The COVID-19 pandemic caused health systems to rapidly adapt, yet they ran out of critical supplies like gloves, PPE, and N95 masks. As with many industries we invest behind at PeakSpan Capital, this was not a point in time dynamic but rather reinforced the need to optimize healthcare supply chains longer term.
This shortage, along with uncertain patient volumes and inflation, has clearly emphasized the need for a more efficient, and strategic digital supply chain across the entire healthcare ecosystem.
If we really want to pull the aperture back, let’s consider some of the biggest trends we are seeing in healthcare, the aging population and chronic disease:
· AGING POPULATION: Between 2015 and 2050, the proportion of the world’s population over 60 years will nearly double from 12% to 22%. In the US, there are more than 46 million adults aged 65 and older; by 2050, that number is expected to grow to almost 90 million.
· CHRONIC DISEASE: According to the National Association of Chronic Disease Directors, 60% of Americans live with at least one type of chronic health condition.Cardiovascular disease, for example, is responsible for more deaths per year in the U.S. than any other cause.
Both of these trends represent major catalysts for remote patient monitoring technologies and with that, supply chains are being put to the test. With care being more decentralized, we will have to rethink and retool the infrastructure currently in place which traditionally serves more centralized hospital systems.
The icing on the proverbial cake (as seen across all supply chains), is the labor shortage, placing greater stress on health systems.
An HBR article on the digital transformation of health systems mentioned:
· A hospital spends $12 million annually or roughly 35% of total operating expenses on its supply chain. 35 PERCENT!
· The opportunities for optimization are massive, this same article noted that costs can be optimized by 50% and further, a potential revenue uplift of 20%may be realized through process and inventory optimization.
· Hospital pharmacies spent an additional $1.1 billion in 2021 to pay for substitutes of essential medicines.
· Product backorder rates have increased by over 100% compared to 2019 pre-pandemic levels.
The stakes are too high, especially with the healthcare supply chain market projected to reach$3.3 trillion in 5 years with a CAGR of 7.9%, Health systems need to invest in their supply chains just as much as your traditional CPG company does (if not more!)
The primary benefits of digitization would be:
· Accurate Inventory & demand forecasting using modern technologies like AI and ML has resulted in improvements of inventory accuracy by 90–95%and a reduction in costs by 20–30% (Grand View Research)
· Better cost optimization through analyzing actionable data points to help assist in negotiations, driving price parity, promoting more standardization, and controlling costs.
· Facilitating collaboration between healthcare providers, suppliers & manufacturers to further identify opportunities for improvement by providing higher visibility into the supply chain.
For all healthcare providers, to future-proof your supply chains — develop a comprehensive digitization plan > choose the right tools & technologies > integrate data from all stakeholders > provide training to staff > start making data-backed decisions > automate proven processes.