Health care organizations have long struggled with issues related to the shipping and receiving of critical medical supplies. The surge in e-commerce orders, however, has served to exacerbate these problems.
By Kimberly Whitehead and John W. Frazier
Consumers have embraced e-commerce—drawn to the convenience and efficiency of having their purchases delivered right to their doorstep. But the rise in e-commerce has not been beneficial to everyone.
At a health care conference in 2019, a darker and more troubling picture emerged.During a session titled “E-commerce,” complaints arose from almost everyone in the room. “How are we going to get these carriers to understand what they are doing to us?” asked the session speaker. Someone stood and said, “They act like we are not even there. They just drive by my dock.” Another said, “I have the drivers’ cell phone numbers, and I call and beg them to deliver to us first, every day. But it doesn’t always work.” From the back of the room came a booming voice, “I had a patient on the table, but his new heart valve was somewhere in the back of a truck.” He paused, “We had to send the patient home.” A woman in the front of the room said, “Even when they stop, they can’t always find my delivery. There are so many boxes, so many crammed into their trucks. Last week, a driver had to leave and come back later when he found my delivery. By that time, it was too late, the item had expired.” “What are we going to do?” asked the speaker in dismay.
The additional stress on the parcel carriers to deliver more and more packages directly to consumers is well known. The health care materials managers at the conference felt confident that the rise in these e-commerce shipments was contributing to their sense of neglect from their parcel carrier partners and the difficulties they were having efficiently receiving vital deliveries. They told us that they would sometimes have to stand at the back of a truck and look for their package with the driver, searching through piles of boxes that were headed to households.
The comments we heard at the conference led us to investigate if these were isolated incidents or if other health care organizations (HCOs) were experiencing the same problems. Our subsequent research indicates that these managers are, in fact, not alone. Instead, executive interviews and survey responses revealed that last-mile delivery problems are widespread at HCOs across the United States. The results were clear: Health care organizations are on the verge of a logistics crisis, and they need help.
A CHALLENGING ENVIRONMENT
Health care plays a major role in the U.S. economy. In 2018, health care made up 17.5% of the United States’ gross domestic product (GDP) or $3.6 trillion,1 and logistics expenses for HCOs exceeded 25% of their overall budget.2 Health care logistics itself is a significant portion of the United States’ GDP at approximately 4.4%.
HCO logistics costs are driven in part by the large number, variety, and complexity of stock-keeping units (SKUs) an HCO must manage. The number of SKUs can be over 35,000, and each HCO may store or warehouse up to 8,000 of these items.3 Health care goods include items as diverse as biological agents, food, pharmaceuticals, personal protective equipment, and large-scale technology/machinery. Adding to this complexity is the fact that item stockouts may result in a patient fatality or long-term disability.
Considering the burden placed on health care to operate at the lowest possible cost while still providing the best possible services, it is understandable that health care materials managers are looking for help to maximize service and improve efficiencies from their logistics partners. However, while the health care value chain continues to develop and change at a rapid pace, keeping up with medical technology, the intraorganizational health care delivery system has remained largely the same.4 This lack of change is problematic as research has shown that a significant portion of health care managers agree that the management of inbound transportation and delivery needs improvement. A study of challenges facing the health care supply chain found that 62% of HCO materials managers and 56% hospital executives agreed that there is a need for better management of shipping and receiving activities. Likewise, 61% and 58% of the same groups, respectively, agreed that the management of transportation, transfer activities, and delivery also needed improvement.5 Further, studies have also shown that 48% of HCO supply chain costs could be avoided through the implementation of improved logistics processes.6
Research has also found that part of the reason why HCOs are lacking in supply chain mastery and innovation is their dependence on small and partial truckload shipments.7 In more traditional supply chain and manufacturing operations, logistics departments are able to achieve efficiencies through full truck shipments or loop runs. Most HCOs, however, do not have large enough demand to capitalize on full truck load efficiencies. Additionally, HCOs tend to see logistics as transactional versus strategic and therefore do not traditionally invest strategically in technology, staffing, or innovation to optimize logistics. The lack of supply chain mastery causes heightened concern when considering that logistic costs in health care are cited as more than 30% of the total expense of an item versus only 5% in the retail industry.8
Supply chain optimization is also impeded by the fact that supply chain roles at HCOs often focus on contract negotiation and purchasing and pay little to no attention to logistics management.9 As a result of this lack of attention to the external supply chain, HCOs may miss cost reductions and efficiency improvements that may be available. Parcel carriers, for example, can aid in improving expedited deliveries, cold chain deliveries, product security, and inbound freight as well as optimizing the overall network.
On top of these challenges, the growth of e-commerce and omnichannel retail has led to many changes in the supply chain that impact all industries, including HCOs. The number of packages in the parcel carrier system has increased exponentially, placing a strain on the transportation mode that HCOs depend on the most.
BETTER UNDERSTANDING THE SITUATION
To better understand whether there is widespread concern amongst supply chain managers at HCOs about the increased number of consumer shipments due to e-commerce and their potential impact on deliveries to HCOs, we conducted in-depth interviews with managers from four HCOs (see Figure 1) and distributed surveys to 100 health care supply chain professionals throughout the United States.
[Figure 1] Characteristics of interviewed HCOs
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In both the survey and the interviews, we asked HCO supply chain managers about their current concerns, situation, relationships, and needs regarding logistic services. Our questions were designed to learn more about HCO perspectives on the state of shipping/receiving and the role of third parties. The survey results and the interviews helped give us a clearer picture of HCOs’ current challenges with inbound logistics, particularly with regards to types of delivery failures, frequency of delivery failures, shipping/receiving management, and carrier usage and expectations.
An important part of this investigation was to understand what carriers HCOs are using and their expectations of those carriers. With that goal, the survey asked the respondents to rank the following carriers based on how often they use each: Amazon Business, DHL, Federal Express (FedEx), United Parcel Service (UPS), United States Post Office (USPS), and other specialized carriers. A ranking of 1 indicated that the carrier was the HCO’s most often used provider and 6, its least often.
The bar chart in Figure 2 shows the weighted rankings and distribution for each carrier. Weighted rankings use the weighted average of each response in order to give us the ability to see which carrier ranks highest across all responses in terms of usage. For example, FedEx received the majority of rank 1 votes, however, it did not appear as often in the highest ranks of 1, 2, and 3 combined as UPS. Therefore, UPS is identified as the most often used carrier using weighted ranking. Another significant finding here is that Amazon Business is not, in general, seen as a key provider. Although Amazon Business was selected at each rank level, it was most often selected in ranks 4, 5, and 6, or the least often used.
[Figure 2] Carrier weighted rankings
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The option of “other–specialized carriers” was also selected by the respondents in each rank. The survey allowed the respondents to specify what carriers are used in this category. Seventeen respondents did so, with the answers ranging from eBay and Staples to other major carriers such as SAIA, Teals, and Triose.
The survey also asked respondents to note how often they use health care specialty services such as FedEx Healthcare Solutions, UPS Healthcare and Lifesciences Supply Chain, and DHL Life Sciences and Healthcare. One hundred percent of the respondents said they did not use these specialty services. The reasons offered follow: 45% of the respondents stated that they were not aware of these specialized services, 25% said that these services are cost prohibitive, 23% said that the specialty services do not offer the services that they desire, and 7% offered no reason why the services were not used.
Finally, the survey asked the respondents to rank their desired carrier capabilities with 1 being the most important. Figure 3 shows the weighted values for each of the carrier capabilities. Overnight/expedited deliveries is ranked as the most important of the carrier services followed closely by tracking accuracy and reliability. Compliance and security are ranked similarly and fall in at spots 4 and 5.
[Figure 3] Carrier services weighted rankings
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DELIVERY FAILURES ARE INCREASING
The main focus of the survey was to assess HCOs’ experiences with delivery failures. The survey asked respondents to note how often they experience delivery failures and if they have seen any changes in the frequency in the last 21 to 24 months. The results are shown in Figure 4. More than half (51%) of respondents noted that they had experienced increases in delayed shipments in the last 12 months and, of those, 71% experienced delays on a daily or weekly basis. A majority (58%) of all respondents—whether they have seen an increase in delays or not—say they experience delayed shipments on a daily or weekly basis. Twenty-eight percent of respondents note that delayed shipments directly affect patient care at least once a week and that their cold-chain shipments experienced delays at the same rate as other items.
[Figure 4] Delivery failure frequency and changes in frequenc
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The survey responses reiterated what we heard during the executive interviews. For example, we interviewed the director of supply chain and the materials management contract specialist of an HCO made up of three hospitals with over 600 beds and 60 physicans’ practices. Both executives stated that there has been an increase in delivery delays and that they believe that the increase of consumer packages being delivered by parcel carriers was affecting their organization’s ability to receive timely and accurate deliveries. One executive noted that they have had to help a driver dig through consumer boxes to try and find the hospital’s delivery on more than one occasion.
Two delivery failure examples are described here:
Example 1:An order for tissue allograft was placed on Friday. It was scheduled to be delivered on Monday for use in a surgery on Tuesday. The tissue left the vendor and arrived at the parcel carrier’s distribution hub. When the truck arrived on Monday at 10:30 a.m., the tissue was not on the truck. The biologics distributor tracked the tissue and determined it was still at the carrier’s distribution center. It was discovered that the tissue had been left on the dock over the weekend. Due to oversight, it was not placed on the truck to be delivered to the HCO. This neglect resulted in ruining the temperature-sensitive product; it could no longer be used in surgery, thus delaying the operation.}
Example 2:A surgeon called the distribution center on Friday requesting two products for a surgery on Monday. I could not overnight the products on Saturday for Sunday delivery because the distribution center is closed over the weekend. I had these two products ordered on Sunday to be overnighted and arrive at 9 a.m. on Monday. The truck driver arrived at 9 a.m. at the distribution center and delivered one of the products. The second product was overlooked and remained on the truck. The driver finished the route before realizing that the second product was still on the truck. The driver returned to the distribution center with the second product at 10:30 a.m. However, our truck had already left with product 1 to deliver it to the surgeon. To remedy the situation, I was required to personally deliver product 2 to ensure that the surgery was able to take place as planned.}
TYPES OF DELIVERY FAILURES
Drilling further down, the survey asked respondents what specific types of delivery problems they were facing and how frequently they experienced each of these delivery failures. They were also asked about the impact of these failures from a financial and patient care perspective on a scale of 1 to 5 (1 indicated insignificant and 5 indicated severe impact). From these responses, we developed a weighted ranking indicating which types of delay were the most problematic. Figure 5 shows the weighted rankings for the most common types of delivery failures.
[Figure 5] Delivery failure weighted rankings
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According to the weighted results, the biggest delivery problem that HCOs are facing is delayed receipt. However, delayed or missing data about the delivery, damaged packaging, and damaged items also placed high, receiving almost identical rankings. Incorrect labeling, receiving the wrong item, and having items delivered to the wrong locations were also frequently cited problems.
As Figure 6 shows, each type of failure was ranked as the biggest delivery problem for at least 6% of respondents. This finding shows that each of the delivery failures listed are being experienced on a broad scale through the health care industry.
[Figure 6] What is your top delivery problem?
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For example, one HCO, consisting of a hospital with 385 beds, 35 physicians’ offices, and an outpatient surgery did not have the same problems with delayed receipt as its counterparts. While it had received late and missing deliveries from time to time, its most significant issues pertained to labeling, according to the director of supply chain management. Shipments were being received at the HCO’s warehouse without specific labels indicating the final destination within the organization. This lack of labeling delays the final delivery of the product to the end user. “Carriers deny that labeling is their responsibility, however, they should screen packages to confirm that they have the appropriate identifying information,” the director said. “This is a lack of communication between the HCO and the carrier.”
THE EFFECT OF E-COMMERCE
The survey also asked the respondents to discuss any trends that they were seeing in shipping/delivery problems. This was an open-ended question that allowed the respondents to reply with their own words. The responses were examined for repeated concepts and ideas. Problems cited in the open-ended answers included: backorders (8% of all answers); shipping is generally slowing down (11%); drivers are overloaded, overworked, or lazy (15%); and the system is overwhelmed (10%). Some shared that they are experiencing the effects of driver fatigue such as throwing packages and rushing.
Notably, no one mentioned e-commerce as a potential contributor to these problems. However, when asked whether or not consumer e-commerce shipping was negatively affecting their deliveries, 41% said yes. Some respondents again commented that the system was “overwhelmed,” while others discussed the lack of capacity at the carriers. Some noted that the problem is worse during the holidays.
In particular, some HCOs are seeing the increase in consumer package deliveries as affecting their ability to receive orders efficiently and effectively. We interviewed the director of materials management at one HCO who said the “glut” of packages from consumer-based e-commerce has affected the strict time requirements for parcel carriers. This rush has caused drivers to not give their employees the time necessary to fully audit deliveries before giving their signature of receipt.
This HCO has 1,500 beds in nine hospitals with over 300 additional offices and facilities. Due to the size of this HCO, it receives large volumes of products and packages each day. The interviewee noted that the HCO does not experience significant delays in shipments because of its size and the volume of packages to be delivered. However, the numerous packages and shipments received throughout the day do cause a delay in receiving. Because of time pressures from the carriers, the employees only check to ensure that they received the proper number of packages; they are not checking if everything on the packing slip has been received and is undamaged. When there are errors, the carrier relies on the receiving signature to determine if all items were delivered correctly. However, many times these signatures were made without a full audit of the shipment. The HCO incurs additional costs when resolving these types of issues. An example of this type of situation is described by the director as follows:
Two expensive pieces of equipment should have been among the typical 150 package shipment. When it was discovered that the pieces were not delivered, a long process of searching for the product ensued. The HCO ultimately had to replace the items at its own expense.
It is important to note that not all HCOs are experiencing delivery problems. For example, the materials management manager at a small critical access hospital with only 25 beds said that they do not have notable issues with shipment receipts from carriers. This HCO, however, belongs to a group purchasing organization (GPO) and its membership includes a national contract with a major carrier. When they experience issues with their carrier, the HCO refers those shipping issues to the GPO for resolution. The manager shared that, “…being a member of the managing organization negates many of the problems that other HCOs face.” The manager attributed the size of the organization as the reason why the organization was able to manage their shipments well.
HOW TO IMPROVE?The survey responses and executive interviews both support the need for improvements in health care logistic services. Most notably the following suggestions or improvements were raised on multiple occasions and are supported by the data:
- Increase parcel carrier training regarding issues unique to HCOs.
- Create and implement universal specialized labeling for all HCO packages for ease of recognition.
- Increase communication, either direct or indirect, between HCOs and their parcel carriers.
- Improve the methods used to differentiate between consumer packages and business-to-business packages.
The respondents took time to include comments at the end of the survey. Most notably they emphasized the importance of delivery outcomes such as on-time deliveries, on-time data receipt, undamaged packages, no missing packages, correct delivery location, and correct labeling. The survey respondents repeatedly commented that delivery outcomes can affect the finances of their HCOs but more often stated that delivery outcomes affect the efficiencies of their organizations and, ultimately, became a part of patient care itself.
This study suggests that delivery problems are not unique to individual HCOs. Rather, these problems are universal and are being experienced on a widespread basis. Logistics and delivery is an area where HCOs could work together directly or through professional organizations in an effort to improve their communication and collaboration with key parcel carriers.
Discussing these problems with the parcel carriers in an open forum, perhaps on a national level, would lead to more transparency between HCOs and these service providers. These types of discussions would allow HCO supply chain managers to voice their concerns as they did in this survey. This could be an opportunity for managers to ask for driver training, to find economical ways to prioritize HCO shipments, and to ask for new ways to label HCO shipments. It could also be an opportunity for carriers to better understand the frustrations, concerns, and needs of their HCO partners in the last-mile health care supply chain
Link: https://www.supplychainquarterly.com/articles/4740-health-cares-last-mile-challenge
Source: https://www.supplychainquarterly.com