All Things CSC
The consolidated service center has to actually work. That is the only kind we build.
CSC savings do not live inside the hospital. They live upstream, in the manufacturer's cost-to-serve. The Logistics Service Agreement is how a health system captures them, and it is where most CSC business cases never look.
Why most CSCs under-deliver
The business case is usually right about the math and wrong about the direction.
Most CSC business cases are built inside the four walls of the hospital: storeroom and perioperative inventory, receiving labor, consolidated freight. The numbers are real. They are also too small to justify the capital, and they arrive slowly, because clinical staff release inventory only as fast as the CSC earns their trust.
The larger pool sits in the price of every supply, device and drug a health system buys. Healthcare manufacturers carry selling, general and administrative cost of about 27% of sales: above every other manufacturing sector, and three to four times the burden in automotive, aerospace, metals and energy. Much of it pays for the conventional channel: GPO administrative fees, distributor chargebacks and cost-plus fees, and the parallel selling effort a manufacturer needs to defend its share of a multi-source contract. A CSC that gives the manufacturer one ship-to point, concentrated volume and clean demand lets that cost come out, and the Logistics Service Agreement returns a share of it to the health system.
Selling, general and administrativeResearch and developmentEverything else
The instrument
Without the LSA, the CSC is a warehouse. With it, the CSC is a monetization engine.
The Logistics Service Agreement is a second contract that sits beside the supply agreement. It pays the manufacturer for the lower cost-to-serve the CSC makes possible and returns part of the saving to the health system, as direct funding or as lower net price. It is a trading instrument, not a partnership document. The commercial terms are negotiated adversarially, and they should be. The operating relationship that follows the signature is genuinely collaborative.
Sequence matters. Execute the LSAs before you standardize, because standardization is the concentrated market share the manufacturer is paying for. For a CSC still under construction, start at least a year before inbound go-live.
What we do
We cover the whole CSC, from the first business case to the rescue, and it is all we do.
"All Things CSC" is a category claim. Design, build, contracting, operation, regulatory posture and recovery are one integrated domain, and a gap in any of them shows up as a shortfall in all of them.
An assessment that is not selling you the capital commitment
A business case built backwards from your manufacturers' cost-to-serve, with your governance tested before the building.
Assessment 02LSA programs built by people who have sat on the other side
Program design, the tools and research behind each negotiation, and training for the team that negotiates and runs the program.
The LSA program 03A CSC designed for the next ten to twenty years, not opening day
Network, facility, operating technology and services, sized for growth and run as a distribution business.
Design and build 04Rescue for the CSC that is not paying back
The fix is rarely more internal efficiency. It is usually the contracts, the technology, or the sequence.
Rescue 05Manufacturer integration after the signature
Work flows, data flows, scorecards and accountability on both sides of the trading relationship.
Manufacturer integration 06Licensed and compliant before the first shipment
Wholesale distributor licensing, drug distributor accreditation and DSCSA readiness, even for a med-surg-only CSC.
Regulatory readinessGuiding principles
The principles every CSC we touch is held to.
Twenty-nine of them, in six groups. A few that tend to start the argument:
Who we are
Two operators who came to the CSC from opposite sides of the same table.
Teaching a team to negotiate an LSA well takes fluency on the manufacturer's side of the table. Designing a CSC that works takes having run one. Most firms in this market have neither. Between us we have run a manufacturer's distribution network, built a medical-surgical distributor's self-distribution model, operated inside a live health system CSC, and led the healthcare business of a global 3PL.
James Grieger
Developed the Integrated Service Center model at a Fortune 500 medical-surgical distributor, the forerunner of the health system CSC. Earlier, ran a European manufacturer's U.S. distribution network and led global strategic marketing at two third-party logistics providers.
Michael Wentling
A decade inside a global medical device and diagnostics manufacturer's supply chain, then operations and solutions leadership inside a live health system CSC, then the healthcare vertical of a global 3PL.
Who this is for
Medium and large health systems, and the two executives who carry the decision.
We work with health system executives who already suspect their supply chain is holding the institution back, and who are willing to do something about it. We are not a fit for organizations looking for validation of the status quo.
For the Chief Financial Officer
A CSC is a capital decision. Judge it on where the return comes from.
A case built on storeroom inventory, receiving labor and freight is real money that arrives slowly and rarely clears the hurdle on its own. The case we build shows the board a mechanism it can test: manufacturer cost removed by the CSC's discipline, returned through Logistics Service Agreements as funding or lower net price, at about nine percent of total supply spend for mature programs and with the capital back in 12 to 18 months. We sell nothing after the assessment, so the number is not there to sell you a building.
For the Chief Supply Chain Officer
You already know the model is limited. The hard part is the case and the politics.
You need a business case pointed upstream, a team trained by people who know the manufacturer's costs to negotiate the LSA program, and a CSC built as a distribution business on its own operating technologies, not on the ERP. You also need someone to hold the design when a peer or a surgeon pushes back. On implementation, we take that heat, by agreement, so you do not spend your political capital defending a design that is right.
The model fits best where a health system has several hospitals and care sites within a few hours' drive of one another, enough med-surg spend to command manufacturers' attention (as a guide, $100 million a year or more), and leadership willing to govern supply chain and clinical decisions together.
Papers
Positions we hold, argued at length and signed.
We publish when we have a position the rest of the conversation is getting wrong.
Contact
If you are about to commit capital to a CSC, or the one you built is not producing what it promised, talk to us before the next decision.
James Grieger answers this address and this phone himself.