The Evolution and Role of Supply Management in the Health Care Industry
Representative Jim Moran, from a district in Virginia, as cited by the work of Stewart (2007), highlighted the importance of regulating costs in the health care industry through the adoption of the practice of supply chain management, saying that: “With healthcare costs continually rising, it has never been more important for government and private industry to take the necessary steps to reduce costs. Improving healthcare supply chain processes and the datat that fuels it should be a priority for the nation’s hospitals and suppliers.
” In fact, in most hospital, the supply chain contributes to the second largest area of expenditure (United Parcel Service of America, 2005; Barlow, 2006). Most unfortunately however, those who hold high leadership status within these health care institutions have generally failed in coordinating their operations pertaining to materials management with their plans for operating their businesses. As a result, it is clearly seen that that the management team of most members of the health care industry has failed in elevating their supply chain leadership’s level of contact and influence (United Parcel Service of America, 2005; Barlow, 2006).
It is because of this that the health care industry is significantly lagging behind the other industries in terms of efficiently managing their supply chain. Aside from this, the United Parcel Service (2005) also noted that the evolution of supply management in the health care industry have also adopted more efficient practices in order to significantly reduce their costs. Health care institutions have seen to critically evaluate their suppliers whilst finding opportunities in order to pare down (United Parcel Services of America) similar suppliers to avoid redundancy.
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Nonetheless, it is said that these institutions have still failed in a manner that they are not able to neither standardize their supplies nor find substitute items that may eventually help them in increasing volumes to pay suppliers, thus reducing their costs of their operations. In order to do so, members of the health care industry must stop from buying their supplies from the basement. Instead, they must hire supply chain managers whose role would be essential in ensuring that the acquisition of the said redundant supplies is avoided (United Parcel Service of America, 2005; Sharma and Hazarika, n.
d. ; Garvin, 2007; Materials Management in Healthcare, 2007). The importance and evolution of supply chain management within the health care industry started when their member institutions have recognized the need to reduce operating costs since their supplies and other related areas are accounting for approximately twenty-five to thirty percent of a certain hospital’s budget (United Parcel Service of America, 2005; Scalise, 2006).
Therefore, this is definitely an area wherein health care institutions must turn to in order to reduce business costs (Scalise, 2006). The incorporation of such practices started when the hospitals and other health care institutions have adopted the so-called people and change-management perspective which is primarily a shift away from reducing health care costs by reducing staff members (United Parcel Service of America, 2005).
Recognizing the need to improve their supply management practices, the health industry started to devote more money to purchase information technology, as all other industries are currently doing, significantly improving the latter’s supply chain management processes (United Parcel Service of America, 2005). Without a doubt, the health care industry has recognized the importance of supply management in order to improve the services they render to their patients and at the same time, cut down their operation and business costs.
In the same way, GS1 (2007) also listed the following as the reasons why supply management continues to play a special role in the industry, and these are the following: (1) to ensure the safety of patients and healthcare professionals; (2) to control the costs of production and procurement; (3) to control the costs of logistics; (4) to facilitate itemized billing; and finally, (5) to maintain regulatory compliance. Because of this, their supply management practices were also seen to have evolved in the same manner as that of other industries, being subject to the same phases of development earlier described.
Likewise, it is still in the process of making use of different supply management tools in order to ensure the efficiency of their services (DiConsiglio, 2007). However, the practices of the members of the health care industry are said to be significantly lagging behind other industries, following only what the latter have done considering the success brought about by Supply Chain Management to them. In fact, it is starting to adopt cross-learning strategies that make use of the lessons learned by other industries where the management of the supply chain was seen to be relatively successful (Scalise, 2006).
An example of this would be use of an extended supply chain that is said to incorporate other businesses outside of the organizational framework into their operations, especially their so-called upstream and downstream partners. Aside from this, the perceived failure of the healthcare industry to adopt good practices of supply management is brought about by the different challenges that health care institutions are facing. These problems and challenges shall be enumerated and thoroughly discussed in the succeeding portion of this literature review.