What is the point of signing a new or renewal contract with the goal of saving money if the savings do not materialize as planned? That’s what savings validation is all about. In fact, here are four ways to leverage savings validation for maximum results:
1. Make Certain Savings Budgeted by Finance are Verified: It is our estimate that 57% (and growing) of all hospital, system, and IDN’s finance departments are now including value analysis and supply chain’s projected or promised savings into their budget assumptions. This emerging best practice can become very disconcerting for supply chain or value analysis executives if their savings projections or promises are wrong.
2. Verify Vendor Promises: We have documented that vendor promised savings can be off by as much as 26% to 46% on most commodities and PPI items. With this track record, you’ll want to verify that vendor promised savings really happened as planned.
3. Prove Savings are Real: As healthcare supply chain professionals, we owe it to our healthcare organization that if we project or promise savings, it happens. No longer can we hope that our projected or promised savings will be realized if we want to be taken seriously by our senior management.
4. Verify Contract ROIs: Group purchasing organizations also promise savings and expected ROIs for healthcare organizations in their contracts. Shouldn’t you know for certain how much your GPOs are really saving you?
The bottom line regarding projected, promised, and even guaranteed 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 on your contracts or VA outcomes. For 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 only to find out, after thorough investigation, that his new exam glove dispensers were very wasteful. Once this problem was corrected with new dispensers, he then realized his projected savings.
Can you guarantee that all of your projected, promised, and guaranteed savings are really happening as planned? With savings validation you can be assured that what you budgeted does really happen!