UPS Healthcare Survey Shows Economy a Bitter Pill to Swallow

Healthcare Leaders Reveal Biggest Supply Chain “Pains;” Offer Priorities for the New Administration

ATLANTA - The healthcare industry is feeling besieged on all sides, with companies slammed by the economy and worried about cost control as they attempt to drive innovation and ensure safety and security, according to a new survey by UPS .

And that’s just for starters. Healthcare decision-makers also are grappling with increasing regulations and recognize they’ve had limited success so far in actually managing the cost of their supply chains.

The UPS “Healthcare Pain in the (Supply) Chain” survey was conducted in two phases, starting with a telephone survey by Harris Interactive of supply chain decision-makers primarily at small- to mid-sized companies in the pharmaceutical, biotech and medical device industries. The second phase, a correlated online survey, targeted supply chain decision-makers at large healthcare companies with $1 billion+ in revenue.

The 2009 survey is the second annual poll sponsored by UPS and like the first, identified the No. 1 supply chain concern to be “managing costs.” Top decision makers at all sized companies ranked this area as their biggest supply chain concern both years.

Specifically, 55 percent of survey respondents at smaller companies reported they were “highly concerned” with managing costs and fewer than half of those (46 percent) reported success in addressing this area. Among the leaders at larger companies, 81% said they were “highly concerned” about managing supply chain costs and only 41% reported success in doing so.

Product damage, loss and spoilage and meeting customers’ changing demands for service ranked second among supply chain concerns after managing costs, with 42% of small to mid-sized companies reporting they were “highly concerned” with these issues.

Regulation is top business concern

While managing costs ranked first among supply chain-specific concerns, regulatory concerns took the spotlight when it came to business concerns among companies of all sizes. Increasing regulations clearly are having a substantial impact on supply chain strategies.

More than half (56%) of companies with $1 billion+ revenues reported they were “highly concerned” about increasing regulations, ranking this as their top business concern. At the same time, nearly one-third (30%) of the small to mid-sized company respondents ranked increasing regulations as their top business concern.

“There are many market factors driving regulatory concerns, including a heightened focus around security and product safety, increasing global border controls and more products requiring special handling coming into the market,” said Bill Hook, UPS vice president for global strategy, Healthcare Logistics. “Regulatory pressures will only continue to grow with new industry legislation, making this a critical focus for companies as they design their supply chains to meet evolving needs.”

The survey also uncovered healthcare decision makers’ views on the top healthcare priorities for the new administration. The top two priorities are simplifying regulatory requirements, ranked first by 52% of large companies and 31% of small to mid-sized companies, and ensuring product safety and security, ranked first by 33% of all companies.

Healthcare company future plans

Looking toward the future, shifts in supply chain strategies to meet evolving customer needs are apparent. Large healthcare companies are planning significant changes in their go-to-market strategies in 2009 while smaller companies are planning far fewer changes.

Among companies with revenues of $1 billion+, 56% are planning to alter their distribution models to go direct to hospitals, pharmacies or retailers; 52% are planning to go direct to consumers (patients or physicians); 30% will go direct to wholesalers, and 48% plan to work with a third-party logistics provider (3PL) in the near future.

Outsourcing was another key area in which small and mid-sized company strategies differed significantly from those of large companies. Forty-three percent of large companies expect to increase the amount they outsource in the next two to three years. By contrast, among the two-thirds of small- to mid-sized company respondents who do not currently outsource any supply chain functions, no more than 3% expect to outsource in the next one to two years.

“We are seeing a real shift in the marketplace in terms of large healthcare companies increasingly embracing outsourcing of supply chain functions ranging from the distribution of drugs and medical devices to customer service and support functions,” said Hook. “With increased pressures to innovate while cutting costs, many companies are turning to outsourcing as a way to gain efficiencies across the supply chain to better focus on core areas like R&D, marketing and acquisitions.”

UPS (NYSE:UPS) is the world’s largest package delivery company and a global leader in supply chain and freight services. UPS is a leading global trade expert equipped with a broad portfolio of solutions, including comprehensive logistics, compliance and temperature-sensitive transportation services for the healthcare industry. Headquartered in Atlanta, GA., UPS serves more than 200 countries and territories worldwide. For information about UPS’s healthcare services, visit: ups.com/healthcare. To get UPS news direct, visit pressroom.ups.com/RSS.

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Editor’s note:
Survey Methodology
The survey was a two-part study. The first phase included a blind, in-depth phone survey conducted by Harris Interactive on behalf of UPS of more than 300 primarily small-to-mid-market companies in the pharmaceutical, medical device and biotech industries. The second phase included a targeted online survey comprised of large healthcare companies from the same sectors with annual revenues of $1 billion and higher. Surveys were conducted in March and April, 2009. Qualified respondents were supply chain decision makers currently employed by companies with a primary business focus in healthcare (pharmaceutical, biotech, medical and surgical devices).