Summary
The case study was nominated for the 2015 CSCMP Supply Chain Innovation AwardTM.
SCI’s unique supply chain solution represents a slight departure from other models in the third party healthcare logistics market. It enables 3SO to decrease operating costs and free up resources for the member hospitals. 3SO manages the procurement of the surgical and medical products and SCI takes ownership of the majority of the stock inventory and manages all fulfillment activities to and from the central regional warehouse to each of the member hospitals. This gives 3SO flexibility regarding the range of products they wish to order and full visibility on their component costs while, at the same time, leveraging the consolidated demand from the hospitals for improved regional pricing for member’s products.
Client
Shared Support Services South-eastern Ontario (3SO) is a not-for-profit, non-share-capital, shared service organization created primarily to provide supply chain services to member hospitals in South-eastern Ontario. The objectives of 3SO are to improve service levels and maximize supply chain efficiencies, resulting in savings for member hospitals.
3SO was formed voluntarily in 2008 by six founding member hospitals: Brockville General Hospital, Kingston General Hospital, Perth and Smiths Falls District Hospital, Providence Care, Quinte Healthcare Corporation, Hotel Dieu Hospital, Lennox and Addington County General Hospital (Joined in 2010).
3SO provides the member hospitals with procurement, warehousing and distribution services, one account payable technology platform, and support systems (e.g. ERS and EFT).
Challenge
The member hospitals were looking for cost efficiencies in multiple support service areas. Supply chain was the most promising regional opportunity for achieving significant savings – at the same time it was a complex and challenging one. To achieve cost efficiencies an outsourced regional warehouse and logistics provider (3PL) was mandated in the business case for stock inventory.
Outsourcing the central warehouse and distribution to a 3PL would result in regional efficiencies (e.g. reducing the storage space, reducing inventory at hospitals and freeing up the space for other hospitals’ activities).
Journey
3SO collaborated with another shared support services organization for selecting and evaluating a 3PL provider. The two organizations produced a joint RFP which combined the service volumes and requirements, and capturing synergies in more than one region. Teaming up with another Shared Services Organization (SSO) to create a mutual document demonstrated a high level of collaboration in an effort to effectively approach the market and reduce public sectors dollars spent on the RFP process.
The RFP was publically issued in 2009. 3SO was not satisfied with limited 3PL options in the healthcare market. To stimulate competitive bid environment, multiple outsourcing models were considered in the RFP procession such as: 1) 3PL-owned inventory model and 2) 3SO-owned inventory model.
The collaboration with another SSO allowed for pulling data from larger number of hospitals, and for leveraging the experience of an SSO that had been historically exposed to logistics outsourcing. As well, the two organizations involved a project manager in to the outsourcing project in order to better understand what exactly 3PLs need to know in terms of data to develop the best solution.
Discovery
3SO was looking for a 3PL provider who was already using leading supply chain technology and expertise for its other clients, so 3SO could leverage existing capabilities and infrastructure already in place. The RFP process produced five compliant bids. The final decision was made in April 2009. The SSO that participated with 3SO in the RFP chose not to change their incumbent 3PL service provider. 3SO selected SCI as its 3PL provider.
SCI is the leading Canadian-based third party logistics provider (3PL) offering customer focused supply chain solutions in Canada since 1995. The company operates an extensive national distribution infrastructure, coupled with the most comprehensive parcel delivery and transportation network in the country, currently serviced by over 1350 team members. SCI provides supply chain solutions to customers in the Omni-Channel Retail, E-Commerce, Healthcare, Technology, and Financial sectors.
Some of primary reasons for selecting SCI were: full price transparency, product and vendor independence, commitment to the warehouse location in the Southeastern Ontario region, significant experience with SAP integration, full cross-docking support services, flexibility for potential onboarding more products in the future, as well as purchase and decomposition of one of the existing hospital material management carousels which created a one-time revenue stream for 3SO and a member hospital.
In 2009, Lyndon Smith, General Manager of 3SO commented: “Having a distribution facility centralized in our region provides us with the responsiveness and agility required to allay the concerns of our member hospitals regarding the transition to this new service arrangement”. He also stated: “Another key factor in our decision to use SCI is their experience using technology and advanced supply chain practices to transform processes and provide visibility throughout the supply chain. The fact that both of us are on the same technology platform enabled us to achieve additional efficiencies during implementation.”
Solution
SCI offered a unique solution which went beyond managing the warehouse “4 walls” and represented a slight departure from other models in the third party healthcare logistics market. 3SO manages the procurement of the surgical and medical products and SCI takes ownership of the majority of the stock inventory and manages all fulfillment activities to and from the central regional warehouse to each of the member hospitals. This gives 3SO flexibility regarding the range of products they wish to order and full visibility on their component costs while, at the same time, leveraging the consolidated demand from the hospitals for improved regional pricing for member’s products.
Lyndon Smith emphasizes the openness of the two parties to considering new solutions reforming the supply chain: “Since 3SO was a new healthcare shared service organization and SCI, at the time, was just entering the Ontario healthcare supply chain industry, the situation had its advantages. Both of our organizations were not caught up in a lot of the “this is the way we have always done it in this industry” thinking.”
After SCI purchases products from vendors under 3SO negotiated vendor contracts, the products are stored at the SCI Logistics’ warehouses and are re-sold at 3SO’s negotiated price to the member hospitals.
SCI manages transportation from the warehouse to hospitals’ receiving docks. The 3PL charges a line item charge for each item picked and packed.
Implementation
Close engagement of 3SO with its chosen 3PL partner SCI was at the base of the successful implementation of the outsourced logistics project. The organization was committed to developing effective working relationships with the logistics service provider, and supported the outsourcing model implementation through change management within 3SO.To ensure smooth implementation, 3SO involved a project manager.
3SO and SCI jointly developed, implemented, and maintained service standards consistent with leading industry standards and practices including: inbound receiving and put away, order processing, returns turnaround and put away, physical and cycle count accuracy. 3SO and SCI Logistics work together on managing vendors’ performance in terms of replenishment.
SCI’s staff and senior leaders brought to the table the hands-on approach and continuous improvement practice. Ongoing, joint 3SO and SCI Logistics meetings on continuous improvement continue to successfully resolve issues and highlight improvement opportunities on both sides (e.g. expiry management, lead time management). SCI currently has three Greenbelt CI experts in the Kingston facility. Corporately-sponsored LEAN and CI programs result in a number of initiatives in purchasing, receiving, facility management processes, and other areas of the business. At the SCI Kingston facility, this past year, every employee has brought forward at least one continuous improvement idea to benefit 3SO and its member hospitals.
3SO as well benefits from SCI’s significant ongoing investment in material handling and IT equipment (Fastpick upgrade, RF guns, mobile printers, etc.).
Results
SCI’s solution has enabled 3SO decrease overall regional supply chain operating costs to free up resources for the member hospitals to use for other hospital activities.
The vendors ship their stock products to one location vs. 15 sites across 7 hospitals. Due to reducing the manufacturers’ cost to ship their products, the combined logistics and product prices for stock medical surgical products carried by SCI for 3SO were lowered for numerous products.
SCI manages over 3,000 products that are delivered to approximately 400 storage locations that 3SO is managing in the South-eastern Ontario LHIN region. Stock fill rate is 99% across all 7 member hospitals (compared to the industry’s target of 98%).
In 2009, inventory turns targets were 12 turns per year, and now are averaging 17 turns a year.
The service levels are continuing to be met.
“We are proud that our service is contributing to making hospitals more efficient. We believe we have a true strategic collaborative partnership with 3SO,” – says John Ferguson, the President and CEO of SCI. We know that people at 3SO would say that they have never experienced a similar level of integration of efforts in the healthcare supply chain.” SCI demonstrated a full commitment to meet 3SO’s needs through listening, learning, and taking action.
Lessons Learned
The following actions are crucial for a successful 3PL partnership:
- Providing and investing in the right resources and talent for implementation and to carry on the project
- When evaluating the proposals, potential customers must look at the overall value of the solution and not strictly pricing
- “Living” the experience of a true outsourcing partnership, and not a transactional relationship
- Providing and committing to change management and project management resources for all phases of the implementation
