MANAGEMENT
3.1 LOGISTICS
3.1.2 Logistics: Reactive, Proactive, and RFID
Let’s give a historical background on how reactive logistics has evolved into proactive logistics and then RFID-based logistics, most of which are still in
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the lower end of the maturity model. It is always more cost effective to establish a policy on proactive logistics before an incident occurs than a policy on reactive logistics occurring after the incident. Even better is the proactive logistics based on the RFID technology infrastructure.
To illustrate the differences of all three logistics types, let’s consider the impact of federal Medicare cuts in 1997 on major hospitals in major cities and rural areas that saw profit margins drop as much as 40 percent. Hospitals were closing, went into bankruptcy, sent personnel home, or to look for other jobs.
Many surviving hospitals saw their credit ratings slide. In sum, the Medicare cuts intended to create a surplus that the Congress spent on highways, airport, and defense, caused the nations’ health infrastructure to deteriorate.
In a few years Congress acknowledged the Medicare cuts were too drastic and gave back some money over a period of time; the hospital logistics infra- structure was already a mess in response to sudden Medicare cuts. The hospitals were totally unprepared for the impact of the cuts on hospital logistics.
To save the once-proud hospitals particularly in big cities from sliding any further, they reacted to the cuts by hastily establishing policies on logistics hoping to cut costs to make up for the gaps created by the cuts. However, this reactive logistics not only saved some money, it also laid off personnel, merged or realigned departments, eliminated redundant research work, and cut back unnecessary supplies. Hospital personnel who survived the cuts were resistant to organizational changes. There was too much reliance on individuals rather than team work to make the changes work. Communica- tions between merged or aligned departments were not satisfactory.
One obvious drawback of the reactive logistics approach is that logistics was not planned, not proactive, not reliable, and not optimized across the organization rather than in each department as a separate unit. Logistics operations were still costly, were inefficient, and resulted in duplicate orders, lost supplies, missing supplies, and supplies that got separated from a transport facility. That is because there was no system to track in real- time hospital supplies. Information was not available that hospital personnel wanted. Information, if available, was difficult to find.
There were many instances when a patient needed special equipment and supplies that were not immediately available. The nurses did not know the exact location of the equipment and supplies and wasted their time on non- patient care looking for them. When they could not find the equipment and supplies, orders were placed. While waiting for the orders to arrive, the nurses finally found the equipment and supplies. Blame this on reactive logistics that left little time for the C-level executives to think things through on how logistics should be planned, implemented, and optimized in each stage of the logistics life cycle, especially the information that the nurses wanted but was unavailable.
Then, some hospitals took proactive actions to advance logistics over the past few years. However, logistics has tended to be fragmented with
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little visibility over ordering stock availability and status of supply chain activities. They drain patient care resources and the costs continued to increase even after the affected hospitals took measures to cut operation costs in response to Medicare cuts. The nurses continued to waste their time on nonpatient care looking for equipment and supplies that a patient immediately needed, but to a lesser extent due to some non-r eal-time control over the flow of supplies in the supply chain management.
As a way of getting around some of these issues, RFID-based logistics is recommended to increase inventory visibility, simplify existing business processes, eliminate costly processes, create leaner processes, and to release unnecessary, duplicate, or wasteful resources as part of a more effective supply chain management in real-time. Some purposes of the RFID-based logistics are to reduce drastically or entirely eliminate the time the nurses spend on nonpatient care, to ensure correct materials are ordered by the procurement department, and to reduce storage, transport, and support costs.
When we talk about hospital logistics, we are referring to the logistics of creating cost economies among multiple hospitals and the supply base to ensure the right product—hospital or pharmaceutical—gets to the patient in the right hospital at the right time based on the right information that can be accessed quickly and easily in real-time. Enforcing the policy of leaner logistics without RFID technology infrastructure would not make eco- nomical sense. RFID technology is needed to better track the consumption level at the product, location, and patient levels. It increases the visibility of the materials management component of the supply chain management system to allow the hospital staff to focus on patient case. It permits ware- house/distribution centers to consolidate deliveries in limited space reliev- ing of traffic congestion in hospitals.
Had RFID infrastructure been implemented in hospitals prior to Medi- care cuts, the hospital margin loss would have been less as the C-level executives would have better visibility of what and how many supplies were ordered and how they were packaged, at the product, case, and pallet levels. The executives would also know in real-time where the supplies went, when the warehouse/distribution centers got them, stored them, and delivered them to the customers, and whether the supplies that arrived at the intended destinations remained intact, not damaged, not spoiled, or not counterfeited.
In the year of 1997 the hospitals were not ready for the RFID technology infrastructure. Now the hospitals are ready or have started to implement this technology as part of their SCM system. RFID technology allows a better link between end users and suppliers and allows logistics and SCM systems to be better adaptable to changing user or demand requirements for sup- plies and information and supplier innovations to streamline logistics. As
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suppliers deal with more and more hospitals, they can offer cost economies for a wider scope of supply base and even predict to a certain degree future demands of the hospitals and resulting leaner logistics for the supplies.