Supply chain management in healthcare is complex and demanding. Being a supply chain professional means you are constantly under pressure to perform many different roles. As a supply chain leader you must take on the responsibilities of an analytical expert, a financial advisor, a safety officer, and an advocate for innovation, among many other duties. You manage tens and even hundreds of thousands of SKUs for dozens of departments or even dozens of facilities. You are responsible for the financial goals of the organization, the satisfaction of the clinicians, and you manage an intricate inventory and delivery management system, working with a vast network of suppliers, distributors, and service providers. You are also held accountable for the initiatives of your organization.
In a recent TechValidate Survey of hospital supply chain professionals, 61% stated that their initiatives for the year were to reduce costs and/or increase GPO contract compliance. In the same survey 98% of the respondents agreed that that supplier consolidation and standardizing product purchasing is important and provides cost savings.
“SAVING MONEY EARNS YOU A BONUS”
Here are three ways that product standardization and supplier consolidation can help you achieve results that help you earn your bonus.
1. Reduce Costs
“Saving money earns you a bonus,” was stated by one materials management manager who works for a large enterprise healthcare organization. It’s certainly no secret that reducing costs is the golden ticket to scoring accolades, meeting goals, and getting that bonus.
Saint Thomas Health, a system of 5 hospitals, needed to find a way to reduce costs. They were purchasing different SKUs for products that were very similar, in this case, labels. They bought label rolls for $3 and a very similar product for $1. This oversight in product purchases impacted the overall costs of the system. After partnering with a sole source vendor it was able to save $200,000 over a four year span. They accomplished this simply by standardizing label products. These savings, however, only account for the immediate savings from standardizing products. The saving that are not factored into that number are the savings from soft or hidden costs.
On a national scale, hospitals lose millions of dollars per year in hidden expenses due to missed opportunities for cost containment and incorporation. Some of the hidden elements that increase overall costs for a healthcare provider include the following:
- Redundant purchasing
- Excessive purchase orders
- Multiple vendor relations
- Low efficiency
- Joint commission fines
By implementing product standardization, hospitals and health systems reduce vendors, are able to reduce SKUs, purchase orders, inefficiency, freight costs, fines, and off-contract spending. All of this adds up to large savings for the organization as a whole.
96% of the respondents in the survey agree that consolidating suppliers and standardizing product purchases across organization would reduce hidden costs.
2. Increase GPO Compliance
The second way to help reduce costs and achieve your personal goals and bonus, is to focus on increasing GPO compliance for purchases. Two key missions of most group purchasing organizations (GPOs) are to negotiate lower prices with suppliers and to increase supply chain efficiency. A study published by the Healthcare Supply Chain Association revealed that providers realize between 10% to 18% cost savings by using GPOs. This is why hospitals are pushing to increase compliance.
Product standardization and GPO compliance are co-dependent. In the TechValidate Survey, 68% of respondents agreed that increasing GPO contract compliance is a key benefit of consolidating vendors and standardizing products.
Standardizing products gives control and transparency to purchasing decisions. Having this information makes it easy to consolidate purchases to GPO contracted vendors. By eliminating multiple vendors for similar products, there is also an opportunity to reduce hidden costs.
3. Improve Efficiency by Streamlining Inventory Management
Applying standardization best practices to help improve supply chain efficiency and your organization’s bottom line is the third way to help ensure a positive performance review. 74% of the respondents in the survey agree that a key benefit to product standardization is improving supply chain efficiency (e.g. reduce number of POs, hidden costs, etc.).
One way that product standardization improves efficiency is by reducing the number of SKUs. SKU reduction was another top initiative mentioned by respondents. Reducing SKUs improves efficiency by streamlining inventory management. In a case study of Intermountain Healthcare, an IDN that participated in a product standardization service, was able to reduce SKUs by 42% for a product category.
Without a standardized system in place, multiple departments at Intermountain Healthcare purchased similar patient ID products from a variety of suppliers. This led to an overabundance of SKUs, increased supply costs, and inconsistency between products that impacted caregiver efficiency and patient safety. Inefficiency resulted as separate departments dealt with dozens of suppliers to order same or similar products.
The decentralized processes led to a lack of visibility of total spend and an excess of suppliers and purchase orders, driving SKU levels to uneconomical proportions. The inefficiencies also overburdened Intermountain staff responsible for managing, monitoring, and tracking the surplus.
Get That Bonus
You’ve got the skills and the drive to meet your organization’s supply chain initiatives and earn yourself the bonus you deserve. Product standardization is an effective way to get there. It’s effective because it improves efficiency and streamlines inventory management, which saves time and money. Standardizing increases GPO compliance, which already saves hospitals anywhere from 10%-18% on purchases. Lastly, product standardization also creates immediate and long-term savings while reducing hidden costs.