For the last decade, hospital supply chain professionals have been ratcheting down their supply chain expenses by increasing their GPO’s compliance, leveraging their spend by managing more spend categories, joining regional GPOs, and digging deeper into their data to identify more expense savings opportunities.
Tip of the Iceberg on Supply Chain Expenses
While these tactics are commendable from our perspective, they haven’t really moved the needle much on your hospital’s bottom line. This is because these techniques are all centered around price strategies, which based on our studies, have only saved 1%, 2% or 3% (total spend/savings) for any and all hospitals over the last few years. This is only the tip of the iceberg on your supply chain expenses!
We estimate that 37% of a commodity’s life cycle cost is related to price and 63% is connected to consumption. Where do you think your best opportunity for savings is, with these facts in hand? Yes, consumption is the right answer!
Hospital Supply Chain Expense Management
That’s why the changing role of hospital supply chain expense management requires supply chain professionals to also focus on utilization management for the products, services, and technologies they are buying. For instance, we rarely find that a hospital’s prices are out of line on I.V. sets, but 80% of the time we discover that hospitals are buying feature-rich I.V. sets that all of their departments don’t need to do their jobs. This typically means these hospitals have up to a 26% overspend or hundreds of thousands of dollars a year in unnecessary I.V. set expenses.
This is why it is so mission critical for you to have your value analysis teams up their game by looking at the consumption of the products, services, and technologies they are evaluating. No longer can a value analysis team just look at the price, appropriateness, and effectiveness of the commodities they are reviewing, since that’s not where the big savings reside today in your supply chain expenses. Your big savings today and in the future are in the wasteful and inefficient consumption of the commodities you are buying.
Improve Your Hospital’s Bottom Line
Don’t get us wrong – price, compliance, and gaining more control over your spend categories is important and necessary, but controlling these cost drivers won’t move the needle on your supply chain cost. Only by focusing on the utilization of your products, services, and technologies can you make a big dent in your expenses and thereby improve your hospital’s bottom line.
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