Consolidated Service Centers and COVID-19

The advantages and challenges to self-distribution during the pandemic

By Daniel Beaird

Many hospitals and IDNs have implemented a self-distribution strategy taking on the costs and responsibilities that used to fall to a distributor. What were some of the advantages and challenges during the height of the pandemic for Consolidated Service Centers (CSCs) and self-distribution?

Panelists from three IDNs joined Moderator Brent Petty, a leading healthcare consultant, and Jaime Kowalski of Jamie C. Kowalski Consulting for The Journal of Healthcare Contracting’s Self-Distribution Webinar sponsored by Health Products Xchange. They discussed Kowalski’s latest survey findings on CSCs operating through the pandemic and shared examples from the three IDNs self-distribution operations.

The panelists included:

  • Mike Martin – VP, Supply Chain Operations, Trinity Health
  • Tim Nedley – VP, Materials Management, UPMC
  • Paul Oppat – Executive Director, Supply Chain Service, Banner Health

Kowalski’s survey on CSC performance during the COVID-19 crisis showed favorability toward the model as the pandemic shed light on all supply chain resiliency. CSC operators agreed that having a self-distribution operation put them in a better position to handle the pandemic as they quickly qualified and vetted new suppliers and had access to manage additional volume and SKUs through in-house sourcing capabilities. Access to inventory and additional supplies in their own warehouses added to increased volume and dollar value to the CSCs.

“We had enough safety stock and pandemic stock on hand and an aggressive sourcing team to qualify one-off vendors and non-traditional vendors to purchase PPE,” said Nedley about UPMC’s self-distribution operations.

“Having an existing warehouse system and an inbound ordering process helped us respond quickly to a more national footprint,” added Martin about Trinity Health’s CSC operations. “Routine business had to carry on, but we also had a large amount of space to accept container loads and quickly say yes to new products. Orders were processed within days and out the door within days at the pandemic’s start.”

As third-party partners struggled to meet needs on PPE during the worldwide shortage, CSCs saw their efficiency helped through warehouse management systems and pick-and-pack systems.

“We had multiple means of distribution to acute care facilities all managed through our CSC in Pennsylvania,” said Nedley about Pittsburgh-based UPMC. “We pushed product across the state into doctors’ offices and into facilities in New York and Maryland. We had systems that helped efficiency.”

According to Nedley, UPMC had 90 to 120 days of inventory at its highest consumption. It tripled on-hand inventory dollars, rented supplemental space to house inventory, and containers partnered with its GPO and distributor to keep product moving. It had plenty of product during the peak of the pandemic and now is determining how to maintain that product as states like New York require 90 days worth of onsite supply at hospitals.

“Once we get word to reduce our on-hand supply, we’ll push it through the supply chain and into the hospitals and doctors’ offices,” added Nedley. “We’re collaborating with other healthcare organizations, both locally and nationally, and sending truckloads of isolation gowns elsewhere as we swap and share to make sure everyone is provided for. But we’ll keep pandemic stock on hand should it happen again.”

Joining forces

UPMC partnered with its largest competitor in Pittsburgh through its distribution centers to make sure senior living centers were taken care of and fulfilled unmet needs.

“If we’re sitting on millions of dollars’ worth of PPE, it makes sense to join forces and connect the dots,” said Nedley. “As an operations guy, it was stressful but good seeing everyone cooperating with each other.”

Collaborations have included GPOs and distributors tackling creative solutions through alternative manufacturing and alternative sources, as well as shipping product to non-acute sites. With more and more self-distributing IDNs, creating a network of supplies through excess product is very welcomed in non-traditional sources, according to Martin, especially those that don’t have a defined path to find an exchange for masks and gowns. 

“Small facilities get pushed to the back of the line,” said Martin. “But it’s powerful for nothing to go to waste – for example, having too many gowns and being willing to swap out. It’s about working with those who are buying something similar and working with non-acute sites to move product.”

Martin added that Trinity Health’s CSC allowed it to have a centralized supply based on usage and not emotion, while controlling the allocation.  

“Our CSC created a level of visibility of what was on the shelf,” said Martin. “It allowed us to tie it to demand with an idea of when the big wave was coming. Staff understood when product was going to arrive, what was in transit and how fast it was moving off the shelf.” 

Oppat cautioned that as valuable as CSCs are, they can also be a single point of failure. As the pandemic raged in 2020, warehouse volume increased dramatically, more than doubling inventory value overall in many warehouses – some by necessity and some through reserve inventory. Hospitals leveraged CSCs to manage new service lines. All respiratory supplies became a concern. Potential virus breakouts amongst warehouse crews were constantly worrisome.

So, a pandemic of this magnitude caused a complete reevaluation of the healthcare supply chain.

While CSC operators felt like having access to a self-distribution operation put them in a better position during the height of the pandemic, they also touched on many ways to improve their processes for the future in Kowalski’s survey, including:

  • Reevaluating inventory position and sourcing strategy for critical supplies
  • Less reliance on single distributors for sourcing with more reliance on multiple sources
  • Investing in systems and resources to make internal processes more functional and more robust – particularly forecasting and product allocation
  • Reconsidering capacity and scale required for CSCs in the immediate future and 
  • Considering opportunities to collaborate with other CSCs.

Oppat added that IDNs and suppliers must have good relationships so that a supplier is willing to notify an IDN when a problem arises and IDNs have enough time to react.

“It’s far too late to find out on a back order,” said Oppat. “Relationships are key. Disruption may not be avoidable, and failure can be a topic of discussion. The process hasn’t worked as we imagined but 2020 was whack-a-mole from product disruption to service disruption to something new every day.”

“There were new shortages every day,” added Nedley. “Knowing as early as possible is helpful. Staff will conserve when asked. We’re all in this together.”

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