Thinking About a Consolidated Service Center?

Part 2: Expect the Unexpected

Editor’s note. Part 1 appeared in the June issue of the Journal of Healthcare Contracting.

Perhaps you have been thinking about opening a consolidated service center for supply distribution to your acute and non-acute facilities, biomedical repair, courier services or lab. Perhaps your boss has asked you to look into it. Maybe you could operate it with your own staff. Maybe you could outsource it to a third-party logistics provider.

Either way, it’s a big step. Ask those who have done it.

The Journal of Healthcare Contracting did just that recently, when Publisher John Pritchard engaged in a discussion with four supply chain executives with experience in consolidated service centers.

Participating in the discussion were:

  • Steve Kiewiet, vice president, supply chain operations, BJC HealthCare. With 15 hospitals and multiple non-acute-care locations, BJC services residents in the Greater St. Louis, southern Illinois and mid-Missouri areas. Kiewiet spent 10 years as a hospital corpsman in the U.S. Navy before entering healthcare distribution and manufacturing. He joined BJC in December 2012.
  • Lloyd Gravois, assistant vice president logistics, pharmacy and supply chain, Ochsner Health System, New Orleans. Owned as it is by 1,200 physicians, Ochsner is more a group practice than a hospital, said Gravois, who started his career with Cardinal Health. Ochsner grew dramatically following Hurricane Katrina in August 2005, when the health system Ochsner assumed ownership of seven New Orleans facilities that had been forced to close because of the disaster.
  • Jim Olsen, senior vice president, materials resource management, Carolinas Healthcare System, Charlotte, N.C. Olsen has enjoyed a long career in healthcare supply chain management, beginning with central supply, in both the for-profit and non-profit sectors. When he joined Carolinas 20 years ago, the system comprised four hospitals. Today, it comprises 42 hospitals and a total of 900 locations.

Measuring success
Lower cost, better patient care and less waste are great talking points. But once the consolidated service center is up and running, how does the supply chain team measure and continually improve its performance? With carefully collected, carefully formulated data, according to panel members.

Kiewiet believes the discussion has to come back to cost. Better inventory control leads to lower waste, which means lower total cost, he said. “We are now capturing usage at the point of care. Based on our rate of consumption, we can predict when supplies will expire. If we know we probably won’t use them before they expire, we can get them back to the supplier so someone else can.”

Overall, said Olsen, consolidated service centers are cost-effective. “But you have to make sure you’re looking at the right costs,” he added. Low inventory turns, stockouts, adjustments and obsolescence all add cost. Effective management of a service center can lower those costs.

Olsen and his team also track cost-savings from standardization. “Generally, we are looking at $40 to $50 million in savings each year due to standardization, and much of that is because we are running things through the distribution center.”

Lessons learned
Prepare for the unexpected, advised the panelists.

“I would say that when you’re starting this journey, know what you want to accomplish, or know what it is you’re trying to solve,” said Kiewiet. Make site visits and see what other people are doing with their service centers.

Continue to look for opportunities to improve the service center, he added. For example, when exploring opportunities to expand BJC’s service center, Kiewiet and the health system’s real estate team inventoried all the places on and off campus being used for storage of everything from home health and biomedical engineering supplies, to holiday decorations. “You put all those into a spreadsheet and take it to the executive leadership team and ask, ‘Did you know you’re already spending money for storage and distribution in 50 different locations?’” Kiewiet said he was shocked when the team pulled that information together. Most executive boards will be, too.

Gravois advised supply chain executives to consider how they will keep their consolidated service center running smoothly with a trained, competent workforce. Ochsner is working with a community college to develop an associate’s degree in medical logistics. “We all have to think about, ‘How are we going to improve our workforce?” he said. “You can’t just take someone off the street and expect them to be an efficient picker.” Not only does an education result in more confident and competent workers, but in workers who have a sense of a career path in logistics.

What’s next?
Central sterilization? OR procedure packs? Laundry? Unit-dose packaging for pharmaceuticals? All are possibilities for a consolidated service center.

“Any non-patient-care activity that has value operating in one place instead of more than one, is a candidate for evaluation,” said Kiewiet. Taking it a step further, why couldn’t competing health systems in a single geographic area jointly operate a consolidated service center to the benefit of all?

Said Olsen, “When you have tiny balkanized ‘countries,’ you have varying levels of management — sometimes no management at all,” he said. “If you bring these together, you can manage those activities at a higher level, and with consistency.”

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