Your Biggest Cost Savings Opportunity is Often Ignored After the Right Product at the Right Price at the Right Time at the Right Place Happens

For many in the healthcare supply chain, the old touchstone has been the cornerstone of best practice for over 50 years.  What happens after the product is in our customers hands?  What happens after the contract has been implemented/converted and/or value analysis has chosen the best valued product?  We know that the right price is in our ERP/Purchasing Systems but do the dollars hit the bottom line?  In order to get a better grasp on this concept, validation needs to occur because the costs ramifications cannot be left flapping out in the wind any longer.

The 1:1 Ratio is Flawed After the Contract Has Been Implemented

Let’s look at how we do business today.  We have a contract category for review, for example, “Exam Gloves”.  We find out how many gloves we used last year, e.g., 10 million gloves at $430K ($0.043 per glove).   We now look to our GPO contracts and show the best price and select the best value for our organization.  This would result in a 10% savings to convert to the new contract for the next 2-years.   We have value analysis validate the glove selections and then take the 10 million gloves used last year and calculate our savings at $43K annualized.   We then proceed to implement this contract and away we go—-simple right?

How do we know that we will achieve the $43K in annual savings with certainty?

Anything can happen after a new contract conversion.  For example, instead of using the previous year’s 10 million gloves, 13 million gloves are used annually due to unforeseen circumstances (e.g., breakage, misuse, bad holders) which then equates to $116K more in annual spend.   Yes, it’s a great price, but now the consumption is 30% more at this best price.   This scenario negates the $43K saved over the previous contract resulting in $73K in the red.  Is it evident this is happening?

Interestingly, this hospital was on the upswing in glove utilization from the previous fiscal year by 19% overall.  The implementation of a new glove contract did not change the increased consumption of their gloves.  The consumption kept increasing because it was not known, and thus not addressed before, during or after the new glove contract was implemented.

Savings Validation Is the Logical Next Step to Ensure Savings Does Not Slip Through the Cracks

Through hundreds of studies and automated tracking systems, the results speak volumes.  SVAH has found that due to changes after contract conversions and subsequent value analysis studies, there could be as much as 25% to 46% loss of savings.   The key to not letting these savings fall through the cracks is to implement a strong validation program.  The program will not only track the short-term results but the long-term results of your contract and value analysis initiatives.

 

 

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