The Healthcare Supply Chain

I recently had a great discussion with some healthcare research and provider groups in the US, relative to the development of Supply Chain Strategy – segmentation, setting strategy, benchmarking and so forth (see our online CBT on Strategy and benchmarking at The conversation followed the normal course for discussion – the high cost of healthcare in the US, what is appropriate segmentation, where are benchmarks for healthcare in the various areas?

I mentioned a great report I had seen sometime back from McKinsey which provided me with a clear view of segmentation, and comparative benchmarking with OECD countries in healthcare (see here: – in general there are a lot of great reports on healthcare costs from McKinsey if you search via Google). What was interesting in the conversation, from the strategy perspective, was when I discussed the upcoming implementation of the US Affordable Care Act (ACA), and 100% coverage of insurance in the US. While cost is a significant driver in healthcare, if suddenly everyone is insured (relatively speaking), is cost the most significant driver? The discussion ensued, and I pointed out that in Europe and Canada, cost is not always the primary issue in people’s minds. It is response time, or system flexibility.

My personal feeling is that in all the clinics and diagnostic centers, everything but emergency care (and even there…) in the US, suddenly there’s going to be an influx in demand. Imagine that you are in a business where a major competitor goes out of business, and suddenly you have to absorb 10-20% more demand or more. In some cases, lead time is not the issue for materials and services. It’s sheer capacity of manufacturing facilities, freight channels, warehouses… This is what we learn about looking at SCOR agility and flexibility metrics. I felt that, in the context of healthcare, ACA was going to create a situation as though a competitor went out of business in healthcare (e.g. self-paid healthcare), and suddenly all those people were going to move to insured healthcare and place a dramatically higher demand into the system.

Cost is a strategic driver, but as we learn from correctly setting strategy, is it the most important driver after ACA, or will it be responsiveness? My feeling is that people are going to be happy to have affordable healthcare in general, but they will start to find that response times for slots in their healthcare provider system for checkups, diagnostics, and treatment in specific cases where there is poor planning, will be quite surprising. Research from the UK here: Balancing cost versus responsiveness in ongoing healthcare strategy, which will shift as the market changes, will be crucial to views of success. Healthcare is fascinating and very apropos to view through the lens of supply chain management.

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Joseph Francis

About Joseph Francis

Joseph Francis is a former Managing Director of PCG with over 20 years of experience in Supply Chain and IT Management. He served as Executive Director of Supply Chain Council and is co-designer of OpenReference's emerging global standard in supply chain strategic business management, and recognized worldwide as an expert in supply chain operations management.