A recent poll of supply chain managers stated that 1 out of 3 supply chain managers believe that we have passed the peak of coronavirus disruption. That’s good news! Now that we see a light at the end of the tunnel, we need to start rethinking our supply chain expense management strategy post-pandemic so we can refocus our supply chain efforts on cost optimization. This then will ease the budget pressures your healthcare organizations are facing now and in the relative near future. One of the best ways to do so is to focus your cost cutting efforts on the wasteful and inefficient consumption, misuse, misapplications, and value mismatches in your supply streams.
Don’t Look for Price Concessions from Your Vendors
In my opinion, it will be almost impossible to obtain price concessions from your vendors as you open for business, since they are in a cash crunch themselves due to the effects of the pandemic. Therefore, savings beyond price (i.e., value analysis and utilization management) should be the focus of your value analysis teams. This can save your healthcare organization 7% to 15% almost overnight, or, a minimum of one million dollars per 100 occupied beds.
Prior to Covid-19, hospitals, systems and IDNs had reached a high level of maturity with their price and standardization efforts. However, our recent studies show that this only represents 1/2% to 1% savings for a healthcare organization’s total annualized supply budget. Considering that 87% of all hospitals, systems, and IDNs have not engaged in any organization-wide supply utilization program or even had an annual utilization assessment, we see a whole new world of savings opening up for you.
Urgent budget pressure for all healthcare organizations is real. It is therefore necessary for you to be strategic vs. making shoot-from-the-hip decisions about your cost optimization initiatives to avoid jeopardizing your healthcare organization’s short and long-term financial health. As I see it, this is a rational approach to cost management that you should champion at your healthcare organization.
Avoid Deep Arbitrary Cuts in Cost, Service, or Quality
Too often, your senior management will want to cut 5%, 7% or even 10% across the board on supply expenses. This decision is dangerous since it penalizes supply expense stewards and really does not tame wasteful managers. A much better way, we have found, is to target your savings through benchmarking, then make intelligent and defensible cuts to your hospital, system, or IDN’s supply budget. One of our clients saved 40 million dollars annually on her supply expenses by employing this strategy in 18 months.
It’s Time for You to Double-Down on Your Savings
Cost optimization has not changed in healthcare, it has just become more urgent due to the effects of the coronavirus. We believe cost management initiatives will now shift from price alone to supply utilization management. Why? Because there is nowhere else to go for double-digit savings to stabilize your healthcare organization’s financial health.
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