In the hustle and bustle of a pressure-cooker moment in healthcare operations, it’s relatively easy to ship a product or call for an overnight-or-faster delivery of something you need, like, well, yesterday.
The hard part is dealing with the bill when it arrives. And then the aftermath of those budgetary meetings with the freight and shipping cost line items printed in bold-faced, red type and highlighted in iridescent yellow by the CFO.
But you needed something right away, you say. So then you’ll pay. Sometimes dearly. Over time, those instances can rocket up to lofty levels.
"One of the areas where the healthcare industry struggles is in gaining visibility to the supply chains of distributors and manufacturers," said Norman Brouillette, Vice President and General Manager, Technology and Healthcare, Ryder System Inc. "Because shipping is not a core competency and many supply chains are immature, having total control of their transportation is a struggle. This is why many companies will benefit from outsourcing to a [third-party logistics company], where they can centralize their transportation, gain visibility and let the experts handle their transportation. Then they will realize freight savings."
Healthcare Purchasing News has explored the high points and low points of managing freight and shipping costs and practices, as well as the vast expanse of strategies and tactics in between.
HPN recruited a small group of freight management experts to share some lessons learned through success stories and challenging projects, as well as best practices and tips for improving logistical operations.
Making the grade
Freight management experts illuminated what worked for clients and why.
What happened: "OMG, LLC was engaged to work on a rather extensive project for one of the largest payment processing financial institutions both nationally and internationally. The client has been growing at astronomical rates, acquiring at least one new company or competitor per quarter for four straight years. Each of the 22 North American locations for the client independently handled their shipping services with no company-wide structure or standards. Each location independently chose their own service provider, arranged their own accounts, shipped what they needed to ship, and had no oversight or accountability concerning the process or costs associated. This was causing significant losses for the company, including financial repercussions in other areas of the company.
"We were able to work very closely with the client to obtain data across the entire North American operation. We then analyzed the shipping data to identify volumes, shipping rates, benefits of the various shipping vendors and abilities to meet Service Level Agreements (SLAs). After the evaluation of the data, OMG engineered a plan to switch all of the shipping to a single vendor. We worked with the client to set up a structure to handle every aspect of the transition to include how to handle and reconcile weekly invoices from the vendor. Recommendations were made to the client to remove shipping options available to the end users, which were too expensive or unnecessary for the business. We worked with the selected vendor to negotiate rates and volume-based discounts. OMG then utilized the volumes and metrics obtained company-wide to paint a global picture of the current spend vs. the future spend under the newly negotiated rates and discounts. OMG also documented recommended standards concerning the shipping methods and shipping expenses throughout the company. This information was utilized by the client’s training department to administer a company-wide training program to ensure all client employees understood the changes and impact associated with the changes.
"The efforts of OMG LLC, on behalf of our clients, allowed for a process to be put in place to allow the key decision makers to see the global picture on their shipping spend and understand the necessity of streamlining the processes to implement better tracking and oversight of their shipping departments. Simple reconciliation at the beginning of the process allowed OMG to successfully capture more than $150,000 in hard dollar savings, and additional revenue previously tracked as a loss, almost immediately. After full implementation of the project recommendations and efficiencies, the client has been able to achieve more than $3.7 million dollars in annual savings. This includes changing ‘loss’ expenses to revenue streams, contractual savings negotiated, identification of errors in shipping platform errors, and the client allowing their clients to capitalize on the volume discounts for shipping needs."
Why it worked: "This project was ultimately successful due to the successful partnership between the client and OMG, which gained the trust of the client and was able to present the problem to the client in a logical manner. The client was able to maintain control of their operation at all times in an area where they did not have a core competency or skill set, while OMG provided the necessary expertise. This allowed OMG to make recommendations to the client, highlight the impact each would have on the client operation and allow for a sound, educated decision to be made.
Clear and concise communication between all parties is absolutely essential for success. Understanding as a company or as a Department Manager that it may be beneficial to engage a subject matter expert (SME), whether in-house staff or a skilled and certified vendor, is imperative. The SME will have a deep understanding of the information, understand what data needs to be collected and any steps to take in overcoming expected roadblocks that may occur."
– Brandin Parrett, Director, Operations, OMG LLC (Onsite Management Group)
What happened: "We recently [helped] a client with a number of operations spread out over several states, but the majority were within one state. Most of those locations were new builds or acquisitions. All locations were managed through one centralized billing and purchasing department, and the health system had a centralized service center with one warehouse and stores products for all locations.
"The key elements to success was very clear communication and up front agreement between Supply Chain, Finance, and Information Technology. Each department fully embraced the program and needed to agree on how it would be managed. On-site meetings and webinars were conducted with all departments to layout program elements and impact on their departments with the support of the health system leadership. Centralized purchasing and finance made a clear difference in program success. Central points of contact to obtain data for all systems made it easy for consistent reporting and maintaining of data integrity. [They also provided] support across a variety of types of transportation, including freight, courier, large cargo, and yes, even U.S. mail."
Why it worked: "Hospitals do not typically have clear lines of communication between supply chain and finance. It is important to ensure both stakeholders are in agreement of the process and program benefits. Well thought out implementation plans, which are not rushed before proper education of affected departments, is key, [as well as] ensuring the proper data exchanged is accurate and any automation is tested prior to implementation."
– Tom Wengrowski,
Executive Vice President, TRIOSE
What happened: "When one of America’s leading home respiratory service providers contracted Ryder to provide transportation services moving from its distributions centers to branch locations, Ryder tailored its unique Dedicated Transportation Solution to right-size the company’s fleet and minimize costs. Through route engineering, all lanes were optimized, offering an annual cost savings to the customer of more than $1 million."
Why it worked: "Ryder’s ability to be flexible during the peaks and valleys of demand makes sure customers are maximizing their productivity and profitability."
– Norman Brouillette, Vice President and General Manager, Technology and Healthcare, Ryder System Inc.
What happened: "A large [integrated delivery network] in the Midwest had multiple, redundant operations spanning a broad geographic area with no central infrastructure. Each operation functioned independently with shipments from distributors occurring informally via third-party shipment and no method for efficiently sharing inventory.
"Looking to create a more efficient and integrated system, the IDN implemented a Healthcare Transportation Network, powered by MedSpeed, that gave the system a transportation infrastructure to connect all of its locations across the geography. As a result, the IDN was able to centralize its operations to save expense and run more efficiently."
Why it worked: "This IDN was successful because they were able to create a leverageable transportation asset that yielded greater efficiency. To apply this strategy across other projects, IDNs should look to create exploitable strategic assets. For example, an integrated inter-site healthcare transportation system can facilitate the sharing of inventory and elimination of redundant operations/functions. [IDNs should] partner with experts who are able to achieve greater value and separate freight costs to better understand if transportation can be streamlined."
– Jake Crampton, Founder and CEO,
What happened: "For several years, UPS healthcare customers wanted more customized packaging solutions built around specific size specifications for pharmaceuticals. There were untapped synergies between our thermal packaging customers and many of their needs clustered around relatively similar demands and requirement characteristics with a limited number of temperature ranges (CRT, refrigerated, frozen), sizes and shipping durations. We had an opportunity to help more healthcare customers implement better cold-chain packaging solutions, create better synergies and cost-effectiveness by recently launching UPS Temperature True Packaging, which consists of four off-the shelf packaging lines that are pre-qualified against the UPS U.S. domestic temperature profile and allows for package customization for pharmaceuticals."
Why it worked: "With more temperature-sensitive healthcare products entering the market and major growth forecasted, pharmaceutical companies expect world-class temperature-sensitive product, storage, distribution and transportation services. Providing healthcare companies the tools they need to build agile logistics networks and give them the ability to quickly accommodate different types of products, leverage new distribution channels to reach new customers in new and existing markets, and prioritize risk management to ensure business continuity in a growing global marketplace, continues to be a strategic priority for UPS."
– Susan Li, Marketing Manager,
Temperature True, UPS
Missing the mark
Unfortunately, not all freight management efforts work for a variety of reasons, experts noted.
What happened: "OMG engaged with a healthcare client to perform an analysis of their internal shipping program. We worked with each of the key players in the process to gain an understanding of the processes used and underlying reasons for each process. After completion of the analysis, OMG presented the client with multiple recommendations which would have increased overall efficiency by 50 percent, reduced cost by 20 percent and ensured the client was compliant with local, state and federal regulations.
"The client made the decision to place an individual who did not have the skill set or expertise in shipping or logistics to implement the recommendations without guidance from OMG. As such, multiple areas were overlooked and missed or seen as unimportant for the operation. The areas deemed unimportant were extremely critical in ensuring compliance with HIPAA regulations. However, the individual working the project was not aware of the importance, and as such, left the client at risk.
"The client was then subjected to an unannounced audit, where multiple items OMG had made suggestions to correct, were ignored or overlooked, causing almost $300,000 in fines to the client institution."
Why it went south: "The prime reason this effort failed was simply due to individuals being placed into positions where they did not have the proper education, experience or skill set to handle the project or specific business unit. There is nothing wrong with an organization wanting to handle a project in-house, but you must be fully willing to commit and ensure the individuals involved in the project have the necessary knowledge and/or tools to be successful. Engaging a third-party expert to ensure a successful implementation, even in a temporary consulting capacity, will save a hundred different headaches later."
– Brandin Parrett, OMG LLC
What happened: "We worked with a client with a number of operations spread out over several states. Some of those locations were obtained through acquisition and each of those locations had its own P&L to manage, although corporate [headquarters] prescribed many of the logistics and purchasing solutions. Products and needs varied greatly by locations."
Why it went south: "The overall effort missed the mark in a swift and catastrophic fashion due to several factors. The customer conducted very poor internal change management. They did not ‘sell’ the program internally. Rather they mandated it from a Shared Services platform. In reality, Shared Services did not own the P&L, and really couldn’t hold the locations accountable. The solution set that was developed with Shared Services missed the mark as well. This was due to the fact that they did not have good access to data, and more importantly, an understanding of the data. Field locations were on several different ordering platforms. Shared Services misrepresented the simplicity of the process in supporting the field locations.
"Here’s what to do:
• Perform the due diligence and follow your own process and learning. Do not assume the client has it taken care of or paved the pathway themselves.
• Most large organizations are in fact disjointed. Get out and talk to the local folks yourself. Listen to their needs and issues, and ask them questions about their processes and data. You’ll be surprised what you learn.
• Pilot your implementation. Don’t fall for customers pressing you for the ‘big bang’ implementation. In rare circumstances where this must happen, understand all of the risks, over communicate and have a viable backup plan."
– Tom Wengrowski, TRIOSE
What happened: "A large teaching hospital in the Northeast had more than 10 separate internal and external transportation operations meeting its intra-system transportation needs. The system knew they had an issue but had no clear picture of how much this waste and overlap was costing them. As a result of the fragmentation, more than 60 percent of the transportation was taking place on an on-demand basis and there was significant expense for third party overnight shipment between facilities."
Why it went south: "The reason behind the failure is one that we see frequently. Transportation was thought of as a low-value cost center instead of the strategic asset that it could be in the hands of an expert. Health systems have a lot to focus on today. Outsourcing non-clinical activities, such as transportation, to specialists allows health systems to create an expert-level transportation asset, without distracting from their core mission."
– Jake Crampton, MedSpeed LLC
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