July 19

Healthcare Supply Chain Professionals: Is Your Job Done When You Find The Best Price For A Commodity?


From our viewpoint, it appears that too many healthcare supply chain professionals believe their job is done when they find the best quality, service, and price for the commodities they are purchasing. Then they completely ignore the running (or consumption/utilization) cost of the supplies, purchased services, and technologies they are buying. The running cost of just one commodity you are purchasing could easily represent millions of dollars annually. For instance, a 200-bed community hospital could easily spend $1.3 million on blood products, $1.4 million on pacemakers, and $300,000 on surgical gloves annually. So, if this was your money, where would you spend the majority of your time investigating; the price at the pump or how much mileage per gallon you will get on a tank of gas?

The Fundamentals Of Healthcare Supply Chain Management

By definition, supply chain management is generally known in industry as the management of the flow of goods and services to maximize quality, deliver, customer experience and profitability.  Prior to the introduction of this new supply chain concept in 1982 by Keith Oliver, materials managers were focusing their management efforts primarily on purchasing and inventory control.

For example, when I started in supply chain management my title was director of purchasing. As such, I was responsible for stores, receiving, purchasing, mail, and printing at a 150-bed children’s hospital in Philadelphia. Instead of holistically managing all of the unifying elements (conception to disposal) of my healthcare organization’s supply chain, I too was focused on obtaining better pricing for the commodities purchased and more effective inventory control. Fast forward two decades!

Healthcare supply chain professionals, as we see it, haven’t fully embraced the holistic approach to supply chain management (conception to disposal), but still only see it as their job to obtain the best quality, service, and price for the commodities they are buying, and then think their job is done. We consider this a job half done if supply chain professionals aren’t reining in the in-use cost of the commodities they are purchasing. This is where these illusive savings are hiding!

Job Is Only Half Done If You Ignore Your Running Cost

If you buy into the concept of supply chain management as described herein, then you must realize that you are not only responsible for the acquisition to disposition of the commodities you are buying but are also accountable for controlling their consumption/utilization cost. Otherwise, all the savings you are generating from your GPO and local contracts are for naught. These price savings can be lost almost overnight by a clinician that misuses or misapplies a product, service, or technology inappropriately, like changing an IV set more often than medically indicated. An IV set costs $3.50 to $6.00 on average. If you are changing too often because of some policy or procedure not being followed, faulty alarming pumps, or labels not placed on tubing, this could increase your costs by 15%, 25%, or even as much as 35%. Now you have all these unseen increases even though you have the best price from your GPO. Isn’t it time to start concentrating on your savings beyond price to improve your healthcare organization’s bottom line?

Below are some similar articles that you may find interesting. 

3 Reasons Purchased Services Management Is Crucial To Improving Your Healthcare Organization’s Operating Margin

Can You Pass The Clinical Supply Integration Insight Test?

Podcast 70 – 3 Powerful Strategies for Dealing With Your Healthcare Organization’s Rising Supply Chain Costs

Request Demo of SVAH’s Value Analysis and Utilization Tools


consumption, cost management, healthcare supply chain, Healthcare Value Analysis, hospital supply chain, Hospital Value Analysis, supply chain, supply chain management, utilization

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