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Healthcare Business Solutions
October 29th, 2015

Lowering total cost of ownership through package consolidation


The challenge
For decades, Cook Medical has worked with physicians to develop new medical devices. So when University of Pittsburgh Medical Center (UPMC) asked Cook’s Healthcare Business Solutions (HBS) team to help improve its processes and reduce costs, UPMC and the HBS team developed and tested an innovative new program for UPMC—just like Cook would do with a device for a physician.

UPMC is a large nongovernmental, nonprofit healthcare organization in the U.S. with international operations and a deep portfolio of specialty clinics and services. Like most healthcare providers, it was looking for new ways to reduce spending in a high-cost, low-reimbursement environment. Price concessions from product manufacturers weren’t enough, so Cook’s HBS team and UPMC needed to look at total cost of ownership (TCO), the sometimes hidden operational costs that result from things like ordering habits, shipping practices, and waste disposal. Looking at TCO would allow the team to identify opportunities to create new efficiencies and reap substantial savings.

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The project
In assessing TCO, Cook and UPMC assessed ordering habits, the way Cook shipped products, and how well Cook and UPMC were integrated. Cook found that integration was already optimized, because UPMC had a common operating platform across facilities and used electronic data interchange (EDI) ordering. The areas they identified as the greatest opportunities for improvement were the network’s ordering habits and the way that Cook shipped products.

Cook’s solution was a pilot program for ordering and package consolidation. In addition to reducing freight cost, box cost, and box weight, Cook created a new process in which multiple purchase orders (POs) that were placed on the same day went into an order queue. The order queue allowed Cook to group orders into batch shipments instead of shipping each order separately. They agreed upon a cutoff time by which orders would be placed so that the queue system wouldn’t create shipping delays.

UPMC’s process for distributing products internally was based on each PO being packaged in its own box. In order to batch multiple orders in fewer boxes without upsetting UPMC’s process, Cook and UPMC set up a new but similar process that used reusable totes. In the new process, UPMC’s personnel simply transferred the POs, which were individually wrapped, into separate totes for delivery to the appropriate department. The totes not only reduced box waste and recycling fees but also reduced the chance of contamination that can result from cardboard dust. The new process saved money, was a green initiative, and reduced risk.

The results
The cost savings for UPMC were immediate and substantial. By consolidating orders, Cook ensured that the network always met the minimum-order threshold to receive free shipping. This eliminated the freight charges that the network previously paid for single-item orders.

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Consolidating the orders also reduced the number of boxes that were used, which saved Cook 74% in box costs and saved the network from the expense and burden of recycling and disposing of all that excess packaging. The reduction in boxes also reduced the overall weight of shipments by 78%, which decreased the amount of waste 73%.

These percentages don’t account for all of the savings that resulted from the pilot. In terms of TCO, Cook and UPMC achieved a number of efficiencies that are hard to quantify, like the efficiency that results from shipping fewer boxes and the time savings that result from not having to transport excessive cardboard waste.

The keys to success
This program worked because of the collaboration between Cook Medical’s HBS team and UPMC. “An alignment had to happen on both sides,” said Tim Nedley, vice president of materials management at UPMC. “You have to work together to make it work. The pilot is just the beginning of the process, not
the end.”

Depending on the facility, the program—in whole or in part—is scalable. It could be adapted to other locations to yield similar savings and efficiencies. In the current healthcare environment, this kind of innovative program can make a real difference.

“I just believe in this program so much,” Nedley said. “It’s the right thing to do.”

Contact Cook’s HBS team at orders@cookmedical.com to find out how they can help reduce supply chain costs without sacrificing service or efficiency.