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Innovation vs. cost: must healthcare firms choose?

Healthcare shipments on the tarmac outside Worldport

Whether you're selling fuzzy sweaters or ball bearings by the gross, in most industries, missing a few sales is less important than improving efficiency, maintaining appropriate inventory levels and controlling supply chain costs.

But when human lives depend on product availability, the concept of "too much inventory" falls by the wayside. At healthcare manufacturing companies, when new devices and other items finally make it to the marketplace, the primary objective is to get them in the hands of practitioners and patients fast – and never run out.

Given the rising cost and complexity of developing new medical products, gaining regulatory approval and manufacturing safely and reliably, it's no surprise these companies didn't focus as much on controlling supply chain costs. In the cost-service-quality tradeoff, cost was the short leg of the stool. That was especially true given the comfortable profit margins the industry enjoyed over the years.

That tradeoff is changing, according to The Health of the Healthcare Supply Chain, a position paper from UPS. Boards and shareholders are holding top executives' feet to the fire in a changing environment characterized by intense pressure from competitors, regulators and consumers. New market realities call for greater attention to cost management, efficiency and operational execution, all while keeping products readily available.

Over the past five years, at least half of all healthcare professionals participating in the UPS Pain in the (Supply) Chain surveys have indicated either significant concern about – or lack of success – when it comes to managing supply chain costs. In contrast, high-performing companies have begun to recognize that their supply chain can serve as a differentiator, adding strategic value as well as providing better service than competitors. Other best practice advice in the paper includes:

  • Developing end-to-end process architecture and creating processes that integrate across the entire supply chain.
  • Bringing supply chain executives into the C-suite as key members of the team, recognizing that defining and managing an entire supply chain takes a level of coordination not needed in the past.
  • Collaborating with partners in areas like finance, manufacturing and logistics, while remaining laser-focused on core competencies.
  • Using metrics to measure performance in critical supply chain processes, making those processes highly visible and action-oriented.
  • Conducting routine checkups to gauge the overall health of your supply chain, identify "need work" issues and take corrective action. Experts advise taking a close look at your supply chain at least once a year to make sure it's optimized.

Execs at many top healthcare companies now view a flexible, resilient and healthy supply chain as a key to achieving the right blend of service, speed and cost to win in the marketplace. Get the white paper, "The Health of the Healthcare Supply Chain," in an easy-to-read e-book format.

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