All Things CSC

Guiding principles

The principles every CSC we touch is held to.

These are the positions behind every assessment and design we do, and behind every negotiation we prepare our clients to lead. They apply to the health system CSC under a direct supply model, whether it is called a consolidated, integrated or logistics service center. Most are learned the expensive way. We would rather you learned them here.

AWhere the value lives
  1. The return lives upstream, in the manufacturer's cost-to-serve, not inside the hospital. Internal savings are real but secondary. Build the business case backwards from the manufacturer.
  2. The CSC is the enabler, control is the goal, and the LSA monetizes it. Without the LSA, the CSC is a warehouse.
  3. The core business case stands on product distribution and its monetization alone. Never build one layered plan for the whole center. Each additional service earns its own case later.
  4. Sequence the streams. The distributor stream goes first, because it builds the delivery base. The direct stream follows, because it is where the money is.
  5. Commitment, not size, earns the best price. Self-contracting with committed market share beats GPO access pricing.
  6. Value must flow in both directions. If the manufacturer does not win, the funding stops.
  7. Execute the LSAs before standardizing. Standardization concentrates market share, and concentrated share is what earns the incentives. For a CSC under construction, start the LSAs at least a year before inbound go-live. Before the first CSC purchase, every planned stocked item is covered by a supply agreement that sets price and an LSA that sets incentives.
BDistributors, wholesalers and GPOs
  1. There are no true distributors left. Third-party distribution earns at or near break-even for the companies that do it. It is the price of seeing a health system's total spend. Design the future without depending on it.
  2. The distributor becomes secondary. It carries manufacturers not under an LSA, in case quantities, to the CSC only, on a schedule, and never to a hospital.
  3. GPO compliance is not standardization. The GPO has a contract for almost anything a health system wants, so even highly compliant systems are not standardized.
  4. One disciplined face to manufacturers: a single ship-to, scheduled orders, electronic payment, EDI and data returned. That discipline is the product manufacturers pay for.
CHow the CSC is built
  1. The CSC is a business at arm's length, not a department and not a big storeroom.
  2. Sell, don't transfer. Every movement out of the CSC is an order, an invoice and a remittance, even to owned sites.
  3. The ERP is a customer, not a parent. The CSC runs its own demand planning, distribution management and warehouse management, connected by EDI. Never run a CSC on the ERP or EMR, which are not configured for distributor-grade order-to-cash.
  4. Customers are defined by relationship, not by ERP. Build to serve owned, managed, acquired, affiliated and agency customers from day one.
  5. Licensed and compliant by design: wholesale distributor licensing and accreditation, DSCSA, and DEA and FDA where needed, even for med-surg.
  6. The health system or a 3PL operates the CSC, on the health system's own operating technologies and contracts. Never on the ERP, and never handing the design, the data or the contracts to an intermediary.
DOperating design
  1. Postponement. Keep product consolidated as long as possible and postpone value-add until the last possible moment, from commodities to high-end physician preference items. Delivery carries the principle all the way into the par location.
  2. Two-bin kanban is the best par replenishment method. Each signal is for a fixed quantity, set by the bin, so it can be processed in ways erratic demand signals cannot.
  3. Design to the point of use. Sequence deliveries to procedural areas and deliver store-ready replenishment to par locations. Measure success at the shelf, not just in the distribution center.
  4. Stock a rational formulary for the whole system: the same items everywhere, with rational rather than irrational variation, chosen for velocity and held with high assurance of availability. A smaller, fixed formulary makes substitutes manageable and keeps product flowing to patient care. Standardization is a readiness gate, and private label is the fastest lever.
  5. Centralize all transport, including courier runs, and contract it out. The health system should not carry the liability for loss of life in traffic accidents, or the driver workforce problem every industry now has.
  6. Same campus, never the same roof, for operations that add risk to product in custody. Laundry may share the campus and the transport, but not the building. Cook-chill does not belong.
EScope and growth
  1. Evaluate every service, plan none, and size the space and utilities for all. Add services one at a time once the core is stable.
  2. Pharmacy is the next richest stream, 340B included, using the agnostic design, with the 340B split made downstream of the CSC.
FGovernance and posture
  1. Governance before the building. The strength of supply chain and clinical governance, and of change management, decides success more than any design choice. Assess it first.
  2. Protect the design through leadership change. Executive turnover is the most common cause of failure. Charter the program and plan for continuity.
  3. Run the workforce as a distribution business, not as a hospital materials management operation. The measures are safety, quality and productivity.
  4. Supply sovereignty. Direct trading moves a health system up the allocation list. Control, with that control monetized.

How we work

Two commitments about ourselves.

Independence. We sell no product, technology or distribution service after the assessment. That is why boards believe our assessments.

Evidence discipline. Our numbers carry their sources and their confidence, our own claims get examined, and we change our view when the evidence does.

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.

Phone(775) 351-8580