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Can Amazon’s Healthcare Supply Chain Drive Disrupt the Industry?

usscmc by usscmc
December 23, 2019
Can Amazon’s Healthcare Supply Chain Drive Disrupt the Industry?
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Is the supply chain the sick patient of the healthcare sector?

Amazon thinks so, and it has been counting on bringing a good degree of disruption –- what else -– to the industry. But is the online giant’s strategy also ailing?

First, the supply chain story: Healthcare procurement accounts for an estimated one-third of hospital’s operating expenses – second only to labor in terms of spending – and is widely regarded as inefficient.

Those working in the sector overwhelmingly recognize that, too. A near totality of healthcare C-suite and supply chain managers say that logistics expenditures are a medium (33%) or high (65%) investment priority, according to a Syft survey. And many respondents report that they still lean on outdated processes, such as manual data entry or spreadsheets.

It comes as no surprise, then, to hear that in 2019 hospitals were spending around $26 billion more on the supply chain than was necessary, up from $23 billion last year, according to estimates compiled by research firm Navigant.

Navigant’s calculation is based on all hospitals being able to match the performance of the top quartile of their cohort for supply chain budget efficiency.

Building that marketplace

Little wonder, then, that Amazon sees opportunity here. Via its Amazon Business B2B purchasing unit, the company wants to tidy up a wasteful supply chain based on long-standing centralized procurement processes.

In its place, the e-commerce giant wants an Amazon-style marketplace model providing access to a wide range of new suppliers, pricing and potential savings.

In an interview last year, Chris Holt, the global healthcare leader at Amazon, told Healthcare Dive that industry leaders were “desperate for new models” and “eager to try new things.”

But this healthcare push isn’t proceeding entirely according to plan.

A recent research note from the UBS Group reports that hospital purchasing managers actually reduced their spending on medical supplies with Amazon compared to last year, while at the same time they increased their acquisitions of office supplies.

The Swiss multinational investment bank also found from its survey of 100 purchasing managers that just 7% of them were in talks with Amazon for sourcing agreements, down from 11% last year.

UBS says it’s possible that wholesalers are countering Amazon’s foray into the sector by offering better deals to healthcare clients. It’s also likely that many procurement managers aren’t open to the kind of change that Amazon is offering, preferring to stick with trusted providers in a conservative industry.

Enter UPS and DHL

No surprises there. But also in the frame, and with stronger supply chain creds, are the likes of UPS and DHL Supply Chain, which have their own designs on the sector.

UPS began its push into healthcare a few years ahead of Amazon and recently made moves to raise its game.

The package-delivery and supply-chain company plans to add 1.3 million of U.S. healthcare-dedicated floor space to take its warehouse and distribution capabilities up to a total 4 million square feet by next year. The new facilities will boast climate controls, coolers and freezers, along with secure vaults for specialty pharmaceuticals.

Last summer, DHL announced $150 million in investment in nine new pharmaceutical and medical-device distribution centers in the United States by the end of the year, bringing the countrywide total to 30.

DHL is also establishing facilities in new markets across the country to boost its operations and is promising efficiency and productivity gains that will be passed on to customers.

An appetite for health

Amazon isn’t one to back off, and it’s certainly showing serious intent across the entire sector.

Last year, Amazon signed an agreement with Berkshire Hathaway and JPMorgan Chase to form a joint venture aimed at tackling rising healthcare costs. It also acquired the online pharmacy Pill Pack, which recently snagged a deal with Blue Cross Blue Shield insurance.

And Amazon Web Services recently formed a partnership with Cerner, the electronic health record health giant, to develop a platform incorporating artificial intelligence to drive predictive medical insights.

There was a spot of good news in the UBS survey, too. Hospitals say they expect to increase their supply purchases through Amazon over the next three years.

Maybe healthcare procurement managers really do need more time to get used to the new kid in the market. In any case, there are clear signs of life in the Amazon supply chain patient.

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