After you have obtained the lowest prices possible through your GPOs or local contracts on the products, services, and technologies you are buying, where do you go from here to improve your hospital’s supply expense savings? The answer can be found in the following three secrets for optimizing your supply expense savings:
1. Standardization Optimization: While most hospitals, systems, and IDNs standardize on specific products or manufacturers, progressive supply chain managers standardize based on their “best value” products, services, or technologies. By “best value” we mean the product, service, or technology that has the lowest in-use cost of comparable products in your supply streams. This tactic can improve your overall cost of goods by 3%, 5%, or 8% in no time.
2. Value Analysis Optimization: Having VA teams focus inordinately on new or renewal GPO contract evaluations is common practice. However, a much better practice is to apply the value analysis technique of functional analysis to the products, services, and technologies that are being requested and retrospective studies of these same commodities. We have documented that the average savings per value analysis project which employs a functional approach is 26%.
3. Lifecycle Analysis Optimization: The definition of lifecycle is “The sum of the purchase price, plus all subsequent cost incurred over the product, service, or technologies’ life,” such as, freight, maintenance, trash removal, utilities, labor, storage, overhead, etc. All of these running costs are analyzed and justified in a lifecycle analysis. The typical savings can range from 15% to 30%.
As you can see, price is just the “tip of the iceberg” when you look beyond price at the products, services, and technologies that you are buying. That’s why we can say that price is the smallest element in the cost/value equation.
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