Sourcing is an integral part of supply chain operations. In the era of COVID-19, it’s even more vital. At Premier, working with our member healthcare organizations to source the supplies they need has been the top priority for us since the start of the pandemic; one of the strategies we’ve employed to do this is direct sourcing.
Direct sourcing is exactly what it sounds like: working directly with manufacturers in the production of high-quality supplies and products. We’ve taken the process one step further – supplies and products aren’t just high quality; they’re also manufactured to our members’ specifications.
Through our direct sourcing capabilities, we’ve continued to supply product for members at or above 100 percent allocation levels throughout the pandemic.
So, what does a successful direct sourcing program look like?
Here are the key elements:
- Work with manufacturers who share your values. Move beyond “buy and sell” and develop strong, strategic relationships with manufacturers by meeting with them to understand their operations, value and quality. Be open to working with emerging manufacturers that are vetted and quality-tested by a trusted partner. Premier, as an example, has a dedicated team supporting direct sourcing that has regularly visited partners around the world to meet with suppliers, manufacturers and economic leaders who understand the geopolitical and trade landscape.
- Deliver on what’s essential. We’ve learned a lot in the pandemic about which products are essential – exam gloves, isolation gowns and masks, to name a few. Understanding demand and predicting levels of need will help to get much-needed supplies into production sooner rather than later. For example, Premier together with 34 of our members partnered with DeRoyal Industries Inc. to create a new joint venture dedicated to expanding U.S. isolation gown production which will be produced under Premier’s direct sourcing label. Beginning this year, we expect the partnership to produce over 40 million domestically manufactured gowns annually in one of the most highly automated and efficient operations in the world, with two gowns produced per second.
- Be an expert in the market. Predicting shortages and understanding the logistics required to get supplies from point A to point B ensures the right supplies are in the right places at the right time. This issue came to the forefront early in the pandemic when port and airline closures significantly impacted transport and delivery of raw materials and supplies. Industry experts continue to keep their eyes on international trade and labor logistics that could affect sourcing as the pandemic stretches on.
- Speed to support health systems. Executing forward buys is one way to meet increasing supply demand levels. For instance, when demand for surgical and isolation masks (not N95s) surged 342 percent over historic demand early in the pandemic, Premier and its contracted suppliers were able to meet most member needs. Premier’s contracted suppliers increased production by 214 percent, while Premier grew sourcing and production by 1,657 percent in order to deliver through direct sourcing suppliers, forward buys and non-traditional partnerships.
How do you sustain success well into the future?
Forward-looking health systems are realizing the benefits of a direct sourcing strategy. Here are some of the best practices they’re employing to sustain their programs:
- Choosing the right partners. Building the capabilities and credibility that drive confidence in the end product takes time, so providers should aim to look for proven players in the space. Premier has nearly a decade’s worth of expertise in direct sourcing and partners with validated and inspected suppliers in producing high-quality supplies.
- Focusing on quality, quality, quality. Direct sourcing must rely on the credibility of its manufacturers in order to build, earn and maintain its customers’ confidence. That’s why vetting for quality is imperative. At the onset of the pandemic, Premier saw gray market offers for many shortage products, including N95 masks. These unauthorized products can pose risks to healthcare workers, as well as patient health and safety, while costing the buyer time and resources. Organizations should aim to work with a direct sourcing company that contracts with vetted suppliers and prioritizes inspecting for quality – guaranteeing that manufacturers have the appropriate expertise in the supplies they make.
- Understanding the cost equation. When done right, direct sourcing saves money. At Premier, our members write the specifications for the products they need, and then our direct sourcing team goes factory-direct to the country of origin to have manufacturers produce products to those specifications. As a result, members see an average of $40 million in annualized savings.
Direct sourcing is a sound strategy for diversifying and building resiliency into the healthcare supply chain. Done successfully, it creates greater efficiencies while enabling the delivery of quality care at a lower cost.
- Explore the capabilities of Premier’s direct sourcing company.
- Check out how our direct sourcing strategies secured critical products during the early stages of COVID-19.