FS_WP_CardinalHealth_040816_MC_v3

Transforming the Supply Chain into Strategic Asset 

Creates Growth Opportunities in Healthcare 

Integrated Solution for Inventory Management Leverages 

RFID Technology 

A Frost & Sullivan White Paper

Transforming the Supply Chain into Strategic Asset Creates Growth Opportunities in Healthcare 

frost.com 

Executive Summary......................................................................................................................................................... 3 

Shifting Healthcare Landscape Drives Value Chain Innovative Solutions............................................................. 4 

Macro Forces Driving Change............................................................................................................................................... 4 

Move Away from Volume to Value................................................................................................................................ 4 

Pressure for Cost Reduction and Efficiencies.................................................................................................................... 5 

Growing Need to Eliminate Waste and Errors................................................................................................................. 6 

Transforming the Supply Chain into a Strategic Asset............................................................................................. 6 

Streamlining Inventory and Workflow................................................................................................................................. 7 

State-of-the-art Inventory Management Solution – Radio Frequency Identification 

(RFID) vs. Barcodes......................................................................................................................................................... 7 

Rationale for Moving from Current Technology................................................................................................................ 7 

RFID in Healthcare.................................................................................................................................................................. 7 

Total Solution for the 21st Century............................................................................................................................ 8 

Integrated Analytics Platform Based on Cloud.................................................................................................................. 8 

Benefits and Differentiation.................................................................................................................................................. 8 

Case Studies.............................................................................................................................................................................. 9 

Conclusion.........................................................................................................................................................................11 

End Notes..........................................................................................................................................................................12 

CONTENTS


EXECUTIVE SUMMARY 

Hospitals in the US today are being pressured to implement new technologies, coding systems, and billing processes, 

and evaluate their clinical and operational processes to improve outcomes. In turn, reimbursements are shrinking. 

Profitability demands are real. Hospital executive teams have big challenges ahead. 

These shifts have forced hospitals and health systems to look outside themselves for new solutions. EHR implementation 

or replacement, acquisition of private practices, new business models exploration, commercialization of internal 

intellectual property, and benchmarking have been some of the most notable activities. All of these have required 

significant investments. Handling shrinking reimbursements demands new solutions. Frost & Sullivan analysts believe 

that reimbursement pressure will continue to spiral downward in an effort to reduce costs and drive efficiencies. The 

reality is that the present healthcare cost levels are unsustainable. Hospitals have to find ways to co-exist in this new 

era of change. Building efficiencies is a good space to start. 

At a global level, it appears that hospitals in other countries are struggling with similar underlying issues, including 

healthcare costs and aging population. According to internal Frost & Sullivan global RFID research, European Union, 

United States (US) and Asia Pacific (AP) hospital administrators indicated that government and policies were 

encouraging RFID. 

However, EU respondents hoped to adopt RFID faster—three years earlier, in fact—than their US counterparts. Both 

US and EU respondents agreed that RFID adoption would expedite inventory control. However, the US respondents 

believed that faster processing was more important than their EU counterparts. EU administrators were more 

attracted to RFID due to the higher levels of security it offered and expressed the speed in which technology 

innovations were introduced internally as strong drivers. At the time this research, US respondents expressed 

concern over investments due to the economic climate. Almost as important for US respondents was the realization 

that there were few skilled system integrators. They also saw that the lack of return on investment information (at 

that time) would be a deterrent to obtain acquisition approvals. EU respondents reflected on risk aversion attitude, 

privacy concerns, and lower-quality features. AP hospital administrators indicated that their focus on medical tourism 

would influence adoption of RFID solutions. However, the high cost of RFID implementation (for their budget) and 

the availability of inexpensive labor would hinder adoption. The global RFID research findings showed that EU and AP 

adoption was slightly higher than the US. Similar overall healthcare economic constraints and quality demands with 

different cultural perspectives and concerns had slightly similar results. 

The global RFID research also compared RFID penetration across industries. Transportation, retail and industrial 

verticals had the highest RFID adoption in the US. EU had the highest adoption in transportation and industrial. 

Industrial was slightly higher in AP than the other regions. AP had higher adoption on smaller-scale implementations, 

including livestock and airline applications. In 2010, RFID adoption only ranged from 9-12% 

across all three geographies. So, why is healthcare not leveraging the benefits of RFID technology like 

other industries? 

All rights reserved © 2016 Frost & Sullivan 

3


Figure 1) RFID Vertical and Application Market Analysis — Americas 

23% 

23% 

17% 

11% 5% 

21% 

Transportation 

Retail 

Industrial 

Education 

Healthcare & Pharmaceutical 

Others 

Source: Frost & Sullivan 

SHIFTING HEALTHCARE LANDSCAPE DRIVES VALUE CHAIN INNOVATIVE SOLUTIONS 

MACRO FORCES DRIVING CHANGE 

Growing concern over the cost of healthcare, which accounts for 17% of the US GDP, led to new legislation (Figure 

2) 1 to address the issue. In addition, the lack of healthcare quality standards, price transparency, aging of the baby 

boomer generation, and shortage of healthcare professionals in all specialties are challenging the healthcare industry 

to the core. 

MOVE AWAY FROM VOLUME TO VALUE 

Payment reform is an important step toward a value-driven culture. Payment for unnecessary procedures is 

out; payment for preventive medicine and outcomes is in. With payment reform come new billing processes and 

subsequently different reimbursement pressures. Due to the new reform, an anticipated 18% cut 

in reimbursements is expected to impact US hospitals. For hospitals, the transition period brings 

frustration, uncertainty, and perceived higher demands. A full-blown cultural, clinical and operational shift, including 

built-in efficiencies, will be needed to adapt to the value paradigm. But reduced reimbursements will continue to 

impact profitability. 

4 All rights reserved © 2016 Frost & Sullivan


PRESSURE FOR COST REDUCTION AND EFFICIENCIES 

It is commonplace to associate cost with quality in every product and service category available in the market 

today. However, this fact does not apply to healthcare in the US. According to multiple outside sources, including 

the Commonwealth fund, 2 the US spends more per person on healthcare than any other industrialized country. The 

higher expenditure is attributed to overuse of medical technology (more X-rays, MRI and CT scans are done in 

the US than other countries, and less affluent countries are less inclined to acquire medical equipment) and higher 

healthcare costs (any treatment just costs more in the US; this explains the demand for overseas medical tourism). In 

2013, 30.50% of US hospitals had negative operating margins. Even though the US healthcare costs 

are high, this doesn’t mean that Americans are healthier. Chronic disease is rampant. Without a doubt, there is high 

demand for healthcare. Medical equipment is needed. Doctors and nurses are needed. Driving efficiency and reducing 

operational costs to counter the effect of reduced reimbursements is the only way. 

Figure 2) Total Health Expenditures (% of GDP) 

17.5 

15.0 

12.5 

10.0 

7.5 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

US 

FRANCE 

GERMANY 

WORLD 

UNITED KINGDOM 

Source: http://data.worldbank.org 

Source: http://data.worldbank.org/ 


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H O S P I T A L 


GROWING NEED TO ELIMINATE WASTE AND INCREASE PRODUCTIVITY 

The second highest cost for hospitals after labor is surgery and medical supplies. 3 The healthcare industry has 

experienced a shortage in providers and personnel for years. Labor costs cannot be trimmed because healthcare 

doesn’t need less staff. In fact, healthcare needs more staff. Empowering healthcare personnel to be more productive 

would be an improvement. 

The aging baby boomer population—which is the largest generation to retire in history 4 —will bring a massive 

wave of more than 37 million chronic care patients. 5 Without sufficient healthcare providers and staff 

to care for the existing population, the baby boomer population will undeniably stress the already stretched health 

system. To support this new influx of patients, there will need to be additional investment in labor to focus on patient 

care. Patient care would be the priority over non-clinical duties. 

Medical supply costs are the only other option to focus on. Medical supplies are typically associated with purchasing 

contracts. Discounts and volume pricing are frequently negotiated by hospital supply chain executives. Further 

discounting for medical supplies can only go so far. Discounting is just not a sustainable option. For the past couple of 

years, medical supply costs have increased. Medical supply acquisition costs are not under the hospital administrators’ 

control, but inventory control and supply chain processes are. Inventory control would improve supply management, 

optimize ordering and reduce waste. 

TRANSFORMING THE SUPPLY CHAIN INTO A STRATEGIC ASSET 

Every year, $5 billion are lost in the implantable device market, according to a survey released by 

the Global Healthcare Exchange. 6 Needless to say, current supply controls and management systems at hospitals are 

suboptimal. Hospital staff is responsible for handling current supply systems that are not interconnected. The failure 

to share data from disparate systems results in waste when healthcare staff is used to manually track information. 

Ultimately, this results in duplicate orders and expired products. 

Figure 3) Healthcare Supply Chain 

HOSPITAL 

PATIENT 

FACTORY 

WAREHOUSE 



According to a recent survey conducted by SERMO Intelligence, 7 the increase in supply costs is one of the top issues 

facing health systems today after payer reimbursements, financial issues, drug shortages and operational efficiency. 

Most of the respondents agreed that improving their supply inventory control systems would reduce costs. Few 

hospital executives felt confident that their current efforts were effective, and 85% of respondents were 

considering and evaluating supply management and waste reduction investments. Clearly, 

supply waste and errors are real and very costly. 

Other industries have spent decades improving and optimizing inventory control and supply chain to produce 

products, distribute products, reduce waste and increase profit margins. According to The Gartner Supply Chain top 

25 for 2015, Amazon, McDonald’s, Unilever, Intel and Inditex were the top five global supply chain leaders last year. 

All of them are either in the industrial or retail segments. Inditex, a Spanish clothing manufacturer and retail giant, is 

a newcomer to the list. Intel is a returning leader for 2015. None of the top 25 is in healthcare. Gartner 

also recognized Apple and Procter & Gamble (P&G) in the newly created Master category for their supply chain 

leadership for more than 10 years. With the exception of the Apple “CareKit” focused on the healthcare space, Apple 

falls under the industrial category, like P&G. 8 

How does this relate to healthcare? The healthcare industry can leverage decades of proven processes and technology 

to reduce supply waste and improve supply control. There hasn’t been a better time in the healthcare industry to 

learn from other industries. 

STREAMLINING INVENTORY AND WORKFLOW 

Manufacturing of products is driven largely by market conditions such as demand. In hospitals, the only demand 

that can be managed is elective surgeries and scheduled procedures. Ordering supplies for planned activities relies 

on available information. For unplanned surgeries and cath labs, hospitals have information about the supplies 

required for each procedure. Data in the form of historical supply usage is the critical underlying element needed for 

sophisticated inventory control and supply chain management. Technology platforms with usage data and analytics 

provide a powerful combination that will reduce waste and control costs. 

STATE-OF-THE-ART INVENTORY MANAGEMENT SOLUTION—RFID VS. BARCODES 

RATIONALE FOR MOVING FROM CURRENT TECHNOLOGY 

Today, barcode technology is widespread. 9 Driven by retail and manufacturing distribution activity, barcode technology 

increased accuracy and speed, improved inventory control and reduced cost. However, barcode scanners—considered 

a semi-automatic inventory management system—require a person to point the UPC in the right place and click each 

and every time. Barcode technology is prone to human error. Therefore, barcodes are not the ideal technology to 

track high-value devices and implantables. There is another technology that is ideal for this type of item. 

RFID IN HEALTHCARE 

RFID is another type of automatic identification. Its first implementation dates back to the 1970s. RFID is an automatic 

identification technique and has many applications. In simplest terms, RFID uses radio wave frequencies (low end of 

the electromagnetic spectrum) to read information from a microchip. The microchip has an antenna—the chip and 

antenna duo is often referred to as an RFID tag or transponder—which sends waves to an RFID reader. The RFID 

reader converts the radio waves information into digital form, and this information is then transmitted to a computer. 


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There are several key differences between barcodes and RFID technology that make RFID technology ideal for 

certain healthcare applications. 

RFID technology does not require “line of sight.” RFIDs only need to be within the range of the RFID reader. This 

technology reduces labor costs and saves time by not requiring a hospital staff to hold up a medical supply item to 

a barcode reader. 

RFID technology can include more information than just the manufacturer name and the product itself that the 

barcode can offer. With RFID tags, hospital personnel can identify an expiration date or product recall for an item in 

a specific batch. The richness of data capture obtained through RFID technology is second to none. RFID, along with 

an analytical component, can remind hospital personnel to return soon-to-be-expired or recalled items. RFID reduces 

cycle counts and product search, and improves reallocation. In addition, RFID frees up supply costs, resulting in savings 

and keeping hospital staff from manual and inefficient work. 

RFID tags are less likely to be damaged than barcodes. Barcodes are preprinted on adhesive labels that can be ripped 

during shipping and handling, rendering them unreadable by a scanner and requiring manual entry. The only requirement 

for RFID technology to work effectively is for the tag to be within range of the reader. RFID increases precision. 

Barcodes can still be used for small and inexpensive supplies because RFID investment would not be justified. However, 

RFID technology is ideal for expensive, odd-shaped, and reusable items. 10 

The ideal supply chain solution leverages the best technology available for each component type and cost. Above all, 

the supply chain system has to meet and exceed the needs of an organization. 

TOTAL SOLUTION FOR THE 21ST CENTURY 

Out of all operating room supplies, cardiovascular implantables are the most expensive hospital supply. Special 

attention and care has to be placed on those high-ticket items. Misplacement, shrinkage and expiry are too costly. 

Supplies are subject to recall so being able to locate and dispose or return them is critical. Many doctors have their 

preferred supplies, so hospitals have to fill each of those requests. Making sure that those orders are available to each 

and every requesting doctor is a quagmire. From a billing perspective, each supply used has to be captured and billed 

to the right department, procedure and patient. The number of supplies required by a typical hospital is unmanageable. 

Keeping needed supplies under all of these conditions at the correct inventory level for every item every day requires 

sophisticated technology. 

INTEGRATED ANALYTICS PLATFORM BASED ON CLOUD 

Leveraging analytic capabilities in the hospital supplies’ infrastructure is imperative. Today’s analytics capabilities 

are impressive, proven and strategic. A cloud-based platform provides robust data capture, real-time information, 

flexibility at any access point, and advanced analytics. A scalable inventory management control system combined 

with a cloud-based analytics platform offers a competitive advantage that would pay itself over and over every day. 

BENEFITS AND DIFFERENTIATION 

The benefits and differentiation achieved by an automated inventory management control system allow it to pay for 

itself in savings, staff productivity and satisfaction. Such a system would bring an impressive return on investment. 

Hospital boards, CTOs and finance teams would agree. Hospital supply chain management would have saved the day 

and the decade. 



Figure 4) Automated Inventory Management Control Benefits 

Reduced Labor Costs 

Increased Staff Productivity and Motivation 

Revenue Integrity 

Quick and Accurate Expense Reporting 

Physician Utilization Patterns by Product Type 

and Cost 

Real-Time Consumption Data 

On-Hand Inventory Value 

Prevention of Expiration and Recalled Items 

from Reaching Patients 

Proactive Recall and Expiry Management 

Inventory Visibility, Tracking and Control 

Patient Care Focus 

Instant Charge Capture (Accurate Billing for 

Reimbursement) 

Source: Frost & Sullivan 

CASE STUDIES 

Memorial Hospital 

Memorial Hospital in Chattanooga, Tenn., implemented a fully integrated RFID-based inventory management system 

across seven labs. The result was substantial expense reduction in both labor and supply costs. 11 According to 

Cath Lab Director Terri Siever, RN, RT, the hospital staff was constantly worried about not 

having needed supplies and spent an enormous amount of time checking supply shelves. 

Before an interventional procedure, a clinician pulls supplies from the Smart Cabinet without the need of access 

codes. The system tracks all of the necessary information, including the time and date the items are pulled. During a 

procedure, the clinician waves the RFID tags or scans the barcodes. Any unused supplies are returned to the smart 

cabinet. The inventory is updated automatically. 

On the clinical side, we knew there were things we could do a better job on. With this system, we 

were confident we could have an impact on performance from several perspectives: clinical, financial 

and operational. When we ran the numbers in potential savings and ways it could improve safety, our 

administration bought in pretty quickly 

— Terri Siever, RN, RT, Cath Lab Director 


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FLORIDA HOSPITAL 

Florida Hospital needed to optimize its inventory by automating tracking, monitoring and ordering high-cost implants 

and physician preference items. Its RFID-based inventory management solution met and exceeded its needs. Data 

collected helps predict supply needs. By reviewing trends, purchases can be modified to meet demand, reduce 

overstock and decrease spending. The system generates the order automatically. At any time, staff can review usage 

and supply levels. Warning systems detect soon-to-expire items, which reduces waste and asset loss, and improves 

patient safety. 

The system can review trends to predict what will be needed in the future for bulk planning and forecasting of 

expenses, saving time. 

The financial results started the first day Florida Hospital turned the solution on about five years ago, 

when we realized we had thousands of dollars in expired devices in inventory 

— Margarita Rivera, Supply Chain and Contracting Manager 

Florida Hospital has been able to save up to $1.7 million per year with the tracking and prediction capabilities of its 

RFID-based inventory management solutions. Rivera believes that “(RFID technology) is essential to 

managing interventional labs. With our size and volume, managing our inventory levels 

helps save lots of money and time—and, in terms of managing products, negotiating 

contracts better, better use of staff time and planning for our future. Going back in time 

would be virtually impossible. We don’t have the money or time to waste.” 3 

GOOD SAMARITAN HOSPITAL 

Kevin Brown, cardiovascular service line director at the Good Samaritan Hospital in downtown Los Angeles, needed 

to have cost-per-case information at all times. Good Samaritan implemented an Inventory Management Solution and 

a cloud-based software platform to have real-time supply inventory and usage capture. 

With this solution, I’m able to drill down and compare each individual procedure type and each 

physician’s [utilization metrics]. From there, we can renegotiate supplier contracts, set up primary and 

secondary vendor relationships, and better control our supply costs 

— Kevin Brown, Cardiovascular Service Line Director, Good Samaritan Hospital 

The solutions’ analytics capabilities have made a significant difference to this 408-bed facility. In addition, it has cut 

down costs for patient care. Nurses can easily wave items by the scanner and know that each supply will be tracked 

accurately. If supplies are not used during a procedure, the system will add them back into inventory. The solution 

knows how many items come in a box. Nurses don’t have to be bogged down with supply chain terminology, such as 

unit of measure. The system can provide recommendations that are far more reliable than memory alone. 12 



CONCLUSION 

Supply chain is a strategic asset and a competitive advantage for many industries. The healthcare industry should not 

be an exception. The number of implementations available in other countries and even in the US confirms this. 

Optimal inventory management cannot be achieved leveraging manual processes or outdated technologies that do 

not account for the complexities of hospital supplies and processes. Supply chain solutions that are able to provide 

savings, simplify tasks, improve medical staff productivity, eliminate redundant processes, and ultimately improve the 

patient experience will have a rightful place in healthcare for years to come. 

Frost & Sullivan analysts believe that sophisticated supply chain and inventory control management solutions with 

analytical capabilities will be in high demand in the healthcare industry. In fact, many industry analysts believe that 2016 

will produce healthcare supply chain best practices, enable experimentation, and offer sophisticated data analysis and 

stronger security. 13 


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frost.com 

ENDNOTES 

1. Healthcare that Works for Americans,” www.whitehouse.gov/healthcare-overview 

2. Squires, David and Anderson, Chloe. “US Health Care from a Global Perspective: Spending, Use of Services, 

Prices and Health in 13 Countries. www.commonwealthfund.org/publications/issue-briefs/2015/oct/us-healthcare-from-a-global-perspective, 

October 8, 2015 

3. Mary Tierney, “Keeping a Careful Eye on Cath Lab Inventory Management,” http://www.cardiovascularbusiness. 

com/topics/practice-management/keeping-careful-eye-cath-lab-inventory-management, November 14, 2014 

4. “How Will Boomers Affect Social Security?” www.nasi.org/learn/socialsecurity/boomers, National Academy of 

Social Insurance (NASI) 

5. Trends in Health and Aging,” mention from American Hospital Association, “When I’m 64: How Boomers Will 

Change Healthcare,” www.aha.org/research/policy/2007.shtml, National Center for Health Statistics 

6. Global Healthcare Exchange (2014). GHX Research Respondents Recognize Supply Chain Deficiencies 

Keeping Hospital Operating Rooms in the “Stone Age.” Retrieved from www.ghx.com/newsroomevents/ 

news-releases/2014/researchrecognizes-deficiencies-keeping-hospital-operating-rooms-in-the-stone-age/ 

7. Sermo Survey, “Survey Shows Hospital Decision Makers Identify Supply Chain Effectiveness Among Top 

Priorities,” www.prnewswire.com/news-releases/survey-shows-hospital-decision-makers-identify-supply-chaineffectiveness-among-top-priorities-300192245.html, 

PR Newswire, December 14, 2015; 9 a.m. 

8. Stan Aronow, Michael Burkett, Kimberly Nilles and Jim Romano, “The Gartner Supply Chain Top 25 for 2015,” 

https://www.gartner.com/doc/3052620?refval=&pcp=mpe, May 13, 2015 

9. “History of Supply Chain Innovation,” www.opsrules.com/supply-chain-optimization-blog/bid/312022/Historyof-Supply-Chain-Innovation-Infographic, 

August 27, 2013 

10. Keith Evans, “What are the benefits of using Barcode Technology,” http://small business.chron.com/benefitsusing-barcode-technology-58387.html 

11. RFID Journal FAQs, www.rfidjournal.com/site/faqs#Anchor-What-59125 

12. Mary Tierney, “Cath Lab Inventory Management: Improving the Bottom Line,” www.cardiovascularbusiness.com/ 

topics/practice-management/cath-lab-inventory-management-improving-bottom-line, March 11, 2015 

13. Dave Pearson, “Advanced Analytics Make Supply Chain Pros of Cath Lab Teams,” www.cardiovascularbusiness. 

com/sponsored/1206/topics/practice-management/advanced-analytics-make-supply-chain-pros-cath-labs-teams, 

September 22, 2015 


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