Supply Chain Cure

Follow the money in any business, and it will eventually lead you to the supply chain. Whether it's the flow of goods and services, finished parts or raw materials, an ever-growing network of partners and suppliers has turned supply chain expertise into one of IT's most business-critical accomplishments.

In the retail and consumer market, the supreme being known as Wal-Mart now calls the supply chain shots. Its RFID commandments for electronically tracking products are duly inscribed on thousands of boardroom tables now, and all the faithful are scrambling frantically to comply. The Yankee Group estimates that manufacturers will spend about $2 billion on electronic product code RFID tags and another $1 billion to $3 billion on consulting and systems integration in the next few years.

But in another vital industry -- one that does far more important work than Wal-Mart -- there is no all-powerful entity to drive standards or dictate coordination in the workings of the supply chain. The health care industry is actually something of a disgrace in this realm, wasting an estimated $11 billion as a result of supply chain inefficiencies last year. As Julia King reported in her front-page story last week ["Health Care's Major Illness," QuickLink 46091], none of our 5,000 hospitals and health care systems is influential enough to push standards for describing, tracking or purchasing the products they use. Hospitals are "downright dinosaurian when it comes to deploying IT to better manage the supply chain," she wrote.

Part of this Jurassic problem is infrastructure-related. Very few hospitals have integrated systems for ordering, tracking and paying for supplies, says Lee Marston, CIO at Broadlane Inc., a health care software and services company in San Francisco. In a yearlong analysis of all the supplies purchased by one of its multihospital clients, Broadlane discovered that overall the chain spent more than eight times what it would have spent -- we're talking millions here -- if the same stuff had been acquired at coordinated, contracted prices.

Also playing a role in this problem is the questionable bliss of ignorance about how much money is being left on the table, since about half of all medical supplies are bought outside negotiated contracts. Fixing the problem with technology is (like so many things in IT) easier said than done. The prescription includes ingredients like common computing platforms, integrated systems, standard product descriptions, constant data cleansing and much more.

Although the supply chain battle is going rather badly in health care, there are some hard-won victories out there. Our story profiled two hospitals that fixed broken supply chains. While their efforts were complex and time-consuming and required essential business process changes, they did save money and even improved patient care.

For example, Allina Hospitals & Clinics in Minneapolis used a Y2k overhaul to merge six systems into a common materials management operation that ultimately saved millions. "With a common system, we finally had a stadium to play the supply chain game in," said Scott Grove, director of IT at Allina. Attaining real supply chain efficiencies in health care turns out to be "a heavy maintenance issue of keeping data clean," he added. "If you can do that, you then have accurate information."

Hmm. Clean data, integrated systems and trusted, accurate information. Remind you of anything? It makes me wonder if compliance with HIPAA and other regulations could end up delivering an unexpected upside for health care. Maybe even a supply chain cure.

Maryfran Johnson is editor in chief of Computerworld. You can contact her at

Copyright © 2004 IDG Communications, Inc.

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