Successful cost management is essentially the backbone of healthcare supply chain management. That’s why it is mission critical for supply chain professionals to continuously monitor and optimize their healthcare organization’s supply chain costs. The best way we know to do so is to monitor the following five metrics and KPIs:
5 Metrics & KPIs for Successful Healthcare Supply Chain Cost Management
1. Inventory Turns. Inventory turns, or the total inventory expense divided by average inventory, is a measure of how lean or fat your inventory is at any given time. Remember, inventory is like cash and should be treated as such.
2. Supply Expense. Your supply expenses divided by case mix index (CMI) adjusted discharge and/or adjusted patient day is a weighted measurement of your supply chain expense management efficiency. This is a great global measurement you should be employing on a monthly, quarterly, and fiscal year basis that can tell you where you stand overall.
3. Cost Per Supply Category. Most organizations focus on the high-level global key performance indicators but one of the best indicators we have found that continues to yield big savings is cost per category of purchase (e.g., endomechanical stapler cost per surgery case). By comparing your category spend by hospital, system, or IDN, you can then ascertain where you stand from year to year and also within your health system. You can also go so far as to find out where your peers are in the industry to make sure that you are in line with your expenses. Therefore, don’t underestimate the value of monitoring and controlling these costs on an ongoing basis!
4. Departmental Cost by Category. Let’s face it, supply chain does not control the consumption or utilization of the products, services, and technologies that they procure. After the right product at the right price at the right time is delivered to your internal customers, it is then out of your hands. So, what happens now? Generally, consumption is managed by monitoring each department’s supply budget. However, we have found that due to inadequate categorization in a healthcare organizations’ general ledger, departments are missing major dollars in potential savings. This is because each department is unique at every hospital, so we always recommend that hospitals track each category of purchase by their unit patient days. Then use their own fiscal year’s data to compare as a KPI to identify major consumption upticks.
5. Spend Control. How much spend, as a percentage, does your supply chain operations control? This exercise can be even more useful if you measure this metric by department or division. Because we can almost guarantee that some of your healthcare organization’s spend is leaking through the cracks.
Why should these metrics or KPIs be important to you? So that you can now benchmark your supply chain operations against peer healthcare organizations to determine your ranking. Once you have this comparative data, you will then be able to set goals for your supply chain department to improve its efficiency and effectiveness. Who wouldn’t want to have this information about their operations?
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