Redesign of SCM Processes for an Integrated Delivery Network


A globally recognized integrated delivery network of 24 hospitals and 124 clinics appointed a new administrative executive. He mandated that supply chain costs must be reduced to free cash for better uses.


Hospitals were operationally decentralized with varying levels of sophistication.  Clinics had minimal supply chain management with purchasing done locally.

The new CEO was eager to communicate the project’s importance to everyone and to exercise his office as needed.


Due to the size and scope of the effort, the work was accomplished in stages.  As each stage finished, the results were analyzed, and the next stage would be designed and proposed.

Cross-functional teams led the creation of a shared service center for supply chain management. As the projects progressed, SCM for hospitals and clinics was transferred to the shared service center. Product demand was aggregated at the top level. Vendor negotiations and ordering were executed for the chain as a whole.

Four distribution centers were created that included both warehouse and cross-dock facilities.  The centers’ locations, sizes, and roles were determined through analytical modeling and the coordination with the leadership’s strategic plan.

The Inventory system was reengineered, starting with the definition of a common item master list and defining inventory locations for all items.  PAR levels were calculated to facilitate automated replenishment.

Best practices were identified and used throughout the system. Improvement methodologies included CQI/TQM, Six Sigma, and Lean.


Clinical staff enjoyed reduced stock-outs as the service level was increased from 92.9% to 98.2%.

Supplies costs were reduced by 10% through vendor consolidation.

Supplies costs were reduced an additional 11.7% due to decreases in administrative staff, transportation, space, and inventory carrying costs. This included a reduction of 41 FTE’s.

Inventory was reduced by $12.6 million.

Identified goals have been sustained through the existence of an annual SCM audit at every facility.