June 2nd 2020
Supply Chain: Simplify Purchasing and Find Millions of Dollars
Do you suspect you have waste within your supply chain but don’t have a simple way to pinpoint where? Are you aware of through which GPOs and vendors you purchase each item across single departments, facilities, and your entire health system? Do you know what contracts you have in place that you could be leveraging but aren’t? Do you know how much money you lose on expired products every year?
Supply chain purchasing is the second largest and fastest growing expense for providers, and its complex nature makes it difficult and time intensive to determine the best ways to optimize. Throughout health systems, hospitals, and even departments, it is common to have multiple contracts in place which often results in major inefficiencies and, ultimately, millions of dollars per hospital per year in wasted money that could be avoided.
Using analytics to pinpoint problem areas within a health system’s purchasing results in realizing millions of dollars in annualized savings. Individual departments and hospitals have saved $1M to $3M annually and become profitable by making strategic changes to their purchasing contracts.
- In a three-hospital health system, the cardiac department standardized one product line. They did not change the product that the surgeons preferred to use, they only changed the way the product was acquired by going from ~7-8 contracts down to 2 across their system. This resulted in savings of over $1M on an annual basis!
- One hospital optimized purchasing within a department by working with a GPO where they previously were not. Analytics showed that purchasing and utilization patterns showed analysts that that hospital was not getting best prices for purchases. Once they understood the data, they reduced the number of vendors in a service line and renegotiated purchasing contracts. This information resulted in $3 million in annual savings. Now, the department is a profitable service line for the hospital.
- One hospital centralized purchasing via GPO & set up an inventory management framework. The results of this effort included:
- 49% savings in facility service contracts
- 38% savings on lab agreements
- 12% savings in lab equipment purchases
- 10-15% savings on IT related purchases
Tips for Supply Chain Success:
- Don’t leave ordering up to staff that are unfamiliar with contracting practices and processes – this allows ample opportunity for inefficiency. Clinicians don’t have the same care for costs as a supply chain expert!
- To avoid errors, providers must streamline the supply chain process to find savings. Visualizing what is being purchased by whom and where the product is going will help you find cost savings.
Implementing an analytic dashboard solution that incorporates inventory management and purchasing contracts can help you to visualize areas for improvement throughout your organization and see how those changes will impact your total purchasing spend. Analytics creates a way to standardize GPOs across facilities and departments, discover leverage for contract negotiations, identify usage trends to predict future need, and visualize product expiration in your inventory. This ultimately results in reduced product waste, and stress surrounding Joint Commission visits in addition to massive savings potential. Visualizing inventory use by department allows you to redistribute unused supplies efficiently to the places in your health system that need them most. Finally, there is a way to understand what the impact of contract changes would be throughout your entire organization.
Written By: Ellari Hillard