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Five Predictions for the 2021 Supply Chain

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It’s no secret that 2020 was a tough year for the healthcare supply chain.

But in 2021, we’re bringing forward both reflection and new strength – and as several great scholars have noted: “The best way to predict the future is to create it.”

Premier and our members are doing just that. Even as COVID-19 exposed supply chain flaws and transformed the healthcare landscape, together we’re showing up and leveling up to address the biggest challenges as a result of COVID-19 and drive healthcare innovation for the future.

And we’re not yet done bringing the supply chain back to health.

Here are five strategies that proved effective in 2020 to help protect us from disruptions and provide a blueprint as we build a more resilient supply chain.

These areas are poised for continued growth and importance in the supply chain of the future.

1. Going Global...

At the onset of the pandemic, there was only one critical goal: source needed supplies quickly.

A vital strategy and increasingly popular solution to meeting this goal is direct sourcing, which enables access to top, high-quality suppliers, creating a more frictionless and direct relationship between these suppliers and their buyers.

Going forward, “going direct” is primed for advancement as it helps increase efficiency, decrease lead time of hard-to-source products and realize cost savings. For instance, Premier members who leverage our direct sourcing subsidiary see an average of $40 million in annualized savings.

A first of its kind in the industry, our direct sourcing team has been identifying new and untapped manufacturers around the globe for the better part of a decade – ­­working directly with them to produce high-quality products, including those in short supply. During the first wave of the pandemic, for example, Premier was able to secure 36 million masks and respirators and 16 million gowns from March to May 2020 – and our forward buys secured sourcing for 130 million masks and 50 million gowns in 2020 alone.

Throughout the pandemic, our direct sourcing capabilities have continued to supply products for members at or above 100 percent allocation levels.

Going factory direct also doesn’t mean sacrificing quality. All products come from validated and inspected suppliers and are made according to our members’ specifications, building a formulary of high-quality products that meet providers’ stringent clinical standards.

2. ...And Made in the USA

With upwards of 80 percent of personal protective equipment (PPE) and raw materials for drugs made overseas, a future-forward supply chain management strategy requires diversifying production – both abroad and here at home – so that shortages become a thing of the past.

So it’s good news that, according to a recent survey from Redwood Logistics, more than 50 percent of manufacturers believe U.S. production activity will increase in 2021. President Joe Biden has also indicated a commitment to incentivize domestic manufacturing.

Geographically diverse and U.S.-based manufacturing will help reduce overreliance on any single country or region ─ and here at Premier, we’re continuously finding innovative ways to partner with U.S. companies that specialize in critical supply categories.

For instance, when nearly 74 percent of U.S. hospitals reported that they were unable to source adequate quantities of isolation gowns in April 2020, Premier, together with 34 of our members, took action, partnering with DeRoyal Industries Inc. to create a new joint venture dedicated to expanding U.S. isolation gown production.

In this collaboration, gowns are designed to member specifications considering care delivery requirements, while also transforming a traditionally man-made process to fully automated production, circumventing the need for expensive cutters and sewers. Beginning this year, we expect this partnership to produce more than 40 million domestically manufactured gowns annually, increasing availability and speed to market, and driving significant savings.

3. America Online

It’s safe to say that e-Commerce is riding a wave of growth in the healthcare sector alongside a sharper focus on direct-to-consumer capabilities. By 2025, global healthcare e-Commerce market revenue is estimated to reach more than $435 billion ─ and according to a Premier member survey, 75 percent of alternate site providers are now turning to online retailers for PPE and other supplies.

COVID-19 brought on a new reality for healthcare providers, essential businesses and consumers looking to conveniently access high-quality PPE and other wellness supplies – yet many of these organizations reported major challenges in meeting needs through traditional procurement channels.

Enter stockd®: a simplified, 24/7 digital purchasing platform for vetted, high-quality healthcare and products.

Stockd’s 2019 launch plans didn’t consider a COVID-19 world, but the e-Commerce site has nonetheless closed a critical gap in the traditional med/surg supply chain amid the pandemic and serves as a resource to access vital PPE, including masks, gloves and hand sanitizer. Despite the supply chain shockwaves, product pricing on stockd avoided large spikes – and the online platform is seeing significant growth with visitors up 3X, sales up 27X and the monthly number of orders up 6X since March 2020, as compared to the pre-pandemic baseline.

4. Value-Based Care Benefits from Value-Based Contracting

Even before COVID-19, health systems were experiencing reduced fee-for-service margins. In 2019, the overall Medicare margin decreased by 11 percent while hospital costs rose 2.5 percent per year.

As the market continues to incent healthcare providers to improve outcomes, suppliers are raising their hands to go at risk with hospitals and guarantee their products’ performance.

And hospitals, for their part, are looking for more value-based contracting opportunities. According to a November 2020 Premier survey of more than 40 large integrated delivery networks (IDNs), 95 percent are interested in and/or ready for these types of contracts.

In supply chain value-based contracts, the agreements between the supplier and the provider assure clinical outcomes, such as a 30 percent reduction in catheter-associated urinary tract infections, and reimburse the product spend or the subsequent care cost required if results are not met.

To truly achieve their value-based contracts and vision, providers need a holistic approach to assess supplier products and service prices, discount/rebates and/or the risk-share proposition’s impact on their priority needs and organizational goals.

5. Mastering Purchased Services

Continued provider consolidation, and the subsequent rapid horizontal growth of many health systems, has created a decentralized purchasing landscape. When health systems grow, supply chain teams typically remain centralized ─ but that’s not always the case for third-party purchased services contracts, which often exist in numerous departments across each facility.

There is no denying cleaning up the purchased services space can be a daunting task, but the added supply chain efficiencies and potential savings of 30 percent or more are well worth the effort.

A sophisticated solution is a procurement platform that leverages real-time data to more accurately manage vendor contracts, provide services verification, automate invoicing and payments, and manage supply chain costs all in one place. This integrated and automated solution is a critical, yet often missing, link in controlling overall organizational spend and enabling efficient operations.

Providers can also use this same optimization technology to identify and engage diverse suppliers ─ including minority, women, LGTBQ, veteran and small business-owners ─ who fill an important gap in the supply chain.

Technology that empowers faster contracting with diverse partners improves purchasing transparency, and, ultimately, drives more equitable business practices.

After a challenging 2020, there are many roads to supply chain success in 2021 ─ including innovative sourcing and contracting strategies, creative partnerships and e-Commerce options that lower barriers to entry and drive stable supply.

Premier remains focused on building a more resilient healthcare supply chain.

Together with our members, suppliers and other partners, this collective strength and commitment is reaffirmed and continues in 2021 and beyond.

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