Two Sides of the Same Coin

By working together, providers and distributors can ensure access to quality supplies while still being fiscally responsible
Bill Barber, Vice President, Supply Chain Solutions, The Broadlane Group

Face-to-face communications. Data analysis. Alignment of expectations. These simple but critical steps have helped providers and their distributors pull together toward a common goal.

Whether supplies are being purchased for hospitals, health systems or ambulatory facilities, supply chain executives should carefully analyze the two main types of medical/surgical distributors. “Pure play” companies provide logistics services, whereas “hybrid” distributors are typically manufacturers that offer distribution in addition to their primary business of selling self-manufactured products.

With “hybrid” distributors, it’s important to avoid bundling manufactured products into distribution agreements, because doing so makes identifying true distribution costs very difficult and leads to higher overall provider costs in the long run.

“Pure play” distributors also offer a variety of services within their logistics packages, so it’s important to communicate precisely which services you want from a distributor – whether they are logistics companies or distributors who also sell self-manufactured goods – so that pure distribution costs can be identified and managed.

Maximizing value from distributor relationships
The keystone of any good relationship is clear communication, including the task of setting and revisiting expectations regularly. These elements are core to efficient, value-generating relationships between healthcare providers and their distributors.

Whether you are in the process of choosing a new distributor or seeking to further strengthen existing relationships, personal connections are key. Meeting with the distributor’s local sales representative will help them understand your needs and maximize the services they provide. Additionally, supply chain executives should have direct contact with distributor executives in case issues ever need to be escalated beyond their local representative.

And just as they get to know your facility, so too should you understand key details about your distributor. The most successful provider/distributor relationships are built on understanding each other’s business requirements so neither party is surprised, disappointed or adversely impacted by an out-of-stock situation.

Following are several ways in which providers can proactively manage distributors and avoid common pitfalls, while looking for ways to create maximum efficiency and value with distributors:

Setting expectations
Breakdowns can occur when facilities expect that everything they order will be stocked in the distributor’s warehouse. To avoid unnecessarily tying up capital in inventory, distributors typically only keep supplies in-stock if their customers frequently order those items. Items ordered monthly will have in-stock status, but supplies ordered every few months, or on an irregular basis, generally will have special-order status and not be in-stock.

For providers, it pays to know the criteria by which their distributors define what is stocked in their warehouse. Lack of clarity with the distributor can lead to misunderstandings, operational impediments and high costs to providers in the form of rush-delivery charges.

Frequently a simple change to a facility’s purchasing pattern can ensure that a particular item is kept in-stock by their distributor. For example, if a hospital generally orders three cases of an item once every three months, their distributor is unlikely to keep it in-stock. Instead, ordering one case monthly achieves the facility’s goal while likely meeting the distributor’s criteria for in-stock status.

Leverage decision-making tools
Distributor velocity reports provide visibility into your facility’s ordering patterns, volumes and costs. Based on sheer volume of use, there are many supplies that providers will routinely order each month, but in fact, significant savings can be generated by focusing on slower-moving items such as certain sutures, syringes and some IV sets and solutions. This information should be available from the velocity report or other materials management information systems to which you have access. Additionally, facilities can adjust ordering levels of seasonal product categories. For example, pneumonia and the flu occur frequently in the winter and early spring, while the summer is more prone to trauma; thus, orders can be adjusted appropriately to ensure availability of relevant supplies.

Carefully investigate LUM programs
Low unit of measure (LUM) programs can yield cost savings to some facilities by having distributors either pick individual items for delivery or picking an entire hospital department’s orders, delivering it and putting it on the shelf. Whether a LUM program is right for your facility it is a financial decision – in short, if the distributor’s LUM program enables you to reduce or reallocate FTEs, then it may be valuable. But oftentimes facilities will try a partial LUM program, which ultimately doesn’t deliver the desired savings, because the facility needs to maintain FTEs to pick items from the delivery dropped off by the distributor.

Master delivery days and delivery schedules
Of all the complexities healthcare facilities face, simple logistics – agreeing on delivery days and schedules – can cause the largest rifts between supply chain management and distributors. It’s common for facilities to equate more frequent deliveries with better in-stock status of supplies, but by establishing and adhering to a routine order schedule, the delivery schedule and frequency become more efficient and comfortable for the facility. Meaningful improvements can be made with minimal planning. For example, fast-moving items are ordered twice weekly while slower-moving items are ordered only once weekly. Instead of scheduling the distributor for three weekly deliveries, efficiencies can be gained by keeping the twice weekly deliveries, but including the slow-movers with one of the fast-mover delivery days.

What about the wooden nickels?
No provider/distributor relationship is flawless, but nearly all challenges can be traced to simple misunderstandings of each other’s business requirements.

It’s critical for supply chain executives to establish a direct relationship with distributors at the executive level. In addition, staying in close contact with your distributor’s local representative should help prevent minor issues from becoming acute. And, if really big distributor challenges do show up on your doorstep, then it’s time to rely on the executive-level distributor relationships.

By putting the right processes and relationships in place, providers help ensure a smooth, efficient and value-generating relationship with their distributor – providers and distributors truly are two sides of the same coin.