Is Disruption Knocking on Our Door?

By: Bill Fallon

Ready or not, here comes Amazon to the healthcare supply chain.

We were thrilled to join over 150 supply chain and materials management experts at the AHRMM Chicago Chapter meeting last week. The active AHRMM chapter groups are a great opportunity to plug into the frontline conversation in our industry, and the Chicago event was no exception.

It was a packed agenda, so we’re splitting our coverage into two blog posts, one for each of the two presenters: Amazon and Trinity Health.

First, an update on Amazon’s foray into the healthcare supply chain.

Scott C. Clausen, Principal for Amazon’s healthcare vertical, presented on Amazon’s new solutions for healthcare providers and suppliers. Amazon’s first steps into the healthcare space have generated breathless headlines, stock market effects, and strong reactions from incumbent industry players.

Clausen, a former VP at Vizient and McKesson, described Amazon’s services for healthcare organizations today, and offered insight into the next steps that the business might take. Today, Amazon plans to sell products directly to health system buyers via a dedicated, configurable portal. Products offered will start with lower-preference, lower-volume items from inside the “long tail” of SKUS – think computer peripherals first, not heart valves. Amazon will seek to build from their core strengths: an open marketplace for third-party sellers, seamless transactions, fast delivery, user-friendly interfaces like voice or touchless, and above all, data and analytics capabilities, offered either as a B2B service or as a sales enabler.

What should health systems and their suppliers keep in mind as Amazon takes its first steps into our world?

  1.  Amazon uses its gigantic resources to test and learn first. Sometimes they learn how to win (auto parts), sometimes they exit the market (Fire phone). Right now, Amazon is peeking under the hood in different parts of the sprawling healthcare industry. They are testing, finding ways to ingest data, and looking for opportunities. Supply chain is just one piece of the portfolio.
  2. Buyers and suppliers must understand value in the new marketplace. As much as 40% of Amazon’s unit sales are by third-party sellers. Amazon creates a curated, frictionless, more-transparent marketplace for the goods that buyers want. Suppliers should be ready for side-by-side comparisons of product features and prices, alongside both their traditional competitors and new entrants. And buyers will have to evaluate total switching costs for changing suppliers or just for changing purchasing channels for an existing supplier. Amazon, meanwhile, can offer convenience and transparency; but they must be ready to deliver on the unique demands of the healthcare supply chain. No buyer wants to tolerate service or quality failures but in healthcare the impacts are immediate and the stakes are high.
  3. Get ready to think outside the contract bundle. Health system supply chain leaders should prepare to evaluate individual item purchases in new ways. Even if health systems don’t end up purchasing through the Amazon platform, prices and product options will become transparent and browsable with just a few clicks. Sellers will have to be ready to compete on their offerings’ core value proposition, not just incumbency or contract sweeteners like rebates. Products that were previously swept up under distributor brands or moved in category groups from contract to contract to meet spend thresholds can now be evaluated on their own merits, line by line.

Health system leaders don’t need to wait for Amazon to reach their organization.

Forward-looking health system supply chain leaders tap into the same value drivers that Amazon does: eliminating expensive middlemen, gaining local control over product quality and features, and comparing competitive prices. Leading executives want to diversify their supply chains, and shorten the pathway between manufacturer and end-user, without introducing new risks or requiring non-core expertise like import management.

At ASP Global, we’ve helped health systems to source products direct from manufacturers with transparent pricing for over a decade. We help supply chain leaders to identify untapped value in their spend by analyzing line-item costs. And we give purchasers total control over product quality, design, and features, offering customization of any product to fit end-users needs.

Amazon and disruptive companies like them challenge us to deliver on our core promise to our own customers: to give health systems control over quality, cost and design, and – critically – to meet the unique demands of high-stakes healthcare sourcing. For ASP Global, Amazon could become a complementary part of a modernized, diversified healthcare supply chain. We look forward to learning more about their strengths as Amazon learns about ours, and we’ll be exploring ways to create even more value for our customers together.
Welcome to healthcare, Mr. Bezos!

To learn more about ASP Global’s direct sourcing for health systems, please contact us at (404) 696-6999.