May 7

Healthcare Supply Chain Cost Drivers


One of the most important responsibilities of healthcare supply chain professionals in the new healthcare economy is to understand their supply chain expense cost drivers, or the factors that cause fluctuations in their supply chain expenses. Why? If you don’t understand these variations, you will never contain all of your supply chain expenses now that price is the smallest component of your hospital, system, or IDN’s total cost equation.

Understanding Healthcare Supply Chain Cost Drivers

No longer is it good enough to just obtain the best price for products, services, or technologies you are buying. You now need to also understand how the commodities you are buying are being employed by your healthcare organization’s clinical and/or non-clinical staff to control their total lifecycle cost. This should and must be your new target for savings opportunities, not price alone!

For instance, I was just reviewing the laundry/linen utilization report module, by line item, for one of our client’s hospitals. Out of the dozens of major linen items they wash/recycle daily it is their reusable isolation gowns that are the biggest cost driver in this category of purchase. Consequently, this hospital’s supply chain management team needs to understand how this product is being utilized on all of their nursing units to control their laundry/linen cost.

Without this understanding, we regularly observe hospitals unnecessarily giving their vendors hundreds of thousands of dollars of purchases annually that aren’t needed or required for good patient care because of their clinical and/or non-clinical staff’s wasteful and inefficient consumption practices. Don’t make this same mistake!

This is why not tracking, trending, and then analyzing the changes (i.e., volume and intensity) of your products, services, and technologies’ utilization, at least quarterly, is like giving a blank check to your vendors who will be happy to fill your orders without questioning why you are buying more than ever before.

Supply Chain Managers Must Shift Their Focus

Supply chain managers today and in the future must change their focus from purely price-oriented savings to total lifecycle savings if they want to have a favorable impact on their hospital’s bottom line. Any compromising on this dictum, in our opinion, will greatly affect your career advancement over the next few years.

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