Integrating the supply chain to improve logistics efficiency is a key challenge. The composition today is not between the companies but between the supply chains. (An Integration Supply Chain Management Project n.d.)Hence, for the supply chains to be successful, it should integrate the three individual business processes of procurement, manufacturing, and distribution by consolidating the sub-components in each of the above functional areas:
Procurement: This is one of the major cost drivers in the supply chan. Procurement cost is influenced by the following factors:
The way procurement decision is made
Procedures adopted in the procurement process
Relationship with suppliers
Procurement cost can be controlled through long-term relationships with suppliers by considering the supplier as an extension of the manufacturing facility. The philosophy of co-partnership is based on the sharing of resources and benefits on a long term basis. The major step in this process is reduction in supplier's base and induction of a few reliable suppliers into the supply chain, who are ready to work for the firm and can align themselves with the policy framework and requirements of the supply chain.
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Material Requirement Planning is a critical element in the procurement process. In an integrated supply chain, material planning will have a cascading effect in the entire supply chain. Hence, in co-partnership arrangements the material planning will cover inventory requirements in the entire supply chain, including both firms and suppliers.
Processing: For a lean supply chain the emphasis today is not on curtailing the processing/ manufacturing cost through economies of scale, but by curtailing the huge inventory carrying cost resulting from mass production ahead of demand. In the past, the emphasis was on building mega capacity factories to produce standard products in millions in order to reduce manufacturing costs and flood the market with low priced products. This approach resulted in the build up of a large reservoir of finished goods, which remain unsold and dead due to its inability to respond to the changing needs of the customers. Hence, today firms instead of banking on cost reduction through economies of scale are thinking of strategies of reducing the total supply chain cost through manufacturing flexibility to rapidly respond to changing markets demands of products volumes and varieties.
Distribution: Traditionally, the role of distribution in the business process is warehousing transportation. However, in the supply chain model, the major task of distribution is the management of demand, i.e. to make available the right product, at the right place, at the right time, and at the least cost. Demand management covers all the activities involving anticipating the customer requirements of products and fulfils that requirements against defined customer service norms. Requirement fulfilment is done through proper distribution network.
The first and foremost task in demand management is to forecast customer requirement accurately. This is done only if the firm is able to satisfy the customer as per the service level acceptable to the customer. Logistics play a vital role in understanding the demand through improved informational flow by way of quick response to customer's demands.
Further Issues in Healthcare Supply Chain
The healthcare supply chain is expanding rapidly, with medical supply and drug supply costs in a trajectory equal to the labour salary costs and benefits. The country is witnessing a growing proportion of GDP attributed to the healthcare. But unless the pace of increases in supplies cost is slowed down, the healthcare industry will face serious threat with the structure of healthcare service delivery, regardless of the fact that the government is bringing continued and broader coverage to the nation's population (Carey 2008).
In over $4.5 trillion in expenditure, global healthcare industry if the worlds one of the fastest and largest growing industries, comprising different value sectors: supplies, surgery and medical equipments, healthcare service, pharmaceuticals, biotechnology and various alternative healthcare and medicine sectors. The delivery and management of vital goods within the healthcare supply chain have become proportionally as complex and urgently important as the size and velocity of the industry.
(S 2000)The process of distribution and manufacturing of pharmaceutical product is very similar to that of different products in other industries. Raw materials are purchased by companies for bulk synthesis consisting of inactive and active ingredients. Dosages are manufactures, formulated and packed. Supply of product flows from manufacturers warehouses to wholesale distributors/logistics provider, medical institutions and then directly to patients.
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There are number of drivers affecting supply chain in the healthcare industry, these are:
Globalization, competitive environment and increased regulatory oversight along with margin compression.
The rise of information technology budgets at healthcare institutions
Growing rate of usage of medications
Increasing cost of drug manufacturing, development and distribution.
Packaging and labelling requirements derived by major retailers.
Introduction of new outsourcing models increasing in the patient to patient logistics processes.
Change is Constant in Supply Chain
The dynamics of healthcare industry in Australia and across the globe have been changed in 21st century majorly attributed to the evolutions in manufacturing and distribution. Growth in imports has soared up in past few years further fuelled by the denomination of manufacturing sector in Asia. This has changed the focus of healthcare segment on efficiency and further improvement of customer service.
There is a shift in power as a result of margin compression and competing demand and supply for capital in the industry. As a result, many provider networks have brought supply chains in their own hands and most manufacturers have changed the focus on their businesses core competencies; R&D, marketing/sales along with customer service, and delegation of supply chain operations to the outsourced experts. All these movements in the structure is at the heart of changing economy and that too majorly in healthcare industry where the management of secured supply chain of healthcare products is crucial for the well being of its patients.
The Supply Chain-network of resources
Earlier supply chain has remained a controlled entity operating within the four walls of the warehouses. But today scenario has changed as the supply chains are no longer control entities. It has become network of resources, and scattered across different facilities and entities operating within different cities and countries. Supply chain resources must be linked so that it can be effectively managed. Suppliers, customers and partners, each have a role to play in the supply chain management. Also every automated process in the supply chain is a small hub contributing to the funding, movement of goods and well as information visibility in the supply chain.
Need for Visibility
(Beeny n.d)Supporting the healthcare business models in today's high-velocity and distributed logistics environment, need for real time visibility is a major key strategic imperative. Providing visibility to production rate suppliers and shipment lead times, past data, in-house inventory and consumer sales projections can be used to derive benefits in lower inventory, efficiency and improves fulfilment rates. Visibility in healthcare companies is needed to:
Be systematic and proactive in the supply chain operations.
Track products within the supply chain, from cradle to grave.
Alerting patients proactively and systematically of the service availability and the status of their appointment.
Reducing lead time, improving on-time delivery and reducing lead time variability
Reducing indirect working capital, as well as variable and fixed costs.
Visibility in healthcare has certainly become vital. Being unaware of the route through which healthcare products make their way to the customer can lead to increased risk in counterfeits. Additionally, with increased government regulations, health care companies are required to trace product and drug information like historical locations; time taken on each location; ownership record; history of transactions; configurations packaging and environmental conditions to safely manage the entire lifecycle of products in supply chain. Major drivers in the visibility of healthcare consist of (Beeny n.d):
Managing product recalls
Meeting pedigree requirements along with deal with counterfeits
Dealing with offshore manufacturing quality
Indentifying and mitigating diversions
Managing Healthcare Services Supply Chain
The healthcare supply chain is expanding rapidly, with medical supply and drug supply costs in a trajectory equal to the labour salary costs and benefits. In over $4.5 trillion in expenditure, global healthcare industry if the worlds one of the fastest and largest growing industries, comprising different value sectors: supplies, surgery and medical equipments, healthcare service, pharmaceuticals, biotechnology and various alternative healthcare and medicine sectors. The country is witnessing a growing proportion of GDP attributed to the healthcare. But unless the pace of increases in supplies cost is slowed down, the healthcare industry will face serious threat with the structure of healthcare service delivery, regardless of the fact that the government is bringing continued and broader coverage to the nation's population.
Introduction of E-commerce in Supply Chains
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E-commerce means commercial transactions through electronic media. In short, electronic commerce is the process of two or more parties transacting business via computers, using the electronic network. The scope of e-commerce application is very wide. It not only covers the buying and selling of goods electronically, but also various processes internal to the organization. It involves using network and communication technology for all internal and external activities in the value delivery chain of a business process. E-commerce has changed the way products and services are sold and have re-defined the relationship between the buyer and the seller (Handlield 2010).
The e-commerce business is characterized by large volumes of transactions, small value of individual orders, odd place of delivery, speed in internal movement, wider product portfolio, and a large number of customer spread over a wide geographical area. Manual operations have no scope in e-commerce logistics operations. The component of logistics, such as order processing, transportation, inventory management, packaging, and delivery require close coordination using IT solutions. Electronic commerce logistics solutions need to be based on the following design considerations:
Online facility for organizing and tracking shipment
Online order status and documentation
Online dispatch documentation and invoice
Auto reminder for payments
Seamless interface with existing SCM or ERP systems
Some other ways
Some of the other methods of managing supply chains in healthcare service industry are
Increasing primary focus on supply chain costs from payers.
Paying more attention towards return on investment of supply chain information technologies.
Redefining Supply chain metrics
Increasing price transparency
Exposure of ethical dilemmas providing opportunity for change
Transactional to strategic role conversion within supply chain departments of organizations.