From our vantage point, all hospitals, systems and IDNs have a laser focus on their “above-the-waterline” or high-spend supply chain expenses like pacemakers, defibrillators, stents, etc. But what about their “under-the-waterline” or low-spend supply chain expenses like cylinder rentals, lab test kits, DaVinci robot supplies, etc.? For instance, it’s not unusual for us to see a hospital’s DaVinci robot expenses increase by as much as 45% ($1,455 to $2,105 per case year-over-year) because a hospital’s category managers are only focused on the price of their big-ticket purchases, not their utilization. Therefore, it is not enough to be doing a good job on price on your high-spend products, services, and technologies. You also need to do a great job across all of your spend categories to be truly cost effective.
Effective Total Cost Management Requires a New Savings Strategy Across Your Entire Contract Portfolio
If you think having good GPO contracts for your low-spend products, services, and technologies will solve this problem – think again. Remember, your purchase cost is only the tip of the iceberg or about one-tenth of your total cost! It’s your supply utilization cost (nine-tenths of your total cost) that needs to be controlled too! That’s where your double-digit ($5,000, $10,000 or $15,000) quick win savings reside. By ignoring these low-spend categories of purchase you are overlooking cumulative savings of $100,000 or more annually. Why leave these savings hanging in your vineyard when they are ripe for harvesting now?
What’s Your Savings Strategy for Those Categories Of Purchase You Are Not Focused On?
By definition, low-spend commodities are stealthy! You won’t know they are out of control until you stumble upon them. Like a supply chain manager client of ours who stumbled on the fact that his nurses were throwing out one sterile glove that came as pairs in a kit they used for years, because they only needed one for their procedure. A much better way to identify these low-spend cost savings is to have a Clinical Supply Utilization Management System (CSUMS) that acts like “supply chain radar.” This continuously searches your SKUs looking for commodities that are out of control or their volume is beyond acceptable limits. It’s like putting your saving machine on automatic pilot, because your CSUMS will also pick up those big-ticket utilization savings opportunities for you too.
Your Low-Spend Savings Strategy Can’t End With Sourcing
Let me repeat, your low-spend savings strategy can’t end with better sourcing (i.e., pricing), since this savings strategy can end up hiding your utilization misalignments (i.e. wasteful and inefficient consumption, misuse, misapplication and value mismatches in your supply streams) in your low-spend categories. This typically happens with point-of-service tests your hospital or hospitals employ that have excellent unit pricing but off-the-chart utilization, thereby costing your healthcare organization thousands of dollars a year in wasteful practices. To avoid this hole in your total cost management program, we suggest that you rethink how you are attacking your under-the-waterline supply chain expenses to create quick wins on hundreds of commodities that you purchase annually.
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