We now have an enormous amount of data that gives us visibility into every detail of our supply chain, both upstream and downstream. This visibility has improved significantly over the years and continues to advance as software analytics improve. One area that still seems to be invisible from Supply Chain and Value Analysis Leaders’ view is the savings beyond price. You can clearly see all the elements that allow you to negotiate the best price from standardization of vendors to how much you spend on an annual basis. But how much is being overused, wasted, used inefficiently, failing to deliver full lifecycle value for the money spent, or simply more feature-rich than necessary for your needs? It is not that easy to see these things beyond the contract pricing.
Savings Beyond Price is Invisible to Most Healthcare Organizations
Because price has been king in Supply Chain for so many years and continues to be, all the systems that are in place are heavily geared towards gaining the best price. This focus is beneficial and should remain a core ongoing practice. However, even when you secure the lowest possible price within a product category, the total in-use cost may still be higher.
You Cannot Leave Savings Beyond Price to Chance Any Longer
Most organizations discover significant savings beyond price when they realize they are overconsuming within a category or selecting products with far more features and cost than their needs actually require. Without systems in place that are designed to comprehensively target savings beyond price, organizations often rely on occasional discoveries rather than a structured approach. However, consider how much savings might exist in areas of the supply chain that have received little or no attention beyond price alone.
In the ever improving and maturing world of the healthcare supply chain, it seems almost crazy that there is not a concerted effort made to find, analyze, and drive out all savings beyond price that are currently invisible in your supply chain. Our client history tells us that there is as much as 5% to 10% of total supply budget in savings beyond price opportunities that you can achieve but you need to adapt and format your cost optimization program to incorporate savings beyond price.
- Focus a Program or Team on Savings Beyond Price – You need a mechanism to start the planning, analysis, and action points that will uncover the hidden savings that we call savings beyond price. It just makes sense to use your value analysis teams to do this – but with a twist. We recommend that you don’t pile more work onto already busy teams and agendas – your initiative won’t get anything done in that environment. Instead, create a new team or set of teams to focus strictly on savings beyond price.
- You Need a CSUM and Benchmarking System to Uncover Invisible Savings – Why can’t spend alone tell us where savings opportunities are? Simple, hospitals are patient volume-based organizations and the amount of money spent on supplies and services is attributed to patient volumes. You need a system that integrates both volume and spend data so you can pinpoint where savings opportunities exist through patient volume centric analysis rather than spend alone.
- Use Your Reporting to Benchmark – Once you get the key elements in place, you can start benchmarking to find your highest to your lowest savings opportunities. More importantly, you are doing this with a systematic patient volume method that will give you proven savings opportunities so you can avoid dry holes. There is nothing worse than selecting a major savings opportunity only for it to fizzle out or not yield big dollars. Benchmark within your system with cohorts and with your own history.
The bottom line in finding the invisible is that you need better thinking, better systems, and better software reporting to assist you to go to the next level of savings beyond price. It’s not just going to miraculously pop up in front of you if you continue to do nothing different. Once you get the right pieces to the puzzle together into a systematic workflow you can then use your VA teams to drive out and sustain these savings forever!
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