The Missing Link in Supply Expense Management

Do you have all of your supply expense management bases covered?

It wasn’t so long ago that price and standardization was king in supply chain management circles. All you needed to do was join one or two GPO’s and then maximize your compliance, and you where home free. Then products, services, and technologies became so complex that value analysis became in vogue to decide what was the most appropriate product, service or technology to purchase. Now, more and more supply chain professionals are acknowledging that there is a missing link in their supply expense management strategies and tactics; attacking their utilization misalignments.

At a recent AHRMM’s Executive Thought Leaders Forum, participants emphatically stated, “Even with the lowest possible price, if utilization is inappropriate the cost will remain too high.” Supply chain leaders also noted that with commodities, there is a point at which the price is as low as it can possibly be, and they must look at reducing utilization to capitalize on further savings.

Well, it looks like the jury has given its verdict; utilization management is the future of supply expense management. However, to make this great leap forward from price and standardization alone, you will need your value analysis team(s) to also focus their cost reduction efforts on utilization management. This way, you will be covering all of your supply expense management bases. More importantly, this transition from price and standardization to also include utilization could up your savings yield by as much as 7% to 15% on your total supply spend. Wouldn't you agree that it is worth the effort?

One word of caution; the transition to utilization can’t be achieved with your current spend manager’s tools, since they are focused on price, not utilization. You will need to develop or purchase new value analysis analytical tools that are built specifically to attack your utilization misalignments.

As we like to say, you need to have more than one tool in your supply chain expense toolbox to enable you to have the right tool, for the right task, at the right time, to make your cost management job easier and more efficient! It’s just like a carpenter; the more exacting the tool he has that is designed for a specific purpose, the faster, easier, and more professional the job gets done.

As I said, the verdict is in; utilization management is the future of supply expense management. Your bosses, your peers, and your professional associations are jumping on this bandwagon. Isn’t it time you make the same leap forward with your own value analysis program to align with your healthcare organization’s transition from volume-based to value-based purchasing? It can make all the difference in your hospital, system or IDN’s bottom line, now and in the future.