You have done well on your pricing, you’ve standardized on most of your commodities, and now you are looking to new supply chain expense opportunities for savings beyond just price and standardization. We call this the supply chain expense continuum. Yet, our research has found that supply utilization management (SUM) is the weakest link in this continuum. This is because healthcare organizations don’t target their supply utilization savings, but instead just let them happen organically.
The Difference Between Organic and Targeted Supply Utilization Management Savings
We define “organic” as being discovered by accident vs. a planned activity based on hard data. The difference in outcomes is dramatic. For instance, during a tour of a client’s hospital we observed that their oxygen sensor recycling buckets were empty. When we looked at the data, we were able to project that this hospital’s actual oxygen sensor savings should be five times the savings that were actually being achieved by the hospital. This laid the groundwork for this hospital client to save tens of thousands of dollars annually on this commodity alone. This is how targeted vs. organic savings can make all the difference!
Establish Targeted Goals for All of Your Supply Utilization Management Savings
We learned many years ago that setting annual targeted goals for our clients’ SUM savings is the most effective way to achieve these savings. Otherwise, healthcare organizations only uncover a few thousand dollars in SUM savings unwittingly in any given year. Since planned SUM savings average seven percent of a hospital, system, or IDN’s supply chain expense budget – this is a big deal.
This target savings process also enables you to audit any and all SUM savings that are projected for any given period, thereby eliminating leaving any SUM savings dollars on the table untouched! This often occurs when a value analysis team member says they have identified 10% of the projected SUM savings, but now you have a measurement tool to audit this outcome. From our experience, you should save, at minimum, 83% of your projected SUM savings annually. This is the comprehensiveness of this targeted SUM savings process.
What Should Your Expense Management Priorities Be in FY 2022?
A poll by Garry Skinner, the host of Power Supply: Future of Supply Chain Podcast, showed that the respondents stated that supply utilization management accounts for the top two largest (purchased services being the first) supply expense management costs in their healthcare supply chain today, while weak GPO contracts account for only seven percent of their costs. So, what should your value analysis expense management priorities be in FY 2022? As this survey suggests, supply utilization and purchased services. That’s why integrating Supply Utilization Management into your value analysis program is mission critical in ratcheting down your supply expenses this fiscal year. There is nowhere else to go to save money.
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