Supply Chain Distribution Channel: Sutter Health on the Right Path
How Sutter Health optimized its supply chain
The organization
Sacramento, Calif.-based Sutter Health, serving nearly 3.5 million patients, with 22 hospitals, more than 57,000 employees and clinicians, and 12,000+ affiliated physicians
The challenge
Removed some vendors from its distribution channel to buy direct during the pandemic to ensure supply chain continuity; unsure of the best way to move direct-buy items back into the supply chain distribution channel
The outcome
Moved 1,200 items, worth $40 million total—into Medline’s distribution channel, reduced number of trucks, and decreased number of supply POs; caregivers have what they need to provide high-quality care with fewer delays
Before the COVID-19 pandemic struck in early 2020, just-in-time (JIT) manufacturing was a popular inventory management approach. The JIT model works by replenishing inventory “just in time” to fulfill orders, intending to have materials arrive exactly when they are needed.1 But during and well after the pandemic, supply chain continuity was practically impossible due to shortages of raw materials and finished goods.2
In hospitals, supply shortages can affect patient care and outcomes. So, healthcare supply chain teams got resourceful during this chaotic time. One approach was to buy directly from manufacturers. Supply chain teams reasoned that there would be a better chance of getting the supplies they needed, boosting supply or allocation continuity. And they were hearing chatter that going through a single distributor was making the process competitive and untrustworthy due to a lack of transparency.3
That’s the approach Sacramento, Calif.-based Sutter Health took. When it was time to move the direct-buy items back into the supply chain distribution channel, the question was, what’s the best way? Fortunately, Sutter Health supply chain leaders could turn to Medline for guidance, collaboration and teamwork.
CHALLENGE
How to move direct-buy items back into the supply chain distribution channel
Trucks coming in all day lowered efficiency
For Lee Ayers, senior director of supply chain operations at Sutter Health, “It all comes back to one of the supply chain principles near and dear to my heart: Least handling is best handling.”
Ayers looked at Sutter Health’s distribution model and noticed that a lot of supplies were coming from Medline in the morning. Then throughout the day, a large volume of items would be delivered to their hospital dock from other trucks, whether a vendor truck, FedEx or UPS.
“When you receive hundreds of parcels a day on your dock, it’s hard to determine what PO goes to what parcel,” says Travis Barkel, director of purchasing and stock control at Sutter Health. “It involves a lot of manual work, which lowers efficiency.”
In addition, when Sutter Health makes a purchase directly from a vendor, it may come as just one item that has to be broken down from a case or a box into one repackaged item.
“Then we have to unpack all that stuff and put it in our own bins,” Ayers says.
Freight fees from multiple carriers added up
Every time the Sutter Health supply chain team orders a parcel delivery from a carrier such as FedEx or UPS, a freight fee applies. Those costs don’t apply when they use a distribution channel. Instead of receiving one product and being charged a freight fee, Sutter Health can have the product added to the delivery that’s scheduled to arrive in a large truck the next morning.
“We’re now able to funnel close to $40 million worth of product through a Medline distribution center.”
Lee Ayers
Senior director of supply chain operations, Sutter Health
ACTION
Move 1,200 items into Medline’s distribution channel
Review the master item file
Sutter Health supply chain leaders approached Medline in March 2023 to help tackle their challenges. “They wanted to put those buy-direct vendors back in the distribution channel,” says Chad Hoare, IDN executive account director at Medline. “It started with a small idea. They simply wanted to see what items they could shift to us as their distributor.”
The Medline team asked Ayers to send Sutter Health’s master item file so they could look at what items could be moved. After analyzing the file, the team was able to move 1,200 items, worth $40 million total—into Medline’s supply chain distribution channel.
Until then, Ayers hadn’t realized that so many items could be channeled through Medline’s distribution center. He says, “I didn’t realize that it was a choice. We proposed the idea to the vendors whose items we wanted to move.”
Some vendors chose to continue working directly with Sutter Health to keep the personal relationship with the health system. However, most of the vendors had no preference whether they furnished supplies directly to Sutter Health or had them go into Medline’s supply chain distribution channel.
Bring in the implementation team
Medline coordinated the project with its implementation team to carry out the secondary implementation process. The team made sure Barkel and his Stock Control team—also known as Sutter Health’s distribution control tower—understood how the implementation would work.
“We transmitted all our manufacturer contract pricing to Medline so they could present a contract to the manufacturers,” Barkel says. “The contract presents Medline as an intermediary within that relationship so we can keep pricing consistent.”
Barkel found Medline’s implementation team invaluable throughout the process, saying, “They helped us do an analysis of our volume and how much we purchased and decide what that inventory in a Medline distribution center would look like.”
Rather than being viewed as a middleman, Medline is seen by Sutter Health supply chain leaders as a mediator that helps hospitals and health systems optimize their supply distribution channels.
Sutter Health’s distribution control tower
Sutter Health set up the Stock Control team as a “distribution control tower” almost four years ago. “This team focuses on and is the counterpart to Medline all day long,” Ayers says.
Here’s how the team functions:
Travis Barkel, Director of Purchasing and Stock Control
Analytics Manager
6 analysts:
Focus on forecasting, prime vendor management, looking upstream and projecting next back order
Purchasing Manager
12 buyers:
Focus on Medline orders and tactical day-to-day movement between Medline trucks and receiving
Logistics Manager
2 inventory control technicians:
Focus on keeping 90 days of disaster response SKUs on hand in Sutter’s warehouse, plus stockout items
“The team is deeply rooted in the relationship with Medline,” Barkel says. “We’re trying to provide more transparency to Medline as to what our demands are going to be, and then manage the supplies coming from Medline across the organization.”
OUTCOME
Supply chain results
From start to finish, this project took four months to complete. In the five months since the project was rolled out, Sutter Health has seen promising results.
“We’re now able to funnel close to $40 million worth of product through a Medline distribution center,” Ayers says. “We moved 1,112 SKUs to Medline from 103 other vendors. Our receivers on the dock have everything consolidated for the most part in the morning and less reliance on all these other trucks coming in later in the day. It just created a huge benefit for us on the back end—plus it lowers our carbon footprint.”
Per Ayers, they have reduced the number of trucks delivering supplies, decreased the number of supply POs and invoices, and increased staff efficiency. In addition, Sutter Health has saved $400,000 to $500,000.
Patient benefits
Why is the Sutter Health supply chain team happy with the resulting efficiencies and cost savings? Supply chain optimization contributes to improved patient care—and access to care for the communities Sutter Health serves. How?
The right products are delivered at the right time in the right quantities, contributing to resilience and uninterrupted care
Caregivers have the devices, supplies and medications they need to provide high-quality care with fewer delays
Cost efficiencies make services more accessible for patients and communities
Caregivers can focus on patient care rather than wrestling with logistical challenges
A reduced carbon footprint and focus on sustainability is good for everyone
Ayers and Hoare want to explore how to optimize other Sutter Health supply portfolios to benefit patients. Ayers says, “I would say this is the first phase of a continuing journey.”
Sutter Health supply chain leaders are taking steps to become more transparent, resilient and sustainable, from creating a distribution control tower to moving toward an integrated supply distribution channel2 and striking a balance between just-in-time inventory management and just-in-case.1
