August 4

Three New Ways Supply Chain Professionals Can Save On Their Purchased Services Cost

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Purchased services management (PSM) is becoming a big topic of discussion now that all other hospital, system, and IDN’s supply contracts have been fully addressed. However, there has been one big misunderstanding regarding purchased services. That is that the only PSM savings that are available to a healthcare organization are only realized through price and standardization opportunities. Let me tell you that this conclusion is a myth! With this said, to greatly improve your purchased services management here are three additional ways supply chain professionals can save on their purchased services cost:Bottom of Form

1. Conduct Value Analysis Studies: Value analysis, or the study of function and the search for lower cost alternatives, is your secret weapon to reduce your PSM cost. It all starts with a blank piece of paper to describe what functions are absolutely, positively required for your current and proposed purchased service contracts. For instance, one of our clients saved hundreds of thousands of dollars annually on their current Outside Reference Lab contract. This client re-evaluated (based on physician requirements) all of their high dollar outsourced tests. Some were then in-sourced (at a lower cost) or eliminated altogether. Once you employ this test to validate your current and proposed purchased service functions, you will find that your customers don’t need everything they thought they needed to get their jobs done.

2. Eliminate Utilization Misalignments: Waste and inefficiencies are legendary in your purchased service contracts because no one is measuring, managing, or controlling their effectiveness. As an example, many years ago we identified, after measuring usage and shadowing one of our client’s laundry/linen customers (nurses), that they were returning 25% of their clean linens daily to their laundry unused because they felt the linens were unusable (i.e., dirty, wrinkled, or shabby). Once these quality issues were resolved and these utilization misalignments were eliminated, this community hospital saved tens-of-thousands of dollars annually.

3. Embrace Vested Outsourcing™: One new concept you should consider to dramatically improve your purchased services’ cost, quality, and outcomes is Vested Outsourcing™ created by Kate Vitasek of the University of Tennessee (see our Podcast with Kate Vitasek that explains this concept in depth) that nurtures a relationship with your contractors and your healthcare organization so both parties become truly vested in each other’s success. For instance, the concept recommends that you focus on what, not how the contract is structured: Meaning that there should be less emphasis on things and process and more weight given to performance expectations. In short, let the experts do their jobs without dictating how they should do them. All they need to know is their scope, not boundaries.

Supply chain professionals should understand that improving the cost, quality, and outcomes of their purchased services is not just about the “contract price,” but is a mix of strategies, tactics, and techniques, as suggested above. Only then can you feel confident that they have mastered the art and science of purchased services management.


Below are some similar articles that you may find interesting.

Three Things to Do Immediately to Significantly Improve Your Purchased Service Contract Management

5 Emerging Purchased Services Best Practices You Need to Know About

3 High-Impact Savings Areas to Increase Your Hospital, System, or IDN’s Bottom Line


Interested in a Walk-Through of SVAH’s Value Analysis and Supply Utilization Management Solutions? Fill out the form below.


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healthcare, hospitals, purchased service contracts, purchased services, purchased services management, save money on purchased services, supply chain, utilization, value analysis


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