According to a study from Cardinal Health and SERMO Intelligence, supply chain management is the second largest expense for healthcare providers. In fact, for some healthcare organizations, supply chain costs can reach up to 40 percent of total operating budgets, based on research published in Materials Management in Health Care. Yet, only one-third of hospital decision-makers have described their management processes as “very effective.”
To make the hospital supply chain more effective and cost-efficient, providers should consider putting together a procurement team.
Procurement isn’t just about simply purchasing goods, like medical devices or ID badge holders, and services, like technology licensing or management arrangements. At its heart, the role of a procurement team is to make sure that hospital operations continue as seamlessly as possible all year round.
However, colleagues and organization leaders outside of procurement are not always aware of the daily activities that this function carries out, or the corporate priorities it can support. And this often means that there are a number of lost opportunities that could help increase efficiency and productivity.
If you’re looking to streamline and enhance your purchasing processes, here are four ways procurement staff can help you achieve this goal.
1. Efficiently and Smartly Cutting Costs
Reducing costs without damaging profitability is the holy grail of good business. This makes effective cost management an essential part of purchasing goods and services, from PPE and employee ID badges to surgical equipment, and handling supply chain management.
For many healthcare organizations, a significant amount of money is spent on non-strategic or unmanaged supplies every year. As it requires managing a variety of suppliers in the hundreds or even thousands, this tail spend can be both costly and time-consuming.
Procurement teams can give healthcare leaders the freedom to look at their spending in a much more transparent, straightforward way. This helps organizations make more informed choices about suppliers, products, and services, while limiting unmanaged, rogue spending.
2. Helping with Corporate Social Responsibility Compliance
Corporate Social Responsibility (CSR), a self-regulating business model that helps an organization be socially accountable to itself, its stakeholders, and the public, is a big deal. The reputational damage that can come from CSR non-compliance, like not honoring internal policies or not keeping partnerships transparent, can often be irreparable.
Healthcare conglomerates have discovered that company growth often comes with even more difficulty enforcing compliance. For this reason, a detailed pre-qualification process is essential for procurement professionals. This process is not simply about asking questions; It’s about conducting audits where necessary. Validating supplier information using an effective approach facilitates better, and much more agile, decision making.
3. Effectively Utilizing Good Data
There’s a big difference between collecting data and basing your decisions on high-quality supply chain intelligence. For a complex supply chain that entails product design, engineering, product development, packaging, delivery, sales, forecasting, and more, using data correctly unlocks insights that increase efficiency and drive revenue.
However, if you’re staring down the barrel of complex, poorly verified data, you’ll find this extremely difficult.
In many cases, poor IT infrastructure that was put in place decades ago has caused mismatched data standards, and a lack of interoperability. Numerous hospitals still use a manually curated item master to keep track of everything they’ve procured or are approved to purchase.
Procurement teams can help organizations build a complete picture of supplier operations and risk exposure by not just providing data, but by going through processes to effectively validate it. This ensures more streamlined purchasing processes because it gives organizations the best foundation to base their decision making on.
4. Simplifying Inventory Replenishment
Initially, hospitals needed a number of large stock rooms in order to store their supplies. This took up a significant amount of space in hospital campuses and was a costly expense for organizations.
A procurement team can give healthcare organizations the ability to work with efficient, reliable suppliers—some of whom may offer free and/or next-day deliveries. This eliminates the need to stock a significant amount of products, reducing inventory carrying cost and labor expenses. Essentially, using suppliers as virtual warehouses saves money, resources, and time.
Having more optimized supply chain management is a major underlying factor for well-performing, high-achieving hospitals.
In fact, after examining public data from Definitive Healthcare that was recorded between 2015 and 2017 and included over 2,300 U.S. hospitals, Navigant found that the hospitals that performed best in supply chain management spent $23 billion less than the others on supply chain costs.
Plus, the hospitals that performed the best on supply chain savings didn’t sacrifice care quality to achieve cost reductions, particularly because these facilities reduce the clinical variation that comes with less streamlined purchasing.
So in essence, having a streamlined purchasing process and optimized supply chain management creates a safer, higher quality hospital environment.
And procurement teams can help hospitals achieve this by reducing costs through better spending management, creating more agile decision making while ensuring CSR compliance, effectively using data to determine actionable insights, and shaping more efficient processes for inventory replenishment.