As we head into another year, we believe that it is a good time to reflect on what supply chain expense management strategies, tactics, or techniques were the most successful for you in 2020. Then, you need to develop an action plan to double-down in 2021 on what worked best for you in 2020. On the other hand, if you are still searching for the best methods to reduce your non-labor costs, here are the five pillars of effective supply chain expense management that your peers have found work best for them:
1. Establishing or joining a local group purchasing alliance: Before regional and national GPOs were fashionable, hospitals would join together to purchase cooperatively their big-ticket purchases. We are now seeing hospitals revisiting this ploy nationwide. We are told by our clients that this tactic gives them a few points more savings than their regional or national GPOs.
2. Joining a new national group purchasing organization: I was once advised that you should consider your GPOs just as another vendor. As such, you should measure their successes, failures, and competitiveness. That’s what more hospitals, systems, and IDNs are doing, bidding out their GPO portfolio and then contracting with the lowest qualified bidder. Again, this tactic can make a dramatic difference in pricing, especially for small community hospitals.
3. Attacking savings beyond price and standardization: If you haven’t taken a deep dive into your supply utilization misalignments (i.e., wasteful and inefficient consumption, misuse, misapplication, and value mismatches in your supply streams), you are missing a whole new world of savings in the range of 7% to 15%. This is where progressive supply chain managers are uncovering many of their new non-labor savings.
4. Tackling purchased services contract expenses: Slowly but surely, more and more supply chain directors are targeting their purchased service contracts for savings in the range of 11% to 18%. This is because their purchased service contracts are a virgin territory for new and better savings.
5. Reinventing value analysis teams or committees: It has been said that the term “value analysis” is now synonymous with “new product evaluation,” which is starting to concern some supply chain managers. As they see it, value analysis is not just new product evaluations, but should be a cost saving methodology as originated by Larry Miles, the Father of Value Analysis in the 1940s. As an afterthought, most value analysis teams spend more money annually than they save for their healthcare organizations. I don’t think Larry Miles would think this is a good VA outcome for you.
The name of the game in 2021 is saving money, due to the new economy we are living and working in. Therefore, you are going to be asked to save even more in the coming year by your CFO, COO, and CEO. That’s why it is mission critical to double-down on the strategies, tactics, and techniques that have worked best for you in 2020, or to employ new stratagems that we mentioned above to rev up your saving engine in 2021.
P.S. If you would be interested in even more savings ideas for 2021, just e-mail me at [email protected] to receive my “7 Most Dangerous Myths About Price Savings” ebook. It contains savings ideas you won’t hear anywhere else!
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