The 4 Pillars to a Successful Healthcare Supply Chain Organization
This is the perfect evolution of a successful healthcare supply chain organization’s management of cost and quality results that is an unstoppable combination. Most organizations have mastered price and standardization and are moving further into customization within those contracts to gain more savings, but there is more money being left on the table. When you add in a strong utilization management program and align it with supply/savings validation, then you will finally be wringing the towel dry on all of your savings opportunities. Below are those pillars which are becoming even more important every year.
Annual Savings From Budget Key
$ – 1% to 2% Savings
$$ – 3% to 4% Savings
$$$ – 5% to 7% Savings
$$$$ – 7% to 12% Savings
$ Price Mastery (Includes Standardization) – This pillar has been utilized for quite some time and has lost a lot of steam, and in some cases is going the other way with inflationary and market increases. This is not to say that there aren’t more savings here, but they are diminished when you look at this from an overall standpoint. Yet, organizations are most committed to these programs and thus put the most effort here into the search for the “best price” and standardization. Standardization done correctly will consolidate your vendor volume down to where you can achieve additional price reductions. Nothing new here.
What most need to realize is that there are still more savings to be had beyond price but if you are putting all of your efforts into price because your GPO demands this, you are chewing up valuable resources in order to get a smaller return on investment. You must put your pricing program on autopilot and focus on other pillars to gain the next level of savings.
$$ Customization – This is one strategy that does not get talked about much but is highly effective at reducing costs while improving quality. Quite simply, it is the systematic practice of going back inside your existing contracts and further customizing or finding the exact requirements of the product users to drive out unwanted features and costs. Normally, you contract with a product category and your value analysis team finds the right products for your organization. But in most cases, not all features are needed in every department nor are they perhaps needed at all and thus this retrospective review of your existing category contracts can yield significant savings and quality improvements.
Customization is very effective in procedural areas where there are always lower cost alternatives being brought into the market that should be evaluated as possible savings opportunities while maintaining or improving quality.
$$$ Supply/Savings Validation – You might be thinking, “Supply vali-what?”. But supply validation or savings validation is about continuously and automatically monitoring your past savings opportunities and reporting to ensure that you have met your goals and objectives. The bottom line is, your supply chain and value analysis teams work so hard on their projects to make savings happen and then move on to the next project. But who is monitoring and auditing the previous project to make sure that all the savings play out and are not going sideways and costing you money instead of saving? You also want to know whether you are saving more than projected, which most organizations don’t know either. Savings validation is the modality to ensure that everything that is supposed to happen is happening at expected savings/spend levels, and if not, you can revisit them and make small adjustments to get them back on track.
Savings validation goes beyond just simple price validation but uses patient volume centric measures so it can flex when patient volumes are up or down or just the same. Sometimes you think you are saving money, but in reality, the patient volume may be down in a particular department or procedural area when the cost still remains high. Either way, you need to know the end results yet can’t spend the time to run manual spreadsheets on everything. Automate with savings validation.
$$$$ Supply Utilization – This is the biggest opportunity that is still on the table for most health systems because very few have formalized a Supply Utilization Program that encompasses throwing a blanket over their entire supply chain category spend in comparison to patient volume centric metrics. When you take just one category like Suture Cost Per Surgery Case you will know instantly if you are better or worse and by how much year over year. You will also know who your best hospitals are and who are not. Lastly, you will know where your cohort peers are, what best practices you should be striving for, and most importantly, how much you can save on a particular category.
Be Proactive to Save Money for Your Healthcare Supply Chain Organization
When working in the healthcare supply chain, it is easy to get caught up in the day-to-day grind of the business, especially with all the complexities of the contracts, new product requests, standardization, resilience issues, recalls, etc. But you still need to be moving the needle and attacking costs, or they will find a way to bite back at you on your bottom line. It is better to be proactively going after these while improving your organization as a whole by adding new dimensions to your supply chain.
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