Why IDNs are looking to Alternate-Source Suppliers to ensure they never lose access to critical products

February 2021

For years, the supply chain side of the healthcare industry has been focused on vendor consolidation, inventory reduction, and improved efficiency; always operating under the belief that “less is more.”

In an era of dramatic changes in the industry, this was by and large, a good strategy and served to reduce overall costs – to both the health systems and to patients – without impacting the quality of care. 

The pandemic was a wake-up call to supply chain and the hardship created by supply disruptions has caused providers to reevaluate their priorities, vendor relationships, and product marketplace options.

As the industry works correct the systemic flaws exposed by the pandemic, the sourcing model will change to support it. The healthcare supply chain of the future will be an efficient but diversified sourcing model.

Being forced to get out of their comfort zone and supplier bubble allowed many IDNs to discover new reliable sources that they hadn’t considered before. As a result, providers are now starting to really think about incorporating those new alternate sources as part of their long-term strategy going forward in order to “de-risk” the supply chain.

In order to de-risk supply chain while also gaining access to multiple sources, a move that makes a lot of sense is shifting to a digital marketplace model for some product areas. The digital marketplace structure is a fast growing model that’s already taken hold outside of the healthcare industry – supply chains of all industries are increasingly turning toward an online marketplace model.

Digital Commerce 360, a leading media and research organization, estimates that the explosive growth of B-to-B digital marketplaces across business sectors may reach $3.6 trillion globally by 2024. Not surprisingly, the healthcare medical products supply chain possesses many of the key characteristics they cite for successful marketplace growth.     

Currently, our industry wrongly believes that contract pricing is what keeps efficiency high and costs low. Unfortunately, during the crisis of the last year, patients and their families paid the price for that misbelief.

Additionally, if there’s one thing that major IDNs have made clear over the last year, its that having multiple sources is now an imperative.

On top of that, providers are also calling for solutions that create a better way to move supplies between facilities during a time of supply disruption.

Currently, many manufactures restrict product from moving between hospitals. Right now there is an estimated $25 billion in purchases that is sitting unconsumed. These policies can create artificial scarcity while at the same time generating huge monetary and material waste for the healthcare system as a whole.

There is a better way. A marketplace model provides transparency, simplifies transactions, and allows providers to nullify the high risk of product shortages that comes with single-source supply contracts. And as we’ve seen over the last year, in times of crisis, that risk reduction is more precious than gold.