All healthcare organizations are scrambling to optimize their supply chain expense savings this fiscal year to fill the gaps in their budgets due to the effects of the pandemic. However, rather than just cut 5% to 8% indiscriminately across the board, progressive supply chain leaders are doing these five things to optimize their supply chain expense savings:
1. Benchmarking to identify best practices: We here at SVAH are big proponents of benchmarking (i.e., the search for industry best practices that lead to superior performance) because it works, as opposed to guessing where your hidden supply chain savings reside. Benchmarking can be the difference between making a precise surgical cut vs. blind stabs to your supply chain expense budget.
2. Centralizing purchasing outliers: We have never worked with a healthcare organization who didn’t have purchasing outliers (e.g., maintenance, pharmacy, dietary, information technology, marketing, laboratory, biomed, etc.). Meaning, these outlier departments had total or at least some control over their purchasing, inventory, and specifications. To optimize your savings, this model needs to change. Only by controlling all of your healthcare organization’s purchases can you guarantee that you have the lowest possible acquisition cost. This doesn’t mean that you process every department’s purchase orders, but it does mean you have total control with systems over whom, what, when, and where they buy from.
3. Implementing a category management model: A category manager as opposed to a buyer or contract manager completely manages a discrete group of similar or related products, services, or technologies (i.e., cardiovascular, orthopedic implants, urological, etc.) throughout their lifecycle. The major benefit of doing so is that someone is held accountable for what happens (price, standardization, utilization, value analysis, recalls, etc.) to the category of purchases instead of sharing this responsibility with multiple parties.
4. Attacking supply utilization misalignments: As we have been preaching for 15 years, if you are in full GPO contract compliance and have standardized on your major purchases, the only place to go to save double-digit (7% to 15%) savings is supply utilization management. To ignore this fact is to disregard millions of dollars of savings that exist today in your supply streams
5. Developing a system to better monitor purchasing cards: Purchasing cards can be very beneficial for lowering the cost of your procurement to pay process, but also can be harder to monitor, detect fraud, and lack budget controls. That’s why it makes sense to rent, lease, or develop purchasing card expense monitoring software that will give you more control over these purchases while maximizing your card rebates.
As these five things suggest, savings optimization is more about you making better long-term strategic decisions than using brute force to reduce your supply chain expenses in the short-term. It’s the difference of having your supply chain expense savings reductions stick or just last for a few weeks or months. Best of all, what all of these tactics have in common is that they depend on systems, not people, to institutionalize these best practices forevermore.
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