Building Healthcare Supply Chain Success: Why Operations Partners Make Sense

As health systems face increasing demands for agility and cost-effective operations, supply chain organizations are navigating a landscape of competing priorities and frequent supply disruptions. A well-defined supply chain strategy, coupled with strong supplier partnerships and a reliable operational labor partner, can empower teams to expand their scope of services, enhance agility, and improve financial flexibility.

This article examines the challenging environment faced by healthcare supply chain organizations and explores how partnering with a third-party operations and materials management provider can mitigate these challenges. It highlights the benefits of such partnerships, builds the business case for their implementation, and addresses how common challenges and barriers can be overcome.

The Increasing Complexity and Demands on Supply Chain Team

Healthcare system supply chains are under increasing pressure to operate more efficiently, enhance resilience, and manage rising labor and operational costs. The global pandemic exposed vulnerabilities in traditional supply chain operations, revealing deeply rooted risks in materials management and value analysis practices. At the same time, global logistical, political, and organizational challenges continue to disrupt supply management strategies, introducing new uncertainties into operational planning.

While most supply chain teams are staffed adequately to manage daily operations and execute limited process improvements, they often lack the depth and skill set required to address emerging challenges. These include:

• Navigating Health System Expansion: Managing mergers, acquisitions, and the integration of supply chain operations across larger networks.
• Mitigating Supply Chain Interruptions: Addressing ongoing disruptions and the uncertainty of international manufacturing sources.
• Business Continuity Planning: Preparing for technological disruptions, logistical uncertainties, and unforeseen crises.
• Contending with Rising Labor Costs: Competing for skilled healthcare labor in an increasingly competitive market.
• Adapting to Technological Change: Keeping pace with rapid advancements in operational technologies and evolving medical care methods.

These factors are compelling healthcare supply chains to strike a balance between the need for greater agility, improved operational efficiency, advanced technical execution, and an expanded scope of responsibilities—all while contending with organizational cost pressures.

To achieve overall success, supply chain teams must strategically allocate their highly skilled professionals to critical areas, while identifying opportunities where alternative labor models can deliver value and support organizational goals.

Why Engage a Third-Party Supply Chain Operations Partner?

Asking why a supply chain executive would consider engaging a third-party supply chain operations partner is an effective starting point for establishing a business case. While well-established and efficiently running operations may not fully benefit from such partnerships, certain scenarios present clear opportunities for top supply chain leaders to leverage external expertise.

Scenarios To Consider for Healthcare Supply Chain Executives

• Unacceptable Overall Quality or Accountability
  Ineffective supply chain operations can force clinical teams and administration to endure subpar execution, with no clear accountability. Addressing poor performance by replacing ineffective leaders often exacerbates short-term challenges, creating cycles of instability. This can leave hospitals struggling with inadequate service levels and unreliable supply availability, further compromising operational outcomes.
• Lack of Capable Staff
  Supply disruptions can have an immediate impact on patient care, requiring swift and skilled responses throughout the source-to-distribute continuum. Without knowledgeable and effective staff to navigate these challenges, hospitals risk damaging their reputation, compromising patient care quality, and eroding trust in the supply chain organization among clinical teams.
• Poor Capacity for Strategic Planning and Action
  Executive leaders who find their teams bogged down in micromanaging day-to-day issues and "firefighting" low-level problems often struggle to focus on high-impact strategic projects. This lack of capacity hinders the development of a more agile, resilient, and future-ready supply chain organization.
• Ineffective Team Culture and Negative Clinical Perception
  Historically underperforming supply chain operations may suffer from a negative reputation among clinical staff, fostering resistance to change and skepticism toward new initiatives. These challenges are often compounded by the limitations of existing labor models, which can slow the pace and effectiveness of necessary transformations.
• Need for Flexible Leadership or Specialized Expertise
  The dynamic nature of healthcare operations often demands rapid increases or redeployment of leaders and skilled specialists. Many organizations resort to high-cost consulting or contracted resources to fill these gaps, but such solutions can result in the loss of valuable institutional knowledge and continuity when temporary resources leave.

For healthcare executives facing one or more of these challenges, engaging a third-party supply chain operations partner can be a viable and cost-effective solution to drive meaningful improvements in hospital support operations.

Challenges in Locating and Retaining Talent with the Right Skill Mix

A healthcare system encompasses the complexities of a small city, combining the functions of a hotel, food service company, logistical warehouse, manufacturing facility, construction company, and research lab—all within a single entity. Consequently, the skill set required for modern supply chain leadership is rarely found in a single individual. Adding to this challenge is the fact that healthcare supply chain maturity has historically lagged behind that of other industries.
According to Gartner(1), healthcare supply chains fall behind in critical areas such as technology adoption, process standardization, data and analytics, collaboration, and agility and resilience. 

Engaging a third-party operations partner can be a strategic solution, allowing health systems to delegate daily operational execution while focusing on their core priorities. This approach enhances flexibility, promotes operational agility, fosters collaboration, and enables the implementation of industry best practices for supply chain management.

Building the Business Case and Gaining Organizational Support

Quantifying Current Performance

To build a compelling case for change and evaluate the potential benefits of engaging a third-party operations and materials management partner, healthcare and supply chain executives must first quantify the effectiveness of their current operations and staffing models. This quantification process should present supply chain performance in a clear, concise manner that is easily understood by clinical teams and hospital administration.

Healthcare systems and supply chain leaders unable to effectively measure and communicate the performance of their operations already have a foundational business case for improvement. This effort requires cross-functional collaboration with financial, clinical, and information services teams, as these insights form the basis of all strategic supply chain initiatives.

Example: Sample Metrics to Evaluate Supply Chain Effectiveness

Critical metric for assessing supply chain performance center on the “Ability to Supply the Clinical Teams”, which can be evaluated through key indicators such as:

• Fill Rate: The percentage of requested items available for immediate delivery.
• Stock-Outs: The frequency of items being unavailable when needed.
• Requests for Stocked Supplies: The number of requests for items already available in unit inventories.

Among these metrics, Fill Rate is the most empirical method, and widely recognized as a key measure of a distributor, quantifying supply chain performance. Fill rates below 95% are typically deemed unacceptable and warrant immediate intervention. For example, if 20 products are requested for delivery and fewer than 19 are available to ship, a detailed review of end-to-end processes and action planning is necessary to identify and resolve underlying issues.

Financial and Labor Flexibility

Leveraging a third-party provider shifts workforce costs from employee-based expenses to a purchased service model, eliminating the overhead associated with payroll, taxes, and benefits. This simplifies labor management by consolidating expenses into a fee-for-service structure and folds in hidden organizational expenses related to training and recruiting. Healthcare executives must collaborate with third-party providers to establish clear billing models, converting costs into easy-to-understand full-time equivalent (FTE) comparisons with associated overheads. These models should also include well-defined productivity targets for each role, ensuring transparency and enabling straightforward workforce management.

Flexibility to scale the workforce—whether adding or reducing staff—based on pre-defined notification periods is critical for operational agility and should be a cornerstone of any business case for engaging a third-party operations partner.

Example: Adapting to Increased Demand

A previously underutilized outpatient unit is repurposed to support an overloaded inpatient population for an anticipated six-month period. This shift requires specialized supply carts, consistent restocking, and 24/7 service instead of the legacy hours of 7 AM to 4 PM.

In this scenario, a third-party operations partner can provide the necessary support by:

1. Allocating an operational leader to work with the unit in defining a clear Service Level Agreement (SLA) for supply chain services to the unit.
2. Recruiting and onboarding additional approved resources, bypassing rigid hospital policies that may not authorize new FTE headcounts outside the standard budgetary process.

This approach allows the organization to rapidly scale its supply chain operations to meet temporary demand spikes without disrupting existing workflows or compromising service quality.

Creating a Strategy and Performance Objectives

Building a business case, pursuing an RFP, awarding, and onboarding an operational partner require healthcare supply chain organizations to thoroughly analyze their operations while establishing clear measurements, structures, and goals. This process ensures that once an operational partner is in place, their objectives are directly aligned with those of healthcare leadership, fostering a unified strategy for success.

Operational goals and key performance indicators (KPIs) can be progressively tracked and jointly reviewed, providing opportunities for continuous improvement. Unlike legacy operations, which often require significant intervention from healthcare supply chain executives, external consultants, or other departments lacking supply chain expertise, an operational partner provides a structured escalation framework.

Evaluating Supply Chain Operational Leaders and Staff

A supply chain executive must have a comprehensive understanding of the capabilities of their leaders and key personnel. Operational leaders should consistently present key metrics, demonstrate the ability to identify specific defects, analyze root causes, and implement effective solutions to improve reliability. For example, as previously mentioned, Fill Rate serves as a critical qualifying metric. Operational leaders must have clear, actionable strategies to address and improve such metrics. Failure to do so—or the inability to pinpoint where defects occur within the supply chain process—is a strong indicator of either an ineffective operational leader or the need for support from a third-party operations leader or specialist.

Example: Addressing Defects in Saline Delivery

Consider a scenario where a medical unit requests 12 bags of saline solution during a routine PAR fulfilment process, but the product is not delivered in a timely manner. In such cases, operational leaders must quickly evaluate the root cause, present findings, and implement corrective actions. Defects should be analyzed and addressed through key metrics, such as:

1. Product Availability: Was the product unavailable due to a manufacturer shortage? Were alternative sources evaluated and secured effectively?
2. Procurement Efficiency: Were substitutes procured and established in a timely manner?
3. Execution of Delivery: Was the pick and delivery process executed properly, or was there a labor-related issue causing the failure?
4. Inventory Accuracy: Was the product incorrectly placed, picked, or delivered?
5. Technology or Data Failures: Did a technology or data issue prevent task completion or obscure visibility into the process?

Importance of Rapid Evaluation and Action: If root causes of supply chain failures are not quickly identified, communicated, and addressed, operational teams will struggle to achieve a high level of excellence. The failure to prevent or effectively communicate supply shortages lies squarely with operational leaders. A lack of actionable insights and timely responses to such issues indicates the need for immediate intervention, whether through additional training, leadership changes, or third-party operational support.

Understanding Value-Added Leadership, Services, and Subject Matter Experts

An operational partner can deliver value by providing situational senior leadership and skilled experts as part of the Statement of Work (SOW), integrated into the overhead model. This approach allows healthcare systems to access critical expertise without relying on external consultants, offering a more cost-effective solution while maintaining operational accountability.

Third-party operational partners can enhance value by offering expertise in specialized fields such as human factors & ergonomics, industrial safety, process improvement, optimization, and analytics. These capabilities provide healthcare systems with access to a broad talent pool that may be unavailable, or over utilized, within their existing supply chain teams. This comprehensive approach not only strengthens supply chain operations but also delivers a financially feasible alternative to hiring independent specialists, aligning with the healthcare system's strategic and operational objectives.

A supply chain operations partner offers healthcare systems access to a broader organizational support network. This includes:

• Leadership Rotation: The ability to rotate additional external leadership resources through the account to address challenges or underperformance.
• Escalation to Senior Executives: Direct access to executives empowered to intervene and drive operational improvements on behalf of the healthcare system.

By leveraging the expertise and resources of an operations partner, healthcare supply chain leaders can shift their focus from reactive interventions to strategic planning, ensuring long-term operational excellence.

Addressing Recruiting and Staff Development Needs

According to the U.S. Bureau of Labor Statistics JOLTS data (2), turnover for warehouse and materials management labor is approximately 46%, compared to the national average of 12-15% across all industries. Healthcare systems often maintain a sizable workforce dedicated to operations and materials management, requiring a specialized focus on recruiting, hiring, onboarding, and education. However, most healthcare recruiting efforts prioritize clinical roles, leaving gaps in the specialized capabilities needed for back-end operations. This creates a critical opportunity for third-party supply chain companies to step in and provide tailored staffing solutions.

The challenge of high turnover and recruiting inefficiencies can significantly impact hospital supply chain leaders, diverting their attention from strategic and clinical priorities to manage time-intensive back-office recruitment tasks. To address this, value-added staffing services must be a cornerstone of any third-party partner’s Statement of Work (SOW).

Differentiating Staffing Services

Third-party supply chain operations providers must differentiate their staffing approach by developing specialized programs to attract, onboard, educate, and retain employees. These programs should include targeted incentives that are tailored to the unique needs of the warehouse and materials management workforce—often distinct from those found in standard healthcare HR programs or collective bargaining agreements.

Key Differentiators Should Include:

• Performance-Based Incentives: Rewarding employees for achieving or exceeding benchmarks in productivity, quality, and customer service.
• Comprehensive Performance Management Methodologies: Ensuring qualified staff through feedback, formal reviews, goal setting, and the establishment of career development paths.
• Skill Development Programs: Providing targeted education and training to build the specialized skills required for back-end operations.
• Retention Strategies: Developing creative benefits and engagement initiatives to enhance employee satisfaction and reduce turnover.

Unions and collective bargaining teams often rely on traditional seniority-based systems. However, operational partners can introduce more dynamic workforce management approaches, offering healthcare systems increased labor flexibility and potential performance improvement. By implementing these strategies, third-party supply chain operations providers help create a more stable and effective supply chain operation.

Gaining Organizational Support for an Operations Partner

Revisiting the core mandate of supply chain teams—“getting supplies to clinical teams”—is essential when engaging stakeholders to support operational changes. While factors such as labor model flexibility, skilled positions, onboarding, and financials are important, these considerations will not resonate with clinical teams unless directly connected to everyday patient care.

Clinical staff and leadership play a critical role in driving and supporting operational changes. Engaging these groups early in the process to assess operational satisfaction and initiate change management early as a crucial step. Healthcare supply chain leaders must collaborate with clinical leadership to implement meaningful process changes while enabling operational partners to incorporate feedback mechanisms that enhance service delivery. This collaborative approach fosters trust and ensures alignment between supply chain operations and clinical priorities.

Building Connections to Clinical Care

Clinical teams need to understand how the challenges faced by supply chain leaders—such as labor shortages, inefficiencies, and supply disruptions—impact their daily operations. However, beyond this understanding, creating a visible connection between the supply chain partner and clinical support is vital for success. Operational partners must provide a "face" to their services, demonstrating accountability and responsiveness to clinical needs.

Additionally, clinical leadership will place a strong emphasis on patient safety. Connecting supply chain performance to patient safety, particularly in failure-to-supply scenarios, must be a clear priority. Metrics and performance objectives should explicitly link operational effectiveness to outcomes that directly impact patient care. This alignment not only reinforces the value of the supply chain partnership but also strengthens clinical support for the change.

Reflecting and Launching Change in Supply Chain Operations

As the healthcare landscape evolves, the demand for mature, agile, and effective supply chain operations continues to grow. Healthcare executives must evaluate their current operations to determine whether a supply chain operations and materials management partner is the right solution to achieve the health system’s operational goals. These partners can enhance supply chain teams by introducing additional capabilities and industry best practices, all while reducing administrative burdens and staffing overhead. Furthermore, an operations partner offers flexibility in financial models and staffing, enabling organizations to rapidly scale operations up or down as needed with minimal disruption.

Healthcare executives must have a comprehensive understanding of their current supply chain organization, including the demands and needs of the hospitals, long-term growth objectives, and a clear vision for success. Strategic planning should involve a thorough evaluation of the existing team, assessing both leadership capabilities and staff effectiveness. This pragmatic analysis not only identifies areas for improvement but also establishes a strong foundation for developing a business case for engaging a third-party operations partner.

About the Author

Peter Schemm has dedicated the past 13 years at a major academic medical center, where he most recently served as the AVP of Supply Chain Services and Logistics Operations. During his tenure with Supply Chain, Peter oversaw the operations of the hospital's Services and Logistics Center, Materials Management, Central Sterile Processing, Procurement, as well as Technology Systems and Analytics. Peter holds a Master of Engineering degree from Lehigh University.

LEGAL DISCLOSURE AND DISCLAIMER

This is a paid written testimonial that reflects the experiences of the writer, a former client of Canon Business Process Services. The opinions and experience are solely their own, and all information included in this testimonial is the experience of the writer. The information described in this testimonial vary depending on individual circumstances. Relying on such representations is at the reader's discretion.

References

1.    https://www.gartner.com/en/supply-chain/trends/assess-supply-chain-logistics-maturity
2.    https://www.bls.gov/iag/tgs/iag493.htm