5 Supply Chain Savings Strategies to Employ to Aid Your Health System’s Immediate Bottom Line Crunch
Saving money is now back in as a priority at healthcare organizations whose bottom lines are taking a beating due to inflation (over 8.5% as of the writing of this article) and continued fallout from the Covid-19 Pandemic. Those who have been through this in the past know that the key to being a strategic asset to your CFO is to be organized to save which is the hallmark for making big savings happen. I have outlined below strategies that I highly recommend you consider when you engage in your savings program.
Healthcare Supply Chain Savings Strategies
1. Look for Big Savings on the Road Less Traveled (Biggest Bang for Your Buck).?Let’s face it, the only road less traveled in the healthcare supply chain for major savings that is left is in clinical supply utilization management. This has been left virtually untouched until now. Most healthcare organizations have no formal methods, reporting, or KPIs to go after this major area of savings that our 15-year studies and trending show to be between 7% and 15% of total supply budgets. The good news is that you can start to put a CSUM program in place today. Remember, you need to have solid patient-centric volume-based cohort benchmarking, KPIs, and other reporting beyond just what you spend on a product category to ensure that you efficiently make savings happen on every CSUM project.
2. Make Sure You Have Fully Realized, as Well as Sustain the Savings You Already Have. The worst thing that could happen to any savings program is to have savings in the bucket but then have it leak out, or worse, never materialize at all. All the work that goes into negotiations and value analysis for your contracting and standardization programs should not be for naught because you did not follow up and validate the savings. There are also major advantages to validating savings after the fact. Most importantly, you will find in many categories that the savings have far exceeded the savings projection from implementation. Why not take credit for it, right?
The major factor here is that when you enact changes to your supply chain and with your end customers (clinicians, support staff, etc.) there will be unintended consequences that can occur and inevitably will affect your savings results. Why not first validate that your savings are real but then also ensure that these savings are sustained. The best part about performing savings validation so soon after implementation is that if you find it is off, you can refer right back to the original implementation steps for your solutions.
3. Back Off New Product Requests. Any way you look at this, new products equal increased costs in the categories that you are adding them to. Traditionally, 10% to 17% increase in costs can occur in these new categories. While you are working on your savings program, you will need to put a pause on new products that will increase your costs. This may not be a wholesale shutdown of new product requests as there may be some that could be?lower cost alternatives ?or offer added reimbursement that you would want to consider. Anything that increases costs must be put on hold or not reviewed until your CFO gives you the all clear to address these new products.
4. Start Strategically Planning Your Savings Opportunities. We had a large university teaching organization that set a one-year goal of saving $40 million in non-salary savings. What was their secret sauce in this endeavor? They dived into their savings goals with a plan and they made it happen! Just like planning for a new inventory system or ERP Purchasing System, you should have planning in place for your savings opportunities. Most organizations have a look out for what is coming down the road with their contracting, but most times don’t really know what the net result is going to be until much closer to the new contract engagement or RFP process. This does not mean you cannot try to project where your savings are coming from in these areas.
Let’s not forget that there are other areas for savings, like clinical supply utilization management mentioned above, but also areas that you may not know about but need to. One area is all of the individual departments that still handle some of their contracting and may have savings that they know are coming up in the future. Poll, survey, or just plain ask them what their new savings opportunities are.?If it is non-salary related, you should start trending it.
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5. Give Your People Training in the Latest Methods of Saving Money. It would be silly to think that every person in your supply chain organization, as well as those department heads who sit on your value analysis teams, know everything there is to know about next level advanced cost optimization. If we want new and better results, we have to make sure that our teams are trained with a strategic focus on the areas that we believe we are going to get the biggest savings opportunities from.
Case in point, in a conversation with a well respected AHVAP Leader, she mentioned that value analysis professionals do not focus on true utilization other than projecting the spend and how much they are going to save for implementation. So, if your VA people are telling you that they can handle next level advanced cost optimization, think again. They may need to have more training to not leave any money on the table for your organization.
The most important takeaway that you should keep in mind is that in order to take your organization to a whole new level of cost optimization, you need to have multiple strategies and methods to reach a new level of savings. The option to just grind on price and standardization is not the same ROI as it used to be. You now need to add more Ace’s up your sleeve to ensure that you meet your savings goals for the next 3-5 years.