I have often written about the Supply Savings Triangle (or a combination of price, standardization, and utilization tools, techniques, and tactics) as the ultimate savings strategy for any and all supply chain organizations. You might call it the triple header of supply chain expense management. As a reminder, here are three ways the Supply Savings Triangle can enhance your overall savings strategies:
1. It should be your first line of defense. We teach our clients’ value analysis teams to not just vet new or renewal GPO contracts, but to use these contracts as a catalyst to review their categories of purchase for standardization and utilization savings opportunities. As an example, one of our clients decided, when they received a new wound care contract from their GPO, to put a hold on their approval of this contract until they could conduct a comprehensive value analysis study. Utilizing a VA team approach, the hospital then reviewed their wound care policies, procedures, and processes, from top to bottom, with the result that they saved $262,000 vs. just a few thousand dollars in savings they would have achieved if they just approved their GPO’s wound care contract as proposed.
2. It will close your supply savings loop. Instead of nibbling around the edges of your supply expense savings, close your supply saving loop by always looking at all three components of the cost equation (price, standardization, and utilization) when investigating any aspect of a commodity’s cost like we noted in the above wound care example. This way, you know with certainty that all cost aspects for a commodity have been addressed at one time.
3. It will increase your overall savings yield by 7% to 15%. A recent study by SVAH shows that your average annual GPO savings (factoring in rebates) is only saving your healthcare organization 1.4%* annually. So, if you want to increase your overall saving yields by 5 or 11-fold then you must embrace the Supply Savings Triangle to move the needle on your bottom line.
It’s been our observation for some time that the Supply Savings Triangle’s price and standardization savings components are at a high level of maturity, whereas supply utilization savings have been lagging behind. To rectify this situation, let me suggest that you embrace all of the components (price, standardization, and utilization) of the Supply Savings Triangle so that you can enhance your supply expense savings now and in the future.
*SVAH performed a study on a major GPO’s partnership with a regional GPO program’s published annual report which shows that they saved their hospital members 1.9% in overall contract spend. Note that 0.5% of the total savings reported was in rebates which realized savings for the GPO’s membership at 1.4% of contracted savings.
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