A poorly understood and often unappreciated process, logistics accounts for a sizeable portion of a hospital’s

operating budget. Studies have shown that from 30% to 46% of hospital expenses are invested in various logistical
activities, and that almost half of the costs associated with supply chain processes could be eliminated through the
use of best practices.

In hospitals, logistics cover not just support services such as purchasing, stores and the pharmacy, but also health
care services such as patient care units and operating rooms. Many activities that could be carried out by support
personnel are often on the list of duties performed by health care personnel. The result is that the internal supply
chain within a hospital is often highly fragmented.

Logistics is a complex process. The people involved vary with the type of products in question: for example, stores
manage medical and office supplies; the pharmacy looks after pharmaceutical products; and food services manages
the procurement and processing of food products.

Two major management methods are applied by hospitals. Certain products are managed and stored in the
hospital’s stores (or pharmacy) before being distributed to specific departments: these are called inventory
products. Other items are ordered directly by specific departments from the purchasing department, which
oversees the purchases as needed and delivers them upon receipt to the departments: these are non-inventory or
direct purchase products. The latter are generally not stored in the institution’s stores.

Pharmaceutical products, meanwhile, are divided under two main headings: general products and prescription
drugs. The inventory and non-inventory distinction doesn’t apply to pharmaceuticals because all requisitions must
go through the pharmacy.

Figure 1 summarizes the main players and their role in the replenishment of two critical items, medical supplies
and pharmaceutical products. These relationships may differ at certain institutions. The pharmacy and stores order
their products directly from suppliers in some cases. Yet, in other hospitals, ordering is taken care of by a
purchasing department.

Figure 1 also shows the people who store medical supplies and pharmaceutical products, and indicates the two
types of flows between them: the flow of materials and information. These two flows were studied in the project to
benchmark hospital logistics processes.