5 Key Best Practices for Sustainable Hospital Supply Chain Expense Management

There is Never Just One Right Strategy to Controlling Supply Expenses, the Key is Deploying a Set of Strategies, Tools and Methods that Once Put In Place Will Help You Control and Sustain Your Supply Chain Expenses Indefinitely

It’s one thing to save money in the short term through supply standardization, group purchasing contracts or inventory management, it’s a whole other thing to make savings happen on a sustained systematic basis.  This can only be accomplished with the five key best practices for a sustainable healthcare supply chain expense management as follows:

1.  Ongoing Benchmarking:  There are always better savings ideas being discovered by your peers, but you will never know about them unless you have ongoing (at least quarterly) benchmarking. Meaning, you would continuously be testing the marketplace to see if anyone has outperformed your metrics on price, standardization and utilization in any category of purchase since the last time you checked.

2. Clinical Supply Utilization Management:  Even if you have the best pricing for your size healthcare organization and have 100% standardization of your products, services and technologies, you are missing a big savings opportunity (7% to 15% of your total supply budget), if you aren’t eliminating your utilization misalignments in your supply streams.  To pretend the savings aren’t there isn’t going to change the fact that you are losing thousands of dollars annually because of waste and inefficiency that is being ignored.

3. ABC Analysis:  One of the quickest ways to identify hospital supply chain expense savings opportunities is with a ABC Analysis (i.e., an hospital expense categorization methodology which consists of dividing line item purchases into three categories, A, B and C by their annual spend: A items then are the first being analyzed for savings).  It’s has been our experience to save, on average 26%, utilizing this one savings tactic.

4. Customization: Although hospital supply standardization can save you money, customization can save you even more for your hospital, system or IDN.  Here’s how this works in practice.  When you standardize on one product, service or technology, you are assuming that one size fits all your customers, which couldn’t be further from the truth.  Some customers need higher specification (about five percent) to meet their requirement, and some will accept lower specification (also about five percent).

For instance, some procedures require only one sterile floor glove, so why would you standardize on two in each kit? Or, why provide a high-quality floor glove for use in cleaning bed pans? The answer is to always provide exactly what your customers require to do their jobs and you will save more through customizations and have happier customers too.

5. Functional Analysis (Value Analysis): Do all your customers need all the features they are buying?  Are there lower cost alternatives to what they are buying?  These are the questions that are asked with the technique of Functional Analysis to determine the most appropriate product, service or technology you should be buying for your hospital, system or IDN.  Functional Analysis starts with a blank piece of paper and builds what is needed on paper before you ever buy it.  It can easily save you hundreds of thousands of dollars (maybe even millions) annually.

No one has all the answers on how to have sustainable systematic savings, but from our experience these five tactics that we have just outlined will go a long way toward  providing your healthcare organization with continuous savings for many years to come.


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