A key element of Indiana University Health's self-distribution model is to combine manufacturer-contracting gains with efficiency gains realized at a new IU Health Integrated Service Center.
Indiana University Health is banking on efficiency and financial gains from the organization's new supply-chain strategy, which is centered on a high-tech warehouse under construction and set to be fully operational in the fall.
Starting with the Indianapolis-based health system's 15 hospitals, IU Health is establishing a robotically enhanced self-distribution model, Dennis Mullins, senior vice president of supply chain, told HealthLeaders last week.
"What we are attempting to do is to truly integrate and standardize our logistical footprint as an organization… Our current model is to use a third-party distributor as the intermediary with the manufacturer of goods."
By negotiating contracts for goods directly with manufacturers, IU Health expects to cut sweeter contract deals, he says. "Distributors make money on both ends. They charge a fee to the manufacturer to manage their goods, and they charge us a distribution or handling fee to get the goods to us."
In IU Health's self-distribution model, the potential financial gain from goods contracting alone is significant, Mullins says. "There is anywhere from a 2% to a 5% opportunity."
A key element of the health system's self-distribution model is to combine manufacturer-contracting gains with efficiency gains realized at the new IU Health Integrated Service Center (ISC) warehouse in Plainfield, IN. The 300,000-square-foot facility will be equipped with a high-velocity robotic goods-picking system that is expected to double goods-picking speed.
"The pick process will start with the robots, then goods will move on a conveyor-belt system at a high velocity," he says.
The robotic picking system is designed to boost efficiency in several ways, including reductions in the number of workers required to operate the warehouse's distribution floor.
"As the bins move on the conveyors, there is a spot where we weigh the bins. We know the weights of the goods, so we know what the bin should weigh. If the weight is off, the bin will off-shoot and we will check for quality assurance. We will open the bin and find out why the weight is not enough or too much. There are a lot of efficiencies to be gained."
The bulk of the health system's $9.2 million investment in the high-tech warehouse will be in the robotic picking module that IU Health has purchased from a third party, a data-driven warehouse management system, and equipment, Mullins says. IU Health has a 12-year lease on the facility structure. "We will pay back on this $9 million to $10 million investment in 2.4 years."
IU Health ISC by the numbers
- Initial annual supply-chain expense savings estimated at $3 million
- 300,000 square feet of total facility space
- 35,000 square feet of office space
- About 120,000 square feet for internal supply-chain distribution growth beyond the health system's hospitals such as pharmacy, information technology, clinical engineering, and print shop
- Approximately 110 IU Health supply chain staff will work at the ISC. About 40 workers will run the facility, with the remaining staff working in the new facility's office space.
IU Health is planning to roll out the health system's self-distribution model in two main phases:
- Phase I is slated for completion in the fall, when the ISC is expected to be fully operational and servicing the supply-chain needs of the health system's hospitals.
- Phase II is a longer-term initiative aimed at meeting the supply-chain needs of as many as 400 other IU Health locations.
"The ultimate goal is for the new facility to meet all of IU Health's supply-chain needs throughout the organization," Mullins says.
Reaching that goal requires planning far beyond getting the IU Health ISC fully operational, he says. "I am thinking down the road about who we are going to be as an organization and who we are going to service—not on Day 1, but two or three years from now."
Christopher Cheney is the CMO editor at HealthLeaders.