Cost Optimization Isn’t About Price Savings Any Longer

Robert T. Yokl, President/CEO, SVAH Solutions

I would assume that we would all like to be more cost efficient, functional, and effective with our value analysis programs. So, what’s holding us back? In my opinion, it’s our obsession with price savings! There isn’t anything wrong with price savings. However, we need to be mindful that price is only one aspect (and the smallest component) of the supply expense savings triangle optimization tactics.

More importantly, we have been preaching for a number of years now that your price savings are slowly disappearing. If you can hold the line on inflation with better pricing each year, you are doing everything you can to optimize your pricing.

As I see it, there are still savings opportunities with some physician preference items, like stents, cardiac rhythm devices, orthopedic implants, etc., but these commodities are much harder to gain consensus from your clinicians to standardize. Thereby, harder to optimize their costs in the short term!

The most logical candidate for cost optimization opportunities today is your supply utilization misalignments, or the wasteful and inefficient consumption, misuse, misapplication, and value mismatches in your supply streams. These supply utilization savings represent 7% to 15% of your total supply budget, or one million dollars per 100 beds. I don’t believe we can ignore these costs any longer.

Due to the pandemic, the majority of hospitals, systems, and IDNs show losses in the first quarter of 2020. Consequently, these losses need to be made up in future quarters with supply savings and cuts in staffing. As I have outlined above, the best way to do so is to optimize your supply utilization savings…now!

P.S. If you would like to know more about supply utilization cost optimization, just e-mail me at and I will e-mail you, at no cost, our recently updated “Supply Utilization Management: The Future of Supply Chain Expense Management” e-book 2020 edition.