By Robert W. Yokl, Sr. VP, Supply Chain & Value Analysis— SVAH Solutions
Hospitals and health systems have achieved huge savings gains from group purchasing and internal supply chain contracting/sourcing over the past 10-15 years. There is no doubt that the healthcare supply chain contracting and strategic sourcing programs have reached a high level of maturity. However, a byproduct of this high level of maturity is less price savings opportunities on the table than there used to be in all the major and minor supply categories. Add to this fact that we now have the fallout of 2020 with all the revenue, PPE, and other product sourcing challenges that are still ongoing today.
Though this news may sound bleak, it only means that supply chain needs to add new major opportunities of savings that have not been tapped into in the past. Many would think I was crazy if I were to tell you that there is still an additional 7% to 15% in savings beyond price from your supply budget after all that you have done up to this point – but there is.
What Can We Expect Moving Forward?
In a recent conversation with a Director of Procurement of a large health system, he stated, “We have implemented all of the major GPO contracts and are only seeing pennies on the dollar in new savings right now.” Translate the pennies into percentages and we are talking only a few percentage points in savings on each new contract coming down the road. Your GPOs and Supply Chain Strategic Sourcing Departments will undoubtedly find new ways to obtain price savings, but there is one area that is still virtually untouched. That area is savings beyond price.
How Can Savings Beyond Price Add Up to an Additional 15% of Supply Budget?
Savings beyond price is exactly as it appears. It is the process of reviewing your purchases after you have implemented the contracts and looking for areas that are running higher than they should be. Over the years we have found that these cost overruns, due to savings beyond price issues, can apply to 50% to 70% of your major product categories of spend. Quite simply, you are not getting the value from the dollars you spend due to life cycle usage issues, unforeseen waste or misuse, and value mismatches (using the wrong product for the clinical function). Ask yourself, how are we addressing these issues at our organization right now? More than likely, you do not even know where these issues are or how much cost savings there are for you to drive out, let alone doing anything about them.
Savings Beyond Price is the Next Untapped Well of Major Bonafide Supply Chain Savings
These savings beyond price cost overruns are not anyone’s fault or a black eye on the supply chain contracting process. This is a natural occurrence with the multitude of products and areas of use within a healthcare system. The bottom line is that they are occurring and if you don’t have a strategy to knock these cost overruns down, then the challenge will be finding another source that will net big savings in another area of supply chain other than price. I’m not sure there is anything left in the well to tap into other than savings beyond price.
There are No Major Savings Results Until You Start Your Own Savings Beyond Price Program
Most healthcare supply chain organizations now have value analysis managers and analysts who review contracts and work up the results for strategic sourcing and value analysis product reviews. I am glad to see these great resources available to supply chain departments, but they need to be educated and given the right tools to identify and weed out these currently hidden savings beyond price. You will be surprised at how many strategies, trainings, and tools are available (email me at firstname.lastname@example.org if you cannot find them) to take your supply chain team to this new level of savings beyond price.
There are many intelligent ways to go about attacking these savings beyond price that will create a streamlined process and ongoing flow of savings. You can make the savings opportunities come to you instead of you and your supply chain team chasing savings within your value stream. Most importantly, the results will astound you as you drive out double digit savings from all of your major and minor categories systematically.
Start today. You will look back on this day and say, why didn’t we do this sooner?
|About Robert W. Yokl, Sr. VP of Value Analysis & Supply Chain Solutions|
|Robert is the Program Leader for SVAH Solutions that provides value analysis, clinical supply utilization, and savings validation tools to help organizations to gain the next level of savings beyond price and standardization.
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