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Reduction in inventory levels and product waste, expiry and obsolescence

More efficient means of order entry and processing, with integrated electronic

Supply chain transparency, shipment tracking and improved demand


Volume pricing and discounts

Accurate and timely management reporting, especially related to

patient/procedure costing

Supply Chain Management (SCM) is the

process of planning, implementing and
controlling the operations of the supply
chain with the purpose of satisfying the
customer requirements as efficiently as
possible with a continuous eye on
operating cost reduction
The keeper of the supply chain has
two main objectives. The first is making
sure the product is always available
when it is needed. The second is to
ensure the first objective is fulfilled in

The ultimate aim is to transform a sick patient

to a healthy person at a reasonable cost, in
the shortest possible time and with superior
patient satisfaction
Consolidation of demands from all the
departments and proper flow of information
between the departments and suppliers can
remove a lot of bottlenecks and result in
reduced cost of all the parties involved
High volume drugs like antibiotics and antiulcer drugs constitute more than 70% of the
total drug consumption in a typical hospital.
Expensive, restricted drugs account for a
mere 5% of general usage. This suggests that
a proper inventory control mechanism and
order placing procedure can be brought in
place for these high volume drugs

It is estimated that inventory management

accounts for anywhere between 17% and
35% of a hospitals total revenue
Therefore, a small reduction in inventory
management expenses can have an
enormous impact on the hospitals bottomline
For example, a hospital running at 5%
profitability, with 30% inventory
management costs could improve
profitability by 60% with a 10% reduction in
its inventory costs

Class A : Status to the critical/life saving drugs

Class-B Status to the important drugs that are

used by different departments
Class-C Status to routine drugs and medical

Perpetual inventory management system can be

adopted for class A items
Economic order quantity can be used to
determine the replenishment policy for class C
Hospital can enter into forward contracts
depending upon the usage volume and demand

A variety of obstacles to effective supply chain management exist, including:

Constantly evolving technology resulting in short product life cycles

and high cost for physician preference items.

Difficulty in predicting frequency, duration and primary diagnoses for

patient visits and the associated product requirements.

Lack of standardized nomenclature/coding for healthcare products and


Lack of capital to build a sophisticated information technology

infrastructure to support supply chain management efforts.

Inadequate business education and SCM capabilities among hospitalbased buyers

About 25 per cent of hospital costs are supply-related (Harvard case study).
Approximately 35 to 40 per cent of hospital supply-related costs are devoted to
handling, moving and processing material and supplies as compared to other
industries where it is less than 10 per cent. Purchasers spend approximately 40
per cent of their time, and accounts payable departments spend more than 60 per
cent of their time, on manual processing of transactions.

A single paper-based purchase order may cost anywhere from Rs 500 to Rs 3,000
to process.

Current use of electronic inventory management within hospitals only covers 30

to 40 percent of transactions available for automated processing of inventory.

About 15 per cent savings in supply chain costs would equate to almost five per
cent improvement in a hospital's operating margin.

Thank You