July 12

The Three Building Blocks of World-Class Healthcare Supply Chain Expense Management to Save More in Less Time


We are all searching for innovative techniques and key concepts that can up our healthcare supply chain expense management savings this fiscal year by a few more percentage points. This is true for even the smallest hospital chains that are trying to leverage their size, skill, and talent for even one more percentage point in savings. However, there are three building blocks of world-class healthcare supply chain expense management that you must master before you can move the needle at all on your savings in any given year.

The Three Building Blocks: Price, Standardization, and CSUM

SVAH is in a unique position to view the marketplace because of our stellar client base of hospitals, systems, and IDNs and the feedback from our Value Analysis and Supply Utilization Magazine. This provides us with a window into the strategies, tactics, and techniques of world-class healthcare supply chain expense managers.  Here are the three building blocks that we have observed over the last year that you need to model:

  • Price Stratagems: Our in-depth surveys have determined that there is a minimum of 1.5% to 2.0% in new supply chain expense savings available to most hospitals, systems, and IDNs if they join a progressive regional GPO. This is in addition to belonging to the national GPOs where they are already members. This price strategy works because regional GPOs’ success formulas are built on the foundation of a committed volume concept. In addition to best prices, your regional GPO needs to offer volume rebates on all of their offerings. If your regional GPO isn’t offering rebates now, keep searching until you find one that does. Substantial annual rebates are the ultimate price strategy that you need to master.
  • Standardization Stratagems: We are seeing more and more hospitals, systems, and IDNs adding more direct items to their warehouse formularies with the goal of standardizing. The logic behind this tactic is that supply chain believes that it needs to control the commodity before it can standardize the product or technology. In some healthcare organizations this inventory even includes pacemakers and defibrillators. A byproduct of this standardization tactic is that you can hopefully lower your official and unofficial inventories organization-wide at the same time as you standardize on all commodities residing in your warehouses.
  • Clinical Supply Utilization Management (CSUM) Stratagems: Some of our clients call it “bringing supply cost control to the bedside” while others call it the future of supply chain management.  Any way you look at it, CSUM means controlling your supply utilization expenses where the value is created or lost in your hospital(s) at the unit or departmental level. In raw numbers this means controlling your clinical supplies that represent 81% to 85% of your total supply expense budget for any given year. This is where an additional 11% to 23% in aggregate savings can be achieved without the assistance of every clinical manager in your healthcare organization. No longer do you have to carry all of the savings workload!

As these three building blocks suggest, you need to continuously update, refine, or reinvent what you are doing to obtain the same or better results. For example, for 30 years national GPOs offered contracts that were better than any you could negotiate on your own. Now, the time has passed for this strategy to be 100% fool proof, since your regional GPOs are now generating better savings in some categories of purchase. The lesson to be learned is that nothing lasts forever. Always be on the lookout for new and better ways to save, survive, and thrive in the new healthcare economy we live and work in.


expense management, GPO, GPOs, healthcare, healthcare organization, healthcare supply chain, hospital, hospitals, IDNs, savings, supply chain, supply chain expense management, supply chain savings, supply utilization, SVAH, value analysis

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