Any hospital CFO or supply chain manager will tell you that they will never compromise product quality just to meet certain budget goals and save on common and commoditized products.
They are, nevertheless, frequently responsible for achieving volumetric cost savings goals year after year. There are commonly thousands of products on a large hospital or health network's item master. Among those thousands of apparent opportunities, what top characteristics should hospital CFOs and supply chain managers seek to drive quality improvement, clinical buy-in and 20%-30% savings?
"Sufficient" volume
Your highest volume savings may not be your highest volume products. On your highest volume items, a half-cent savings on something you're buying one million of or more adds up, but it is a slow moving opportunity. Conversely, there is not much room to affect big ticket purchasing items like expensive imaging equipment. There are too few opportunities and too many hurdles.
With a few exceptions, the best volumetric range indicating a product type that is ripe for meaningful savings is roughly 10,000 - 100,000 for a 500 bed hospital or larger hospital systems.
Top performing examples:
1. Digital thermometers - single use (50% savings on annual volume of 70,000 units)
"[The team] generated a better product at half the price. We save $70,000 per year on that item alone." - VP Supply Chain Operations
2. Patient amenity kits (30% savings on annual volume of 50,000 units)
"Our new [patient amenity] kits are a 10x increase in quality with 30 percent savings. Every interaction with patients and the products they use is a unique opportunity to bring additional value to a patient centered care model." - Clinical Supply Chain Manager
Multiple source factories
Do you know how many factories worldwide are capable of producing a huge percentage of your commoditized consumable products? Unless you already access the global market directly, probably not.
We source products from more than 150 factories worldwide, scores of which have the capability of producing identical, quality assured products like stethoscopes, tourniquets or specimen containers to name a few. Direct access to these factories improves competition (pricing) and ensures quality and high fill rates mitigating risk.
Opportunity: Stethoscopes - There are a half dozen or more factories in our network capable of producing a wide array of disposable stethoscopes. One ASP Global customer saves 22% on 47,000 units every year.
Multiplicity
Every SKU wrung out of your system saves you money throughout the supply chain. Every suction catheter approved for hospital use should meet the performance standards of the clinicians using them. Why then would you purchase, or be asked to select from, four types? It's true, there can be downstream resistance when standardizing certain products. But as long as your supply partner can address critical clinical improvements requested by staff in a timely manner, every SKU removed from your item master saves you money.
One hospital CFO told ASP Global Director of Sales Ryan Canavan that every purchase order (PO) costs them more than $5 to execute. With multiple vendors and multiple orders delivering hundreds or thousands of products weekly, every PO and SKU removed is a savings opportunity worth investigating.
The top categories
Med-surg and supply products, custom hospital amenity kits and stethoscopes are the most concentrated commoditized hospital products our customers procure through effective supply chain and sourcing programs every day. They are all of sufficient volume, ripe for quality improvement with multiple source factories and often exhibit unnecessary multiplicity within a hospital or health network's purchasing programs.
Quality improvement initiatives drive millions in savings
At the end of the day, quality rules. What many forward-thinking hospital CFOs and supply chain managers are beginning to realize is that product quality improvement initiatives are simultaneously capable of streamlining their supply chain and wringing millions of dollars in wasted spending out of the system year after year.
About the author
Lorne Tritt is Founder and CEO of ASP Global. With headquarters in Atlanta and operations in the Pacific Rim, ASP is a leader in global sourcing strategies and programs. ASP Global's programs enable IDNs, hospitals and large group practices to take advantage of lower costs and improved quality in hospital medical supplies available through direct sourcing, an efficient supply chain model and the global marketplace.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.