We see supply chain expense management as the foundation of supply chain management, yet too often, this position is overlooked as a core function of logistics management. That’s why supply chain professionals can’t be satisfied with one or two percent price and standardization savings annually as the new normal, especially when inflation could peak at eight to ten percent or more in 2022. The answer to this dilemma is that supply chain professionals need to embrace the concept of clinical supply utilization as the future of supply chain expense management. Here are four reasons why:
4 Reasons Why Clinical Supply Utilization is the Future of Supply Chain Expense Management
1. Price and Standardization Savings Are Slowly Disappearing. Due to your group purchasing organization’s (national and regional) contracts and your own price control efforts, you have squeezed your vendors’ margins to their limits. Standardization has been achieved in 89% of your product lines. That’s why you have only achieved meager GPO and standardization savings over the last few years.
2. Clinical Supply Expenses Represent 83% to 85% of Your Supply Expenses. A big chunk of your supply expenses, 83% to 85% to be exact, fall into the category of clinical supplies or medical devices. Yet, your clinical departments don’t receive in-depth data on these commodities to manage their utilization. This data would enable them to control their own supplies and medical devices more effectively. Yes, clinical departments do have a supply budget, but these budgets are based on their department’s past experience – not scientific data.
3. Hospital Supply Costs Are Rising Faster Than Their Volume. According to Modern Healthcare Magazine, prior to the pandemic, the typical hospital has seen its supply cost shoot up 10% to 14.5% because “providers are seeing more newly insured patients who often require a higher level of service, requiring more equipment and technology, and driving up supply and labor cost.”
4. One to Two Percent Price Savings Annually Isn’t Sustainable. For your healthcare organization to survive and thrive in these uncertain times, supply chain’s contribution to savings needs to be more than one or two percent annually. As we mentioned previously, inflation alone is heading for an annualized rate of eight to ten percent this year. Therefore, supply chain must up their savings game to stay relevant and grow their savings sources.
As these ideas suggest, supply chain departments can be a major contributor to their healthcare organization’s profitability, stability, and growth by attacking their clinical supply utilization misalignments. Or these same supply chain leaders can continue to produce inadequate price and standardization savings that will quickly vanish with this year’s inflation. It’s your choice!
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