Application of 4D MUSIC and Lean Concepts in SCM for Sustainable Healthcare

Five percent of cost savings in supply chain is equivalent to 25 percent increase in turnover in hospitals – This phrase clearly emphasizes the strategic significance of procurement and supply chain in today’s evolving healthcare environment.

The healthcare industry in general is struggling and facing turbulent times. Revenues are declining and the cost of providing healthcare is increasing due to increase in wages of the nurses and technicians, doctors, prices of drugs, treatment and diagnostics, development of new technologies, diagnostic/surgical procedures, etc. Moreover, recent price fixing by NPPA and the introduction of Ayushman Bharat scheme has reduced our profit margins. Unfortunately, we find it difficult to revise the tariff in this competitive world. At the same time, the patients expect the highest quality of service. Hence, hospitals, specifically the multi-specialty hospitals, which operate with a significant number of doctors, nurses, and technicians in diverse departments, are seeking to reduce their cost of operations. Most of the hospitals, specifically the multi-specialty hospitals, tend to lock significant amount of money by carrying inventory of huge variety of items. If we can reduce the stock of these expensive drugs, equipment, consumables, etc., then the resulting cost savings can directly add to the bottom line.

Ideally, materials cost in hospitals should not be more than 25–28 percent of the revenue earned. But if we look at the P&L statements of many hospitals, the cost is more than the ideal figure. There are several factors that contribute to unnecessary costs in procurement and healthcare supply chains.

I believe that the future of competition in healthcare is between the supply chains and not the hospitals. The cost reduction in procurement and supply chain can be achieved by applying 4D MUSIC for effective inventory management along with lean approach in procurement and inventory of materials.

Generally, three dimensions – dollar volume (to account for cost of the item and the consumption of the item), criticality of the item, and lead time for classifying the materials – are used as part of MUSIC technique. Based on these dimensions, three different classification approaches – ABC category analysis (for dollar volume), vital essential desirable (VED) analysis (for criticality), and high, medium, and small (HSM) analysis (for lead time) – are utilized together, which lead to the name called 3D MUSIC. Here, we had proposed reuse as an additional dimension to achieve sustainability – a novel methodology called 4D MUSIC. This methodology would help in classifying the materials based on reusability and hence some of the expensive and critical items, which have a longer lead time, can be reused after complying with necessary regulations and ensuring that the standards of safety and hygiene are met to minimize the cost as well as to reduce the environmental impact.

An outcome of this would also result in reduced procurement of these medical devices, and hence lesser stocks of these items in inventory. Thus, the procurement cost and inventory holding cost can be significantly reduced, which would also contribute to the bottom line of the hospitals. Similarly, the amount of medical waste produced and its disposal can be significantly reduced, thereby contributing to the environmental friendliness. Lastly, sharing the cost savings with the patients would make the healthcare affordable and accessible for the society in which the healthcare facility operates. Thus, a healthcare organisation can be made sustainable by contributing to the triple bottom line of economic, environment, and society by merely focusing on reusability aspects of 7R framework.

Other unnecessary costs can be eliminated by applying lean management approach in procurement and inventory processes and methods that can eliminate wastes and non-value-added activities in the system. Successful implementation of 4D MUSIC techniques and lean concepts in hospitals would result in cost reduction because of lesser inventory, improved quality, less harm due to preventable errors, reduction in wastes, better accessibility and affordability, shorter waiting times, increased revenue, and better service.