“The pace of decline of profitability margins is slower than it has been in past years, but they are still down. Median operating margins reached 1.7% in 2018, down from 1.8% in 2017. A more sustainable operating margin would be around 2.5%,” said Christopher Kerns, executive director at the Advisory Board. That’s why it is mission critical for supply chain professionals to dramatically lower their supply chain expenses to boost their hospital, system, or IDN’s margins. There are few other options left for healthcare organizations to do so. With this said, here are three keys to dramatically lower your supply chain expenses in 2020 beyond just price and standardization:
1. Attack Your Supply Utilization Misalignments: We have been preaching for 15 years that hospitals, systems, and IDNs are only nibbling around the edges of their supply utilization savings (i.e., wasteful and inefficient consumption, misuse, misapplication, and value mismatches). We call it the “leaky bucket” syndrome. This is because you can save thousands on price and standardization going into the top of your savings bucket, then leak tens-of-thousands of dollars in utilization misalignments going out the other end of the bucket in the same year. Doesn’t this sound like madness to you?
2. Manage, Monitor, and Control Your Purchased Services: Progressive supply chain leaders agree that purchased services, more than any other healthcare supply chain expense, have more savings opportunities available than any other category of purchase. Yet, more than 54% of healthcare organizations aren’t targeting this huge savings opportunity today.
3. Up Your Value Analysis Game: We estimate that 89% of hospitals, systems, and IDNs are focusing their value analysis efforts on approvals of new or renewal group purchasing contracts, while ignoring a whole new world of VA savings on their existing products, services, and technologies. For instance, how many ports are functionally required on your cardiac catheters? What is the dollar value of the linens you are losing annually? How many (and in what quantities) medical devices are you reprocessing? Why are all of your environmental service workers wearing high priced nitrile gloves? This is what the value of value analysis is all about, not just vetting your new and renewal group purchasing contracts. This is how to up your value analysis game!
Without a healthy margin, your hospital, system, or IDN can’t give raises, fix the roof, or pay for needed repairs and maintenance. I call it the slow death of margins. However, supply chain management can make a difference in your healthcare organization’s margins, if you employ these tactics to lower your supply chain expenses. Doesn’t this make sense to you?
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