Future of Healthcare Supply Chain

Medical device and pharmaceutical companies are continuously expanding their portfolios in order to support the rapidly changing global markets which leads to increasing complexity in production and supply chain. Economic growth in emerging markets is creating new demand for effective, affordable healthcare products. All of this will result in increasing regulatory, quality and compliance issues further creating risk in supply chain.

McKinsey and Company recently released a white paper, “Building New Strength in he Healthcare Supply Chain”, in which they suggest few supply chain capabilities that hold the key to the increasing demand in the future.

1.     Segmentation: Most healthcare manufacturing companies today use one-size-fits-all supply chains. But profitability, value density, demand variability and the cost and service expectations of customers vary significantly. These differences have a profound effect on optimum planning, production and general logistics.  The key is to have four to seven separate segments according to the volume and variability of demand, then separate planning and production schedules for each segment.

2.     Agility: Manufacturing is spreading across the world, markets are becoming global and volatile, and supply chains are getting longer. To improve the responsiveness of their supply chains and keep costs under tight control, companies need to accelerate key processes, and improve stability in production and replenishment and visibility.

3.     Collaboration: Different players in the supply chain need to find ways to collaborate together on the basis of the available data to greatly improve production efficiency. The paper suggests six steps for an effective collaboration: companies should collaborate in areas with high strengths, draft agreements that enable benefit-sharing, select partners based on their capabilities and willingness to collaborate, dedicate resources to the collaboration initiative and include senior leadership, jointly manage performance to avoid misaligned incentives and finally, enter the collaboration with a long-term goal by laying groundwork for a strong ongoing relationship.  

Improvement in supply chain efficiency can improve healthcare sector’s margin by up to $130 billion as estimated by McKinsey and Company in the figure above.  Apart from the financial benefit, improvement in supply chain can help provider safer and affordable access to products across the world and free up billions for R&D.  

Does the cost and time associated with implementing new supply chain initiatives for already complex, global and diversified companies make sense when they are already making a hefty profit? Apart from financial benefit, how the companies be convinced to embrace the challenge of supply chain leadership?

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