Logistics cost Control in medical distribution company

Logistics cost Control in medical distribution company

Introduction

Unlike the medical distribution industry in the United States, where top three companiesown 90 percent of the entire domestic market, in China, there are currently around 9000 medical distribution companies nationwide. In early 2000, the China medical distribution industry comes into its development surge, thousands of company were gradually started in this industry. However, in 2017, lots of new policies and regulation were introduced by the government, reorganizing the medical distribution industry with an intent to lower the medicine prices with fewer smaller sized “middle man”. Within three years, it is expected that 80 percent of the medical distribution company will be eliminated. In the urgent of surviving this elimination, find ways to run the business more efficiently become critical. I will be focusing on the research of logistics cost control in medical distribution company, trying to come up with some optimization measure in term of minimizing logistic cost in medical distribution company.

The research will be both qualitative and quantitative. For the qualitative approach, I will be interviewing the management and employees of those company who has been successfully maintain an efficient logistic cost ratio, as well as manager and employees of those company who suffer from the high logistic cost. The interview questions will be in relevance of first, the logistic cost structure in general; second, the appliance of logistic information technology system; third, the incentive structure of the logistic department. It is important to interview other relevant department and the costumer of the company, because they are familier with what the logistics department do, and they can provide valuable input with unique perspective. Mean while, for the quantitative approach, I will need the logistic cost, and relevant data to back up my research. Data is critical in my research, all of the possible measures need to be proven by the data to show the correlations. In a word, we have to see the lowered price to make sure that it works.

Problem

With more and more medical distribution company facing elimination in China, cutting cost in all department became critical for survival or better performance. While tons of company are having logistic cost control issues, I will be focusing on solving this problem in my research.

Purpose

There will be several group of beneficiary who benefit from the out come of this research.  First of all, I myself is a participant in the medical distribution industry, thus, the research on logistics cost control in medical distribution company will be essential to me personally. Besides that, tons of people who work in the medical distribution, especially those who specifically works in the logistics department will be benefit from this research. This research will help employees in logistic department to work more productively in term of cutting cost, and help their company to maintain an excellent cost ratio in general.  Furthermore, every individual is actually potentially involved, since we might all benefit from lower priced medicines due to lower transportation cost in the distribution.

medical distribution industry is a field that I myself is very involved with. I personally find it very exciting to research about. Mean while, besides helping with the relevant businesses to manage their logistic department more efficiently in term of cutting cost, doing this research also help me to learn more about the medical distribution industry in general, which will be precious to me, since I am very likely to work in this field in the future.

Research Question

The research question I will be focusing on is what factors effect the medical distribution company’s logistics cost.

What level of correlation these factors have with the logistics cost?

What could the medical distribution industrry managers do to improve their logistic cost effeciency?

Literature Review

Literature Review

Supply chain management is the process of procurement, acquisition of in-house storage and distribution that are used every day in healthcare facilities (Christopher, 2016).  They commonly use the group purchasing organization (GPO), just in time (JIT) deliveries by medical distributors, on-site storage, Inventory management and distribution to the final consumer.  The supply chain management may also entail the use of the automated electronic system of order which reduces the active involvement of the materials management purchasing department personnel (Christopher, 2016).

The cost management in the supply chain management remains to be critical healthcare issues for manufacturers and distributors (Chong et al., 2015). According to a research conducted in 2016 on UPS pain a study which was aimed at measuring the supply chain management logistics challenges and chance. Healthcare firms continue to struggle with supply chain costs which are associated to increased business growth, changes in the prices of fuel and raw materials, increase in regulations, market growth, aging system of information technology, and challenges related to technology investments (Chong et al., 2015).

According to Handfield (2015), supply chain management cost is the second largest that is incurred by healthcare facilities; it is only exceeded the labor cost. Despite high expenses, efforts to minimize the healthcare supply chain costs are slow. For medical equipment organization to remain competitive, they need to raise their business practices such as looking for new ideas of the supply chain that will help to bring better efficiencies and reduced costs.

Mangan, Lalwani, C and Lalwani, L. (2016), stated that the traditional hospital and healthcare supply chain model is fragmented; it is hindered by conflicting objectives that are not well handled. In healthcare organizations orders are placed by different sections in one facility, but different manufacturers, distributors or wholesalers deliver there. Therefore, various specialized logistics approaches should be implemented for the duration of their stay in healthcare facilities.

In supply management, the manufacturing companies get their raw materials from different regions and proper control of the cost is an essential factor (Chong et al., 2015). The logistics management usually entails process such as procuring transporting and the storage of goods; the two are most affected by variation in cost. For example, the changes in the prices of fuel affect transportation and international trading laws, and this may lead to delaying in receiving raw materials.

To reduce the cost in supply chain and logistics management, they are essential things that should be done; these things include determining the costs involved in the outsourcing raw materials such as duties to be paid, freight charges, and the price involving the transportation of inventory (Wiengarten et al., 2016). The second thing is to focus on different timing between the transits, determining the price that is involved in the responsibility and tariffs rates in the area.  To reduce the cost involved in the supply chain supervision, it is essential to consolidate shipments (Wiengarten et al., 2016).  Providing the information to the concerned individuals regarding the price incurred in the freight and other amenities that might distress the verdict making factors.

In agreement with Wiengarten et al., (2016), Agrawal, Singh, and Murtaza, (2015 stated that the decrease in the repayment of services can result in a lot of pressure. However, research is being done to find chances to reduce costs without weakening the quality of patient care. Medical equipment is the primary targets for the cost reduction measures. Providers of the healthcare request the manufacturer to significantly reduce prices of their commodities, this can be done by removing waste and inadequacies in the medical device supply chain. To eliminate the significant waste and inefficiencies, there are several ways that the manufacturers need to make to improve their supply chains (Agrawal, Singh, & Murtaza, 2015). These measures can be divided into two the operational improvements, and the culture changes on how manufacturer and logistic service providers think about the medical device supply chain.

Abdulsalam et al. (2015) noted that in market health care systems, there are stiff competitions and the amount of money paid in the healthcare plan contracts has significant effects on the prices set for services. It is, therefore, essential to address the pricing structure based on the market forces. Failure of paying attention to contracts and market forces may lead to overcharging for products.  The purchasing agreement should, therefore, be checked carefully, to detect when the sellers include strict confidential clauses.

According to Monczka et al. (2015), the Centers for Medicare and Medicaid services, the healthcare cost is still increasing; for example, in the US healthcare spending might rise to over $4.8 trillion by 2021. Improving logistics management plays an essential role in controlling costs in healthcare businesses. Increasing regulation, supply chain inefficient, and security of the products are challenges to the organization. Healthcare industry is still facing supply chain and logistics challenges; these pressures might cause the firms to change their supply chain strategies to meet the need of their customers (Monczka et al., 2015).

The company might opt to rely on the third party logistics partner. Some of the healthcare organization that is looking for long-term solutions; they will have to lower costs because the prices will continue to rise. Healthcare companies are struggling to ensure that the health providers have the right devices and knowledge when handling patients when this is achieved, they will spend more time with the patient and less time in locating the equipment’s and supplies they require, and they are also looking for ways to reduce costs.

Some of the strategies which may be used to reduce supply chain costs without affecting the services include the use of the modern technology, improving the forecasting, and addressing complete and slow-moving inventory (Chong et al., 2015). It is also important to keep in mind the optimal procurement cost, to achieve this, there is number of factors that a company should consider, these factors include supporting their suppliers and providing them with the required information they require innovating. The pricing should be stated in prepaid and collected ways. Firms should also indicate whether they want to control inbound transportation or they should leave it to the suppliers.  The suppliers should ensure that their packaging help to reduce costs especially the chain transport costs (Chong et al., 2015).  According to cost reduction practices in distribution centers falls into six areas which include, receiving, packaging, warehouse management, the systems used in the warehouse, space optimization, and network optimization.

Managers use supply chain because it help them in  reducing the cost of administration, reducing the number of scheduled deliveries by use of logical delivery systems, maximization in cost saving. And also reduction of the losses and damages of the products because the product delivered is sorted and boxes are arranged according to their department or room, this also reduces costs of administration (Chong et al., 2015).  It is essential to improve patient ordering accuracy, a provider who can order specific products saves time, healthcare providers must strive to have their orders in control to enhance chain efficiencies, to ensure this is done they can use computerized provider order entry CPOE system (Chong et al., 2015). The CPOE system help to provide the ordering process, it is more efficient, save times and cost, as well as reducing errors.

Methodology

3. Research Methodology

This study regarding the medical distribution industry logistics cost control is a explanatory study with a qualitative approach. The level of researcher interferece is expected to be low. Interviews with employees from two to three chinese medical distribution companines will be taken , especially with those who manage or work in logistic department of medical distribution companies. Personally I have some medical distribution industry working and managing experience, so I will be taking interviews with my previous collegues and industry familiers. the questions of the interview will be open ended questions like what factors have significant effects on the medical distribution company logistics cost? Are these factors play a positive or negative role in term of effecting the logistics cost? how essential or what is the level of correlation of these factors in relavence of the logistics cost? whats your assumptions of actions that might lower the logistics costs in a medical distribution company? The reflexivity and ethical considerations will be considered during the compose of the interview.

The source of the data will be my previous co-workers and random practioner in the medical distribution industry in China. The logistic cost data in proportion of their sales will also be collected. The data from interview and company financial reports will recorded in a execl file.

All of the interviews results will be taken seriously in term of what factors have significant correlation with the logistic cost control. However, the interviews from the companies with better logisctics cost ratio will probably reflex more about factors having positive correlation with the logistics cost. On the other hand, the interviews from the companies with comparatively worse logistic cost ratio will probably say more about what factors play a negative role in the losgistic cost process. In a word, learn from those who is doing great and try not to follow the path of the companies who is doing bad.

The Interview will be divided into two stage, the first one will be trying to locate what factors have correlation with the logistics cost control in the medical distribution companies. The second stage will be about what level of correlation (positive or negative) do these factors have with the logistics cost. Each of the phase will take approximatelty two days. The gathering of the companies logistics cost data and other financial information should cost one to two days to collect. The analysis of the data should cost one to two days as while.

References

Abdulsalam, Y., Gopalakrishnan, M., Maltz, A., & Schneller, E. (2015). Health care matters: Supply chains in and of the health sector. Journal of Business Logistics, 36(4), 335-339.

Agrawal, S., Singh, R. K., & Murtaza, Q. (2015). A literature review and perspectives in reverse logistics. Resources, Conservation and Recycling, 97, 76-92.

Chong, A. Y. L., Liu, M. J., Luo, J., & Keng-Boon, O. (2015). Predicting RFID adoption in healthcare supply chain from the perspectives of users. International Journal of Production Economics, 159, 66-75.

Christopher, M. (2016). Logistics & supply chain management. Pearson UK.

Handfield, R. B., Cousins, P. D., Lawson, B., & Petersen, K. J. (2015). How can supply management really improve performance? A knowledge‐based model of alignment capabilities. Journal of Supply Chain Management, 51(3), 3-17.

Mangan, J., Lalwani, C., & Lalwani, C. L. (2016). Global logistics and supply chain management. John Wiley & Sons.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.

Wiengarten, F., Humphreys, P., Gimenez, C., & McIvor, R. (2016). Risk, risk management practices, and the success of supply chain integration. International Journal of Production Economics, 171, 361-370.