The trend today is to join a new national or regional group purchasing organization to eke out a few more dollars in price savings. Even some regional group purchasing organizations are following the same strategy. That is, they too are changing their GPO affiliation.
However, I’m sure you have heard of the law of diminishing returns. If not, think of this law as an oil well! The more time, money, and resources expended to empty an oil well, the less money you are going to make over time.
This is a natural law that can’t be altered by changing or joining a new national or regional GPO because sooner or later you are going to run out of new savings.
Think of Your Supply Chain Expense Savings as an Iceberg
The top quarter of your iceberg (above the water line) is where your price savings reside. Below the water line you have two-thirds of your savings that are available to you in supply utilization misalignments, or how products, services, or technologies are being employed by your hospital staff. Considering this scenario, where do you think your biggest supply chain expense savings would be in your healthcare organization?
Focusing on Savings Beyond Price is the Answer to Your Savings Challenge
If you want to increase your pipeline of supply chain savings multiple times you need to focus your savings efforts beyond price or below the water line. This includes process savings where you can reinvent the processes surrounding your supply, processing, and distribution functions to improve your customers’ experience. For instance, one of our former clients has installed an Amazon-like ordering system for all their hospital departments’ stock and non-stock items that automatically debits their issued stock items to their hospital’s accounting system. This is an example of what I’m talking about; go deeper into your supply streams to uncover savings beyond price.
Value Analysis is the Vehicle to Generate Savings Beyond Price
How do you uncover these new and better savings beyond price? We say, “Let your new product request vetting be the catalyst to identify these savings beyond price.” Here’s how this works. When you receive a request for a new widget from a hospital department, don’t just evaluate the effectiveness, efficiency, and appropriateness of the product, service, or technology, but also investigate (e.g., interviews, surveys, and shadowing the customers) how the current product, service, or technology is being employed at your healthcare organization.
Here’s a few questions you might ask your clinical staff to understand how this proposed product is used. Does your clinical staff need to use two widgets to get their job done? Is the current product defective in some way? Is there an easier and better way to deliver and store this product for your customers? Are there lower cost alternatives? How many weeks’ inventory is being carried on this product?
Group Purchasing Isn’t the Only Arrow You Have in Your Quiver
Sometimes we forget that group purchasing isn’t the only arrow we have in our quiver to save money. There are many ways to reduce the cost of the products, services, and technologies you are buying. In fact, price savings today is the smallest cost element of your commodity’s total lifecyle cost. So, remember this fact the next time your value analysis team vets a new product, service, or technology: There is more savings beyond price than first meets the eye.