September 14

4 Reasons Why It Is Crucial To Validate Your Supply Chain Expense Savings


Healthcare supply chain and value analysis professionals are estimating projected, promised, or guaranteed savings on their price, standardization, and utilization savings. Yet, an estimated savings isn’t good enough for the following reasons:

1. Make Certain Budgeted Savings Projections Are Accurate: It is our estimation that 57% of all hospital, system, and IDN’s finance departments are now including supply chain and value analysis reported savings in their budget assumptions. This emerging best practice can become very disconcerting for supply chain and value analysis executives if their savings projections are wrong. For instance, I remember a Supply Chain Vice President telling me that he was mortally embarrassed when his CFO called him out of the blue and asked him to explain why his promised GPO IV contract with $100,000 annual savings never materialized on the system’s books. Don’t let this happen to you!

2. Verify GPO/Vendor Promised and Guaranteed Savings: We have documented that GPO/vendor promised or guaranteed savings can be off by as much as 25% to 46% because things change and people change (e.g., volumes, procedures, policies, practices, etc.). With this atrocious track record, you will want to verify that your GPO/vendor contract savings really happen as planned or you risk being challenged by your CFO on these purported savings.

3. Prove That the Savings Are Real, Tangible, and Implemented Properly: As healthcare supply chain professionals, we owe it to our healthcare organization that if we project or promise a reported savings, it really happens. No longer can we hope that our projected or promised savings were realized if we want to be taken seriously by our senior management.

4. Authenticate GPO/Vendor Contract Return-on-Investment Claims: GPO and vendor promised or guaranteed expected ROIs need to be authenticated to be taken seriously. Historically, these claims are blown out of proportion to your real realized ROIs.

The bottom line on projected, promised, or guaranteed reported savings is that they need to be validated on a quarterly basis to ensure that your initial savings projections are being realized. If not, you need to have a mid-course correction to adjust for any changes in your reported savings calculations. As an example, one of our clients was only saving one-tenth of his projected savings on new exam gloves after one year of a three-year contract. To his surprise, he discovered after a thorough investigation that his new exam glove dispensers were very wasteful (30% loss factor). Once this problem was corrected with new “collection” dispensers, he then realized his estimated savings. Can you, too, ensure that all of your projected, promised, and guaranteed savings stick? If not, it’s a good time to start savings validation now!

Below are some similar articles that you may find interesting. 

How To Increase Your Healthcare Supply Utilization Management Maturity

What Everyone Should Know About Supply Savings Validation

Request Demo of SVAH’s Value Analysis and Utilization Tools


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