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Managing Supply Costs in Challenging Times:

Lessons Learned from the Pandemic

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"If you can't measure it, you can't improve it."
                                                                                          —Peter Drucker


The above quote by Peter Drucker, widely regarded as the greatest management consultant of all time, focuses on the central concept that measurement is the first step toward quality control, improvement, and business growth.

The Covid-19 pandemic created supply-chain challenges for most industries, and healthcare was certainly in the thick of these disruptions. In other cases, issues that already existed were magnified. The pandemic’s aftermath is the time to analyze supply chains and enhance their efficiency and resiliency.

This paper focuses on inventory management and procurement for the healthcare industry, particularly non-acute care providers. We will study what the pandemic exposed and what can be done to learn and improve from these lessons. Today, virtually every hospital has an automated inventory management system, while the vast majority of non-acute care providers handle this important business function manually.


Sourcing and Direct Purchasing
Procurement and supply-chain management are very big deals in companies like Walmart, Target, and most hospitals of any size. They work diligently on sourcing to find the right product at the right price, and they pre-select alternative products and suppliers just in case they need them. Ask yourself how your staff knows what to buy and who to buy it from. How do they find a substitute product if option A isn’t available?

A recent client found they purchased 966 different items from 18 suppliers. With no system in place, how could staff members be expected to keep track of such a daunting amount of information? Compounding the situation, what if the same item was available from multiple sources, but significantly cheaper from one supplier? Who would ensure that the most cost efficient vendor was selected?

Screen-SmartPO-OpportunitiesWindow

SmartPO's Opportunities window alerts staff to potential cost savings through alternate items and suppliers.


Pricing – GPOs and Local Agreements
GPOs (Group Purchasing Organizations) are predominant in healthcare today, with practically every acute and non-acute care provider belonging to at least one GPO. Despite the fact that your group or practice is a member of at least one GPO, do you really understand how they work, and are you taking full advantage of what they offer?

One of our GPO customers offers 655 contracts with 659,554 items to their members. If you are in a GPO, how many of the items you purchase are tied to a GPO contract, and how do you track the contract price of each of those items? Are there items that aren’t on a contract that should be? What price should you be paying for items not linked to a GPO contract?

No one would shop at a grocery store that didn’t post its prices, just blindly filling a shopping cart with no idea of the actual costs until checkout. Yet that is precisely the method used by many medical practices when purchasing items every week, with no firm prices in place. If you don’t have an agreed-on price, you are getting “today’s” price from your supplier. Local pricing agreements can prevent the unpredictable costs for items not linked to a GPO contract. The concept is simple: For all non-contract items, you ask your supplier to quote you a price and an effective time period for it.

Most supply-chain experts agree that purchasing without firm pricing is inefficient and costly. With manual purchasing processes, it’s almost impossible to know what’s on an agreement and what’s not, and auditing vendor invoices to know if you have been charged correctly is cumbersome at the very least. The suppliers servicing you likely understand your lack of capabilities in this area, even if you don’t.

SmartPO's GPO column clearly identifies on- and off-contract items with either a GPO or local contract icon.

SmartPO's GPO column clearly identifies on- and off-contract items with either a GPO or local contract icon.


Conclusions
Healthcare providers navigate a myriad of guidelines, laws, and reimbursement rules, with most doing so very well. Yet oftentimes, inventory and purchasing management is, at best, at the bottom of the “to-do” list. At worst, it’s not even recognized as a problem in search of a solution. The pandemic exposed numerous supply-chain issues, with many practices recognizing that now is the time to address them, before the next crisis. In keeping with Peter Drucker’s principle, you must know what you’re purchasing, from whom, and for how much in order to make improvements that can result in significant savings.

An automated purchase-order system is integral to tracking this information and modernizing procurement. It ensures items are purchased from preferred vendors at the correct price and makes it effortless to see if orders are filled accurately. And, having all purchasing done in one easy-to-search place saves countless hours.

SmartPO has been used by healthcare providers since 2006. It was designed and continues to be enhanced with input from non-acute care providers just like you. We understand you likely don’t have a materials manager or a supply-chain team, so our staff handles the heavy lifting to get your practice up and running quickly. Our ongoing contact, advice, and recommendations assure optimal results.