February 18

Get the Most Savings Out of Your GPO Contracts – Beyond Price!

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Supply chain managers focus a tremendous amount of effort towards their national and regional GPOs with their savings initiatives to gain the big results they are looking for. In reality, they are only saving a few pennies on the dollar with this tactic because they have been going to the GPO over and over again for price savings which are starting to run low or even dry.

A much better savings tactic, that is congruent with your GPO strategy, would be to ensure that the products and services you are buying are conforming to your customers’ requirements (i.e., a defined set of wants, needs, and desires that are absolutely required).

This approach alone can save you tens of thousands of dollars annually. This is because too many products and services you are buying are either underspecified or over specified.

Catalog Buying Can and Will Increase Your Purchase Cost

One of the major reasons why your healthcare organization isn’t conforming to requirements is that your department heads and managers are catalog buying, instead of listing the functional requirements that they desire on their requisitions.

This practice is easy to identify when you see a manufacturer’s name and catalog number on a customer’s requisition. This generally means that your customer accepted the closest specifications to their perceived requirements that they found in a catalog or were provided by a sales rep.     

More importantly, what you will discover when matching your customer’s functional requirements to the product number they selected is that they generally don’t need everything that the product specifies. For instance, we observed a customer who ordered a Foley tray with a specific catheter that was too long for their purposes and then promptly threw out and replaced this with a catheter of the correct size. This was a costly method to meet their requirements!

Need to Eliminate Catalog Buying

Unless a department head or manager is ordering a onetime only purchase, you shouldn’t accept a manufacturer’s product number as a specification from a requisition. It’s your buyer’s or your value analysis team’s job to develop functional specifications with your costumers for every new purchase over $25,000 annually (our recommendation) that comes across your desk. 

At the same time you are doing this you should be looking for functional equivalents, at a lower cost, that meet your customer’s requirements reliably. This could mean only having one sterile glove in a kit, since this is all a customer needs to get their job done; or, reducing the size of a drape in a custom pack since the larger drape is only used in one of ten cases.

Price Savings Is the Smallest Element of Cost

We would all like to see a price decrease of 5% on a product that we are buying, yet this is the smallest element of your cost of goods sold. By re-specifying the products and services you are buying, you could save on average 26% of your purchase cost of this same product.  It comes down to this, if something is needed and can be reduced in some fashion it is much more cost effective to do so than to just chip away at its price. This is a more realistic approach in a marketplace that has less to give on price than ever before.


Tags

functional requirements, GPO, GPO contracts, GPOs, healthcare, healthcare organization, price, price decrease, purchase cost, savings, supply chain, value analysis


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