Automating Business: Self-Distribution

No Stopping Now
ROi’s self-distribution system builds upon itself

If self-contracting is one pillar of ROi’s strategy for efficiency, then self-distribution is another. Indeed, Resource Optimization & Innovation, the for-profit supply-chain operation of the Sisters of Mercy Health System in St. Louis, is treading where few IDNs (and even few distributors) dare to go. From its 85,000-square-foot consolidated services center in Springfield, Mo., ROi provides medical-surgical supplies and pharmaceuticals to both acute and non-acute care locations at a better-than-99-percent fill rate. That’s 8,350 SKUs and 1,470 ship-to locations within its hospitals, outpatient facilities and physician offices.

Automation has enabled Roi’s achievements, particularly the McKesson Pathways materials management system and the Tecsys EliteSeries system. “The enabler for us to do all this was the ability to have a single system with an efficient order entry mechanism, and the ability to consolidate all that information with common [product] nomenclature,” says Moore. Having a common item master file for all of Mercy’s 19 acute-care facilities and non-hospital locations “makes it easy for our customers to place orders, and for us to pick/pack/ship,” he says. “And we have [purchasing] data to give to our [contracting] group.” What’s more, 99.4 percent of all requisitioned lines come to the services center electronically.

Meanwhile, the Tecsys distribution system features a demand planning module, which helps ROi strike a balance between anticipated product demand, and the cost of buying and storing those products. With this information, ROi can manage inventory levels. The service center holds about $10.8 million of inventory, representing about 22 days on hand, according to ROi President Mike McCurry.

Together on one stage
ROi has had to accommodate the regulatory demands of drug distribution. But the additional discipline has helped the organization improve the inventory and distribution of its medical-surgical products. “We found that through backward engineering, we’re actually better able to manage our med/surg inventory,” says McCurry.

Because the consolidated services center repackages and provides unit-dose, bar-coded pharmaceuticals to all its facilities, it has become “a tactical enabler for our patient safety initiative,” says Moore.

The benefits of the consolidated services center have not come without hard work and some re-engineering. When McCurry and Moore first surveyed logistics throughout Mercy, they found that goods Ð medical-surgical supplies, pharmaceuticals, mail, radiology film, inner-office mail, lab specimens, laundry, equipment, etc. Ð were being shuttled all over the system by many different courier systems. Some individual hospitals within the system owned 40 vehicles for the purpose.

“We found that every facility was getting some kind of shipment every day,” says McCurry. “What we did was throw our net around the entire network to understand the total cost of transportation in all its forms. We found that by owning and centralizing [transportation], we were able to improve service and save money.”

ROi’s self-distribution strategy has paid off many times, according to Moore and McCurry. For starters, it has enabled Mercy to shed a healthy percentage of its delivery vehicles and cut down on inventory in its hospitals and clinics.

In addition, ROi has found that the distribution center is a differentiator for the system in the eyes of vendors. “It has become a strategic lever for us,” says McCurry. Manufacturers of high-cost, high-preference items, for example, find it cheaper to stock their products at the service center rather than at far-flung hospitals and their own sales reps’ cars and homes. As a result, manufacturers of such devices pass on some of the savings to ROi.

As Moore says, “This whole model continues to build on itself.” And it will probably continue to do so for quite some time.

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