June 1

How Does Your Healthcare Supply Chain Measure Up?


We predict that as the supply chain function becomes even more strategic in the new healthcare environment we live and work in, you will need to prove its value by demonstrating financial benefits to your hospital, system, or IDN.

If you can’t do so you are at risk of being replaced by someone that can show value. Yes, it is that important that you communicate your department’s worth to your direct report and your healthcare organization’s management team monthly, quarterly, and annually since your job depends on it.

KPIs for Healthcare Supply Chain

To do so, you need to ask yourself what key performance indicators (KPI) you need to track, measure, and report that effectively reflect your supply chain’s value. Here’s a list of some KPIs that we believe should be included in your report:

  • Supply Cost/Net Revenues
  • Supply And Purchased Services/Net Revenues
  • Supply Cost As % Net Operating Expenses
  • Supply And Purchased Services As % Net Operating Expenses
  • Supply Expense Per Adjusted Patient Day
  • Supply Expense and Purchased Services Per Adjusted Patient Day
  • Store’s Inventory (Month Ending) Per Adjusted Patient Day
  • Surgical Inventory (Month Ending) Per Surgical Procedure

The above calculations are a representation of the kind of KPIs that would be meaningful to your direct report and management team. Better yet, each of these KPIs should have a benchmark to show how you are doing against your peers. For instance, a typical hospital’s supply cost as % of net operating expense metric would be about 28%. An appropriate benchmark would be in the range of 22%. This means you have more work to do in this area of your responsibility.

We would recommend that if you are below the benchmark, as in our example above, you provide a comment on what you are doing about it. Warning: Don’t hide areas that need to be improved, since it is always better to show areas of improvement than to fudge your numbers. Honesty is always the best policy!

Demonstrate Value in Your Supply Chain Department

You might say that this looks like a lot of work. Our answer would be, “Yes, it is.” However, your question really should be, “How does my supply chain department measure up in the new healthcare economy?” If you can’t answer this question, maybe you’re not demonstrating value to your hospital, system, or IDN which isn’t a good place to be when your boss comes looking for this answer.

Articles you may like:

Using ROIs To Get More Of Your Healthcare Value Analysis Projects Approved

Hospital Value Analysis Customer Surveys: To Survey or Not To Survey

Healthcare Supply Chain: Moving Up to the C-Suite

Request Demo of SVAH’s Value Analysis and Utilization Tools


healthcare supply chain, hospital supply chain, key performance indicators, KPIs, supply chain, supply expenses

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