Last month's AHRMM conference in Denver covered a wide variety of leading healthcare supply chain practices.  One topic in particular was mentioned by conference attendees stopping by National Medical Logistics booth, in hallway conversations and by guest lecturers:  "self distribution", or the on-going trend of providers ordering direct-from-the-manufacturer and then storing that product at their direction for redistribution.  Since this topic seems to be at the forefront of many provider discussions, NML thought several brief comments for industry clarification are in order.  

Interestingly most providers contracting and purchasing supply chain personnel are very familiar with executing agreements directly with medical/surgical product manufacturers without going through middlemen.  But that procurement process, even when direct with the manufacturer, is only half the equation, as the physical movement from the manufacturer to the end using clinical department is not addressed.  This physical movement portion of the total healthcare supply chain should not be ignored, but NML believes is often a missing focal point behind all the recent talk associated with "self distribution". 

Self distribution is really the direct-from-manufacturer purchasing and central aggregation of product by a provider for purpose of redistribution and cost reduction.  It is very important to understand that by connecting the purchasing component of the supply chain with the physical acquisition component, the provider is maximizing total potential savings opportunities.  When a provider takes this enhanced level of control, industry inefficiencies can be removed.  A key example is the maddening practice of three-way price file matching between manufacturer/distributor/hospital found in the more traditional provider/GPO/distributor procurement model.  This is merely one of the physical efficiency gains available in this new model.  There are many more, as well as resulting price point improvement opportunities.

One thing often overlooked by providers eager to focus only on taking greater control of their supply chain is that accessing theses enhanced cost savings opportunities comes with an increased overall supply chain responsibility from the provider.  While many providers are comfortable with the contracting/purchasing component, few are familiar with designing, starting-up and executing the distribution center [warehouse] needed for product centralization and storage.  Remember, direct from manufacturer means more than just ordering; storage, picking/packing/shipping must be addressed as well.  This is often the role of a distribution company in the traditional existing supply chain, but in "self distribution" the provider serves this function.  Numerous IDN's are presently doing this with more coming on-line in the near future.

NML, however, often refers to "self distribution" as "direct-from-manufacturer procurement", because we believe this term more accurately describes what is really happening, as well as sheds more light on the options available to end users.  Other industries are familiar with this model that our healthcare industry is just now starting to understand.   For example, it has been NML's experience that many providers want the opportunities associated with direct-from-manufacturer procurement model's without having to manage all the difficult and important functions of running an effective distribution center.  Other industries address this by "outsourcing" the distribution center operations to a Third Party, such as National Medical Logistics.  This is commonly referred to as 3PL, or Third Party Logistics.  For the healthcare supply chain this might mean, for example, that experienced industry logistics experts such as NML would be responsible for the effective operations of the distribution facility containing the providers inventory, and doing all the mentioned pick/pack/ship act ivies.   

Whether a provider insources the distribution function or outsources the function, it is NML's strong belief that in order to maximize the price point opportunities potentially available to a provider that the provider must own that inventory from the point-of-purchase [from mfg.] to point of utilization.  The one exception to this is consignment inventory, which does not yet play a significant role as a total percentage of overall provider spend.