Delivering the Difference | Article

Outsourcing Drives Excellence in Healthcare Supplies Distribution

thermometerIf you’re a patient in the emergency room, you definitely want that hospital or trauma center to have all the necessary supplies on hand — from IVs and blood plasma to bandages and syringes. But the hospital can’t keep everything on hand; it’s in the patient care business, not inventory warehousing. So the doctors and nurses rely on medical distributors to be sure they have what’s needed — or can deliver it in a couple of hours for an emergency. Many of them depend on Owens & Minor, Inc. (O&M) and, in outsourcing their supplies process to O&M, they enjoy the added advantage of reduced costs.

Headquartered in Richmond, Virginia, Owens & Minor (O&M) had a vision: to be a world-class leader of supply chain management solutions to the acute care segments of the healthcare industry. The company chose a two-pronged approach to achieving its healthcare mission: outsourcing and collaboration. It focuses on “delivering the difference,” and the two-pronged strategy has been highly successful. Besides a winning situation for its customers, Owens & Minor was ranked No. 7 in the 2001 Barron’s 500, which ranks the top 500 U.S. companies according to how well they create shareholder value, and No. 1 in the 2001 InformationWeek 500 Top Innovators & Influencers in Technology.

It’s now the nation’s leading distributor of national brand-name medical and surgical supplies to acute care centers. How did it get to the number one spot? Perot Systems helped. It’s the backbone of the technology operation, since Owens & Minor outsourced information technology (IT) to Perot Systems, with the exception of the mainframe, which it outsourced to IBM. And together, they’ve achieved some innovative solutions for the healthcare industry.

Strategic Use of Information

David Guzman, senior vice president and CIO at O&M, says the executives like to refer to their company as the “master distributor” for healthcare, because they touch the whole supply chain. Stored and delivered from their 45 warehouses are about 170,000 unique products. As they actually own the stored inventory, they have designed a demand forecasting system that ensures the healthcare facilities have the supplies they need and that the manufacturers of those supplies can manage production by the forecasted demand.

The O&M industry-leading data warehouse, called WISDOM, is the key to its position of readiness. An innovative Internet-based decision support tool, it’s connected to the O&M customers and creates a customer’s historical demand. O&M also receives clinical information from the hospitals, enabling it to predict demand and order supplies ahead of time. Maintained through handheld devices at the O&M customer facilities are “par level” storage areas, holding a minimum number of inventory items on hand for each product. The par level for a particular stent, for example, might be never less than six and never more than nine. Owens & Minor works with customers to keep these “par level” areas automatically stocked.

Seamless Operation

OM Direct is the company’s Internet-based product information and order management system, providing real-time product pricing and inventory levels along with real-time access to order status information. When customers use the system to look up a healthcare product, they have access to O&M’s product master file, with item number, length, weight, dimension information, price information and a basic description. In the future, customers may also be able to get rich content, such as a picture, a video on how the product should be used, Q&A about the product, and other marketing information. “That data,” says Guzman, “would come from the Web site and systems of the manufacturers. But it would be absolutely transparent to the customer that they are looking at four or five pieces of information about that product from our database and two or three other pieces from the manufacturer’s database.”

O&M deals directly with about 1,600 suppliers or manufacturers, and Guzman says O&M’s systems are directly tied to the systems of about 300 of them (those 300 represent well over 90% of O&M’s volume). “We are inextricably intertwined,” says the CIO. “There is a cross reference that we maintain between that data every single day. We have collaborative commerce relationships with those suppliers.”

Creating Allies

The application development and support functions of O&M are outsourced to Perot Systems. Perot also hosts and maintains the Web site, maintains the cataloging technology and the Wisdom data warehouse.

Not long ago, the definition of “collaboration” was actually “cooperation with the enemy.” But today it describes the most effective way to conduct business. The Internet empowers all the players in a value chain to move closer together through collaborative commerce, improve their processes and make it easier to get the job done. Technology decreases cycle times, boosts efficiency and improves customer service, thus enabling manufacturers and distributors to deliver the right product faster and reduce the cost of doing so.

“One of the key benefits to outsourcing is that you have access to a wider range of resources and expertise than you would normally have with an internal IT staff,” comments Guzman. That’s exactly the value O&M reaps by outsourcing to Perot and what O&M’s customers and supply chain manufacturers get by outsourcing to O&M.

Lessons from the Outsourcing Primer:

  • Technology, such as a demand forecasting systems, streamlines inventory and supply distribution processes. The most cost-effective solution to obtaining such technology is to outsource.
  • Collaborative commerce enables manufacturers and distributors to deliver the right product faster and reduce the cost of doing so.
  • Outsourcing gives access to a broader range of expertise and resources than most companies have internally.


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