We all rely on our go-to strategies and sources for identifying savings opportunities when the CFO comes knocking. This is where the business side of supply chain and value analysis can become challenging, especially if you don’t have well-established, dependable sources and a clear ability to report on savings or identify new savings opportunities. It’s important to remember that relying on a single savings pillar is a risk. If that one source is focused solely on securing better pricing, then it’s time to expand your approach and develop additional avenues for savings. While standardization is often discussed in this context, it isn’t truly a standalone savings strategy — it’s simply a byproduct of achieving better pricing through volume consolidation.
The point is that you need to have built-in sources of savings that can answer the call at any given point in time during the year. And yes, there are always more savings to be had. If you are not looking for savings, then it is time to build out a few more pillars for your savings machine. Let’s highlight these for you so you know where you can find more savings. These savings opportunities are organized in order of greatest to least savings potential.
1. Clinical Supply Utilization Management Savings (5% to 10% of Total Supply Budget) – There is a bit of a blind spot in the healthcare supply chain and that is utilization, consumption, waste, inefficient use, and using feature-rich products. Simple spend management cannot uncover these because the major increases and decreases in utilization/consumption happen based on patient volumes. The entire supply chain spend is based on patient volumes in all the respective areas of health systems and clinical supply utilization management marries up those patient volumes to all the categories in the supply spend. Start with clinical supply utilization reporting to see where your variances are hiding big savings!
2. Retrospective Value Analysis Reviews (2% to 4% of Total Supply Budget) – Once upon a time, when a health system wanted to uncover major savings, they would focus their value analysis teams on retrospective value analysis reviews. This meant going back to investigate major supply categories and finding areas for lower cost alternatives or waste in the use of the products. We are not just talking about one or two major categories; we are talking about going through at least your top 100 spend categories to uncover big savings with your value analysis teams. This will entail more training in Value Analysis Cost Optimization Strategies for your team members, but there is no reason why you cannot assign a VA project to each team member and have them work on this. For years we have taken this approach, and it works. There will be those that need a little more coaching, but they should be able to help you wring the towel dry on these major categories.
3. Cohort Benchmarking (3% to 7% of Total Supply Budget) – We need to look at cost management in a smarter not harder format, especially with our busy teams being challenged for time. One way to find big savings is to develop/build/deploy a benchmarking program to be able to triangulate your savings opportunities and eliminate dry holes. This can be paired with a Clinical Supply Utilization Management Program or stand alone. The most important thing is that you need proof and to find out how much savings can potentially be there for you to work on. You can benchmark using historical benchmarks, year over year, system-wide benchmarking, or even cohort benchmarking with like-sized partner health systems. When you clearly understand the savings potential and recognize that your organization is not fundamentally different from its past performance or peer group, that insight becomes a powerful tool — helping validate the opportunity and drive action to prevent unnecessary impact to the bottom line.
4. Price Savings (2% to 3% of Total Supply Budget) – Yes, keep going with your contracting and price savings as you have always done as this is still worth the effort. While the era of large, one-time “home run” savings may be behind us, there is still significant value in consistently achieving smaller wins — singles, doubles, and the occasional triple — that add up to meaningful impact over time. All these dollars add up, so keep working what you have in place but don’t make it all you are working on.
5. Training Your Organization in Cost Optimization Strategies (1% to 5% of Total Supply Budget) – Remember, every one of your VA team members are department heads/managers who manage their own supply budgets every year, but they have received little or no training in how to optimize costs other than the school of hard knocks. Imagine, you are managing a multi-million-dollar annual budget and have not received any training on cost optimization this year or any year prior. How much do you think can be optimized, or better yet, how much confidence will those department heads have in being asked to do more cost optimization without any training in advanced strategies? Start training your department heads and managers in cost optimization strategies now so that you can confidently ask them to assist you and your organization with the next level of savings!
Saving money should not be treated as a one-time event but instead as an ongoing process that you have built into your Supply Chain/Non-Salary Expense Program to deliver savings on an ongoing basis. This sounds so straightforward and simple, yet most organizations don’t have all the pillars built out yet. There are diamonds hiding in your own back yard, you just need the right tools, strategies, training, and mindset to make them a permanent part of your short and long-term savings machine!
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