Mercy Health partnered with Medline and halved its hospital supply chain footprint

Mercy Health runs about 500 facilities across Ohio and Kentucky, and like most U.S. health systems its supply chain had grown by accretion: each region bought and stored its own supplies, so only 2% of medical-surgical products were standardized and 85% of supply-chain staff spent their time procuring and distributing low-value commodity items like gloves and plastics.

In April 2017, Mercy began a partnership with distributor Medline to consolidate the whole operation. The health system moved from a geographically-based procurement model to a specialized one, cut its distribution centers from 14 to two, and reduced SKUs by 21% and its manufacturer base by 50% in the categories addressed.

The headcount effect was the sharpest change: staff with purchasing responsibilities dropped from 3,200 to 80, and buyers per location fell from a system-wide 32,000 to about three per site, as Medline's distribution centers took over routine replenishment with a 'put-away-ready' delivery model.

Standardization rose from 2% to over 50%; distribution centers fell 14 to 2, manufacturers 336 to 168, and staff with purchasing duties 3,200 to 80

Rising costs and flat reimbursements left health systems with no more room in standard cost-cutting, pushing them toward structural supply-chain reorganization instead.

A single distributor partner could standardize inventory and negotiate at scale in ways 14 separate, geography-based buying operations could not.

Freeing clinical and specialized staff from routine commodity procurement let purchasers become category experts instead of generalists.

Moving from geography-based to specialized, centralized purchasing can cut headcount and duplication in half without new capital spending

Mercy Health still had further standardization to do as of mid-2018, and was separately preparing to merge with Bon Secours Health System that fall, a deal that would expand the combined system across seven states and put more of the supply chain under review.