We are observing that more supply chain leaders are validating, after implementation, of their GPO and local contracts savings projections because they are either being mandated to do so by their CFO or they realize that it could be embarrassing if the savings reports they are providing to their senior management are discovered to be overstated, understated or worse yet, miscalculated.
While these two reasons should be enough for you to embrace this emerging best practice, here’s five additional mission critical reasons why supply chain leaders need to validate their savings:
- Robbing your healthcare organization of desperately needed savings: Our research has shown that only 64% of the savings reported to healthcare organization’s senior management by supply chain leaders is correct. This means that the actual savings reported when validated is either overstated or understated by big percentage points. We have seen contract savings projections off by as much as 41%, thereby, robbing their healthcare organization of desperately needed savings.
- Trust, but verify all your vendor’s promises and guarantees: How often do you think your vendors meet their promises or guarantees? Not often enough, by our measurement. You could be losing 10%, 15%, 25% on any given contract if you aren’t validating your savings. We worked with a regional shared service corporation that sued their national GPO for not making their guarantees because they did validate their savings. Can you guarantee that your GPO is saving you money?
- Verify all GPO and local contracts savings before, during and after your contracts have been implemented: First off, you need to have a baseline before you purchase a product, service or technology to measure your progress along the way. Then you need to gauge your savings during your evaluation from your new or renewal GPO or local contracts. Lastly, you need to measure your success after you have implemented your contracts. Caution: Without these three measurements you can’t prove you have saved any money.
- Curbing the losses from non-verified savings: As I mentioned, only 64% of your contract savings projections happen. Therefore, you need to validate all savings to curb your losses that occur during the term of your contracts. Otherwise, your hard work to make savings happen can be lost repeatedly.
- Uncover all understated contract savings: On the plus side, there are hundreds of thousands of contract savings being ignored that you need to take credit for. For instance, you might project a 5%savings on a commodity over the term of your agreement but saved 8%. If you don’t validate your savings, you will never know how much you are really saved for your healthcare organization.
I see it as a “no-brainer” that as supply chain professionals, we need to validate all our GPO and local contracts savings for the reasons I cited above. If you don’t do so, it would be like never counting the money you received from a bank clerk, since we all know mistakes, errors and blunders occur all the time. So, why don’t we feel the same way about our GPO and local contracts savings projections?