Making Self-Distribution Work

Published on December 11, 2017

At least 40 healthcare systems in the U.S. have made the move to self-distribution. How do they make it work? Could it work for you?

Recently, we’ve touched on topics such as how the supply chain can keep pace with the emphasis on post-acute care, and how the choices your supply chain team make may impact patient care. Every day, your facility or health system makes supply chain decisions that impact everything from your bottom line to physician and patient satisfaction. Perhaps you’ve even wondered if self-distribution would ease your supply chain woes – or complicate them?

The choice to transition to self-distribution is a complicated one, as is the topic in general. This blog is intended as an introduction to the subject, and some of the foremost considerations and choices you may face. According to Logistics Bureau, self-distribution is practiced by at least 40 large healthcare systems in the United States. Let’s discuss what this change may involve.

Introduction to the subject

The Health Industry Distributors Association (HIDA) defines self-distribution as when a “hospital or health system sources products directly from manufacturers and then delivers them in appropriate quantities to the healthcare providers within its network.”[1] The health system is now responsible for procurement, warehouse management, inventory control, order fulfillment, and transportation, and the cost associated with all these.

In order to meet these stringent demands, the health system must maintain a central distribution center or centers to serve as a central point for all inbound shipments. From there, items are consolidated and shipped to the organization’s hospitals and other medical facilities.

Distributors believe IDNs are unwise to even think about taking all this onto their own plates. Distribution is a low-margin business, they say, and that’s factoring in distributors’ expertise, scale, and technology tools. So why do some IDNs think it’s the way to go? Supply chain cost is typically the second largest expense facilities incur, exceeded only by the cost of labor. Done correctly, self-distribution may just save your organization a lot of money.

Traditional versus self-distribution

Traditionally, healthcare distribution is a five-step process: the manufacturer makes the product; sells it to a distributor who sells it to hospital warehouse; which transfers it to hospital storeroom, where it is brought to a hospital customer. Self-distribution takes that process down to three steps: the manufacturer; to an IDN warehouse; to the unit, floor, or medical practice.

HIDA recommends that a hospital or health system have a volume of at least $30 to $50 million in annual medical supply purchases, and a total supply chain spend in excess of $100 million, to even contemplate moving to self-distribution.

If you meet that criteria, HIDA also recommends that you evaluate your core competency(ies), the desired outcomes from a possible change of model, your criteria for measuring success, and the health system’s risk tolerance.

Additional considerations

Already sounds complicated, right? But that’s just the tip of the iceberg. Self-distribution also requires skilled employees to run that distribution center (or centers) that we touched on earlier. The centers themselves require advanced technology such as a state-of-the-art conveyor system and RF technology, and then there are the costs associated with purchase or rental of space, utilities, and other equipment, along with transportation and shipping costs.

There are a myriad of other factors that we can merely touch on here. The geography of your system makes a difference, of course. The more spread out your facilities are, the more difficult it may be to tackle distribution on your own.

Will this change positively or negatively impact patient care? What is your potential savings versus the risk, and does that number make the risk worthwhile?

Lastly, consider your existing relationships with manufacturers. If you make this change, you will need to establish direct purchasing relationships with many vendors who previously worked with your distributor. The number of suppliers and transactions that your system will handle will change drastically. You will also be responsible for order reconciliations, price changes, recalls, and product expiration dates.

Where do I start?

You may be asking yourself, “Where do I start? Is self-distribution right for us, or should we continue our traditional relationship with our distributors?”

It may be that your solution lies somewhere in between. Suture Express offers services that allow you to see benefits that are analogous to manufacture-direct services. Banner Health, a Suture Express customer with 28 hospitals, implemented a mixed distribution model. Banner’s large geographic area necessitated the creation of a consolidated service center (CSC). As a specialty distributor, Suture Express meets the needs of centralized, self-distribution supply chains by providing both low-cost bulk deliveries to the CSC and highly reliable, next-day distribution service where needed.

To learn more about how Suture Express may be able to help you on your distribution journey, contact us via phone or email.

 

[1] https://www.hida.org/App_Themes/Member/docs/Self-Distribution-White-Paper.pdf

 

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