Third-party Logistics (3PL) Programs Can Drive Supply Assurance, Redundancy for Healthcare Providers

By Michelle Gomez

Vizient Senior Category Manager, Non-Acute Med/Surg Distribution

Across both the acute and non-acute care continuum, the COVID-19 pandemic created uncertainty in the healthcare supply chain. At the same time, it also sparked ingenuity — as a new normal emerged, so did fresh ideas for how to ensure provider access to essential supplies for patient care.

At a higher level, COVID forced healthcare to reevaluate status quo sourcing strategies, highlighting the inherent challenges of solely relying on shared inventory strategies like traditional distribution or direct purchases. In these models, traditional distributors and suppliers manage inventory that must be shared across their entire customer base.  

Pre-pandemic, many healthcare providers effectively outsourced inventory management to distributors and manufacturers, relying on just-in-time or low unit of measure solutions to get the right amount of product to their facilities at just the right time. For providers, this helped minimize inventory costs and reduced the space and labor necessary to manage inventory in-house. When the supply chain was healthy, these strategies worked well. But the extreme supply disruptions experienced during COVID lay bare the risks of having minimal on-hand inventory.

One example is allocation. When products are back ordered and facing shortages, they are often allocated so that providers receive at least a portion of their historic supply demand levels. But who sets that allocation percentage — is it a distributor or manufacturer? What purchasing history time period is being used to set the allocation — the past three, six or 12 months? How often should allocation be reviewed and updated — daily, weekly, monthly?

There are no easy answers to these questions and providers often have little say in the answers. Rather the distributor or manufacturer determines an allocation from available inventory and capacity levels to be shared across their customer base. Providers then hope their allocated portion arrives.

During the pandemic, many Vizient providers shared their concerns, emphasizing that "The only inventory I trust is inventory I own." If providers own their inventory, they have greater ability to minimize the risks inherent in solely relying on shared inventory strategies. However, this model also introduces additional logistical and economic burdens. So, the question becomes: Is provider-owned inventory as a tool to increase supply chain assurance and redundancy operationally viable and scalable?

Provider-owned inventory can provide a solution to current supply chain issues — but it also has challenges

Provider-owned inventory creates peace of mind since it is exclusive to a particular provider. However, there are challenges that can minimize it as an option to drive enhanced supply chain assurance and redundancy. If providers increase their owned inventory, they also must add space to store their inventory as well as labor and new processes to manage inventory, and they have to invest extensively in capital and software. The initial investment and recurring complexity can create a barrier to entry for many providers searching for creative solutions.

This is where a third-party logistics (3PL) solution drives impact across the supply chain.

3PL vendors partner with providers to solve key challenges

3PL vendors’ expertise allows providers to scale the barriers to entry associated with provider-owned inventory. 3PL vendors can either be:

• Neutral, dedicated logistics experts
• Traditional distributors with 3PL capabilities

3PL vendors do not take title to the inventory, meaning the provider retains ownership of products, but vendors are able to minimize the need for additional space, labor and new processes. These vendors’ capabilities can range from moving product via air, sea or ground, storing and rotating inventory in temperature-controlled warehouses and when providers call, transporting inventory to a provider’s facility. They offer flexible options depending on providers’ strategies and goals. 3PL vendors also feature benefits like HazMat certification, cold chain storage and transport, white glove delivery and more to allow providers to ensure they have the right solution for their owned inventory.

3PL vendors can leverage their expertise to create flexibility and offer enhanced sourcing strategies for providers. Whether a provider is supplementing their shared inventory strategy by stockpiling key products (like PPE) or seeking to engage in a turnkey self-distribution strategy, 3PL vendors can customize solutions for providers’ unique requirements.