Member Article

Covid-19, Brexit and staff costs impact healthcare supply chain profitability

Charlie Grant, Head of Profit4 Operations, OGL Software

Both the Covid pandemic and Brexit have hit healthcare supply chains hard and seen many businesses pivot to online sales. Exacerbated by stock management pressures, firms in the healthcare sector are citing top technology priorities for the next 12 – 24 months as business performance reporting 54%, managing inventory 46%, and creating and updating websites 46%.

In our new survey, the continued reliance on manual processes and supply chain issues were the greatest factors affecting profitability for healthcare businesses in 2022. Healthcare wholesale businesses and companies that stock healthcare products such as pharmaceuticals, diagnostic equipment, personal protective equipment (PPE) and cleaning supplies, also noted that outdated technology and inaccurate data and errors were likely to affect profitability and those two were listed as fourth and fifth key factors, ahead of manual processes and stock availability.

The pandemic has led to supply chain shortages and a threat as some healthcare businesses are stockpiling products and parts to ensure supply to clients. While manual processes are still plaguing businesses leaving them behind the curve with regards to digital transformation, since 23% cited them as a problem that can lead to potential loss of revenue, and inability to correctly assess performance and sales.

Digging deeper into coronavirus and its effects, respondents’ business priorities were to have a more flexible business model with core business software that can be easily adapted to new business models 92%, flexible employees 92%, manage cashflow 85% and improve sales strategy and route to market 84%.

With annual healthcare expenditure representing 12.8% gross domestic product (GDP) in the UK in 2020, the UK medical device market is the third largest in Europe, behind Germany and France, and the sixth largest in the world, valued at approximately £15.1 billion in 2020. Indeed, the hospital supplies market is poised to grow at a CAGR of 5% by 2026, making the healthcare product and medical supply distribution marketplace one that is also expanding.

Respondents also cited major factors damaging profitability as: “access to talent, variable costs, warehouse space and war” as well as “stock value and liquidity.” Adrian White, Managing Director of Chelmsford Safety Supplies which distributes personal protective equipment (PPE), first aid kits, toiletries and cleaning supplies to providers and commercial businesses, commented that the major factors affecting profitability “are ensuring that there is excellent visibility and accuracy, especially in terms of inputting and monitoring orders. Armed with up-to-date information, the purchasing team can drive down costs when buying.”

The increased demand for healthcare services thanks to Covid-19, entering another potentially uncertain economic period, the Ukraine-Russia war, cost of living and fuel price rises, healthcare supply business’ efforts to increase profitability are critical and technology is at the heart of this. 77% of respondents agreed that technology is vital to the efficient running of their business, while 69% agreed that automating business processes helps their companies stay competitive.

A key finding of the research was the wide spread of technologies used and the disparate nature of systems that are not necessarily “talking to each other” to provide a full view of operations.

Miller Medical Supplies’ Office Manager confirmed that replacing that company’s accounting software, manual processes, inventory/stock control, sales order/enquiry management and an eCommerce platform with an integrated ERP system has provided a number of benefits: “First off, the Warehouse Management Module has enabled us to introduce barcode scanning to the business. Picking and packing errors have been reduced significantly because the room for human error is so much less. Now the warehouse is barcode-orientated it means our employees are able to work with greater speed, efficiency and accuracy. What more could you ask of a system!

“Previously it was a labourious task to track overdue invoices but clearly one that had to be done each month. Some months it could take one member of staff a full day to sort through. I’ve been really impressed with the traceability of follow-up events in the quotes and order processing screens. If an enquiry is made but doesn’t convert to sale, the system will alert us to give them a ring and see if there is any way we can assist the customer and encourage them to place the order with us. Visibility like this is invaluable for maximising sales.”

Indeed, 62% of respondents saw benefits from integrating disparate systems. 69% listing the main reason to use a single system as helping them to achieve growth plans without taking on additional overheads, followed by 62% removing duplication of work across different departments and 46% citing reduced administration time, thanks to improved efficiencies by improved accuracy of information 38%.

Mid-Warwickshire Cleaning Supplies’ Director, Richard Ward, comments on implementing a single ERP system: “The administration, resulting from in excess of 400 orders every month, could be overwhelming. Fortunately struggling with an inefficient system is a distant memory for us. The main thing that impressed me was the ability to reconcile the stock. Most financial packages at that time did not have this facility. Tighter controls on stock, purchasing and pricing became a possibility and we saw a very quick improvement of key business functions which allowed us to maximise profit without increasing prices.

“We are now able to purchase the stock in a controlled and accurate way enabling us to follow sales trends. We are rarely over stocked on items which in turn helps cash flow. Also, we now deliver 99.9% of customer orders complete, saving both time and money on delivery costs which improves our customer relationship as they know we will not let them down.

“Both of these improvements have led to greater profitability for us. The extra profit had always been there but it was inaccessible.”

The main barriers to deploying an integrated software solution were fear of change and identifying the right time to migrate, with 38% citing that as a factor, followed by 31% with business disruption, and 30% with finding a solution that is right for their business. Cost is often associated with the misconception that ERP systems are only for larger businesses, and the lack of information about affordable subscription-based models. In October 2019, we had no idea that we were in the eye of a huge storm. Since then, the business model for the entire healthcare sector has evolved quickly. From our 2022 survey, we have identified several changes, including the pandemic and stock availability entering the top five factors that impact profitability; the drop in concerns about security of cloud computing, and the growing realisation that ERP systems are not solely for large enterprises.

Digital transformation has no doubt saved many businesses that have pivoted to online sales and it’s heartening to reveal that more than half of the respondents strongly agreed that ERP systems provide greater visibility and control of stock, especially as part of a multichannel sales strategy. Positively, 77% of respondents state that hosting applications and data in the cloud has improved efficiencies and productivity; while 62% of our respondents confirmed that manual processes slow down business efficiency, although they do struggle to move away from them.

This was posted in Bdaily's Members' News section by OGL Group .