‘The Times They Are a Changin’ In The Supply Chain Game

Price savings are still available, but reducing total cost is job #1

Robert T. Yokl, Chief Value Strategist, Strategic Value Analysis in Health, www.strategicva.com

If you are still eking out a few percentage points in price savings annually (you determine this percentage by dividing your annual savings by your total spend) from your national and regional GPOs or local contracts – congratulations! However, the preponderance of hospitals, systems and IDNs that we talk to are finding that they have gotten as much from their suppliers as is possible. However, this doesn’t mean their savings job is over – not by a long shot.

These progressive supply chain managers now realize that in the new healthcare economy that they live and work in that they must now rein in their total cost (from acquisition to disposition) of the products, services and technologies they are buying, not just focusing their saving efforts on price alone. They also understand that this new strategy requires a whole new way of looking at your supply chain costs. Here are three ideas on how to tighten up your controls over your supply chain costs to help you with this new challenge:

Value analysis teams need to expand their scope: It is rare to find a value analysis team that is reviewing the utilization of a product, service or technology they are investigating, since they have never been charged by management to do so. This is an unfortunate situation since utilization is where your hospital’s highest supply cost resides. Make sure your value analysis team doesn’t make this same mistake.

Reusables should be substituted for disposables in most situations: Our studies have shown that most hospitals are still disposable centric when there is no medical reason in most situations not to be employing reusables. This fact alone is costing a typical community hospital hundreds of thousands of dollars a year in lost savings.

LifeCycle cost analysis needs to be a primary measurement for best value: No longer can we look at just the acquisition price of a product, service or technology as the final determinant of “best value”. We must now take the long view on everything we buy. For instance, an I.V. pump acquisition price could be $745.00 to $1,495. However, the LifeCycle cost of these same I.V. pumps, over a five-year life, is estimated to be in the tens-of-thousands of dollars. So we need to be very careful that you buy or rent the I.V. pump with the lowest total cost over their life. No! Back of the envelope calculations won’t do!

We, as an industry, haven’t been focusing on the total cost of everything we buy for our hospitals for decades, since we historically have been reimbursed in some way, shape or form for what our hospital spends on patient care. Let’s face it, those days are over and now every penny saved counts.

That’s why progressive supply chain managers understand that price savings are still available for their hospital, but their job #1 needs to be to reduce their total cost of acquisition to disposition of everything they buy. This is the new supply chain mission for supply chain managers in the 21st Century and beyond!

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