,
if not frequent use of overnight delivery services can create a multitude of
other sins.
Too much of that blackness leads to red on
the bottom line. And that’s bad news for green.
Over the years, Healthcare Purchasing
News has explored industry behaviors and practices for effective and
efficient freight management, as well as shared insights, tips and tools for
changing and improving procedures by some of the foremost experts in the
field.
With all of the intelligence HPN
has published in past years (be sure to search HPN Online using the terms
"freight efficiencies") we wanted to see if any of it has been meaningful
enough for readers to apply in real life and take action.
As a result, we recruited a small group of
third-party logistics experts to evaluate provider progress in recognizing
the traps and tricks suppliers and vendors employ and in implementing
appropriate countermeasures, as well as best practices to move forward.
HPN embarked on this project
in three ways. First, we asked sources to issue an "unofficial" report card
with letter grades, if they felt subjectively comfortable enough, for
provider performance — basing the evaluations either on their actual
customer base or on their perceptions of provider activity in general.
Then we recruited them to help HPN create a
pop quiz to gauge whether providers are knowledgeable enough to know when
and where to make changes. You’ll find our first quiz at
www.hpnonline.com/inside/2013-07/2013-PS-sidebars.html.
Finally, we tapped them to issue some
newsworthy and noteworthy guidelines for process and performance
improvement. You’ll find that extensive list at
www.hpnonline.com/inside/2013-07/2013-PS-sidebars.html.
So how are hospitals doing?
Not surprisingly, many providers have much
more work to do in becoming more effective, let alone efficient, freight
managers.
"With the first of what will ultimately be
75 million Baby Boomers becoming eligible for Medicare, hospitals in the
U.S. are challenged to care for a growing number of patients while
simultaneously contending with increasingly expensive medical materials and
declining reimbursement rates," said Scott Szwast, Healthcare Marketing
Director, UPS, Atlanta,
providing some context. "It has never been more important for healthcare
organizations to take action to create freight efficiencies while
maintaining and enhancing their ability to deliver high-quality patient
care."
While Szwast acknowledged that improving
freight management procedures can "seem daunting," providers don’t have to
do it alone.
"You can leverage the expertise of supply
chain managers within your network and third-party logistics providers to
help develop an effective strategy for improved freight efficiency," he
added.
|
Marc Mullen |
Marc Mullen, Vice President and General
Manager, Services and Marketing, Medical Segment,
Cardinal
Health Inc., Dublin, OH, indicated that providers are making some
strides.
"Providers are becoming a lot more
efficient in managing their inbound shipping costs," Mullen said. "They are
taking control of how vendors ship to them by leveraging some of the
industry’s best practices. However, not all customers implement the best
practices, not all vendors are following the customer’s shipping
instructions, and not all vendor contracts have freight language to create
the stop gaps that are needed.
"We see most customers generally have
between 65-75 percent compliance on inbound shipping costs with a
third-party provider," he continued. "This does not include hidden vendor
costs that may go unexamined. Without a third party provider, the compliance
rates drop to well below 40 percent."
As a result, Mullen awarded providers an
average letter grade of "B-" for controlling their inbound shipping costs.
"On the other side of shipping, outbound
becomes even more complex for a healthcare system to manage," he said. "It’s
hard to control outbound shipping costs without taking the time to evaluate
who is shipping along with their behaviors, processes and technology used.
We’ve found in order to be successful throughout a healthcare system, the
primary focus needs to be training and communication to anyone shipping.
They also need to have clearly defined processes and easy-to-use tools
available to them to assist in making smarter shipping decisions.
"We see the health systems who are most
effective at controlling their outbound shipping costs leverage all three of
these facets of freight management. These providers probably make up about
20 percent of the industry, and the others have progress to make," Mullen
noted.
Mullen gave providers a "C-" for managing
outbound shipping because "we need more of them taking greater control of
the their own health system’s shipping practices," he observed.
|
Ira Tauber |
Ira Tauber, Vice President & COO,
TRIOSE Inc., Reading,
PA, offset Mullen’s evaluation by providing some balance. Tauber actually
scored hospitals with a "C-" for inbound shipping.
"Hospitals will always grade themselves
higher because it is their belief that they are negotiating good freight
terms on the front end, whereas in reality there are no internal metrics
that look at freight expense," Tauber cautioned. "Inbound shipping of
products to hospitals is largely controlled by the suppliers. Hospitals
think that negotiating free freight will automatically lower their costs,
but oftentimes free freight only applies to ground shipments. This is only
beneficial if the hospital is not using Next Day Air service for the
majority of their orders."
Tauber flagged another trap as free freight
tied to purchase order limits.
"In a large health system a buyer may call
in two-to-three orders a day from a single supplier, but because they are
separate orders they will never hit the dollar amount required to trigger
free freight," he continued. "Another hidden cost is handling fees. Most
hospitals have no visibility as to what they are paying in handling fees. In
fact, many believe that they do not pay any handling fees. These fees are
generally bundled in with the freight cost and are not specified in
contracts."
But Tauber granted hospitals a slightly
higher average grade for outbound shipping with a "C."
"Outbound shipping, surprisingly is where
the hospital has the least amount of visibility but greatest opportunity to
control costs," Tauber said. "Most hospitals recognize outbound shipping
expense is a problem, but have a difficult time tracking their outbound
shipping costs back to departments efficiently. Lack of education also leads
to overuse of premium service levels, such as Next Day Air shipping.
"One of the most common traps in large
health systems are the shipping of documents internally from site to site,"
he continued. "The use of premium service levels is not uncommon. The
majority of these shipments are documents that are not urgent. These could
be shipped via ground or via the hospital’s courier service at a
significantly reduced cost. TRIOSE has seen as high as 60 percent savings
from shifting these types of documents to less expensive service modes."
Typically, hospitals are average performers
in the freight services arena, according to Mark Hale, Account Executive,
Onsite Management
Group LLC, Louisville, KY, and colleague Dennis Brown,
Shipping/Receiving Manager, OMG LLC. That’s why both overall gave hospitals
a "C," admitting that they were being "generous" in doing so.
|
Dennis Brown and Mark Hale |
"An inconsistency in meeting service levels
with providers is the greatest factor in only offering a ‘passing grade,’"
Hale noted. "Too often the provider does not meet the scheduled pick up or
delivery time frames quoted, requiring loading area to be unnecessarily
congested and increasing security concerns. In the environment of
just-in-time inventory focus, delays can significantly impact an
organization. Ensuring costs and billing are issues as well from a
consistent basis. Too often we experience damage to materials received via
freight and often struggle with resolving the issues with the provider
related to the insurance selected."
Hale and Brown further delineated their
inbound and outbound "C" grades with a "C" for service and for technology
and ease of doing business, but a "B" for billing accuracy and a "D" for
quality.
"Service is the key and feeling as though
you are valued as a client and as a priority is lacking often in dealing
with providers," Hale added. "The perception is that controlling their costs
related to shipping takes precedent over meeting client expectations."
|
Jake Crampton |
Jake Crampton, Founder and CEO,
MedSpeed LLC,
Elmhurst, IL, acknowledged that it can be challenging to evaluate providers
on freight management because of conflicting priorities.
"At any given time, there are only so many
things an organization can focus on at once," Crampton
insisted. "Particularly in times like these, when the pressure to do more
with less is mounting, healthcare organizations are finding that they have
to prioritize and focus their efforts on care delivery more than ever.
"The simple fact is that all
transportation, freight and healthcare transportation, the movement of
patient and business critical items within a healthcare organization, is not
a health system’s first priority," he continued. "Trying to effectively
manage these efforts for maximum value and waste removal takes a great
effort. As such, many providers are not very efficient at managing these
operations — nor should they be. Many transportation activities overlap and
oftentimes freight charges are hidden within product fees, thus creating the
potential for waste and over payment."
Strategically aligned industry partners
make all the difference, according to Crampton. "They oftentimes have
expertise, staffing and capital to invest in infrastructure, technology and
other areas to streamline and centralize," he added.
How
ship-shape is your organization?
Take our quiz
and learn the truth
Test Answer key
1307-SF-sidebars.html/#Simple rules for ship-shape performance