Summit Pacific Medical Center, a rural critical access hospital with 250 employees in Elma, Wash., was able to reduce procurement labor expenses by 80 percent and lower shipping costs by 60 percent in two years by working with Amazon Business.
Summit Pacific has fully integrated Amazon Business into its supply chain operations. The medical center, which previously relied on a ticket-based purchasing system, uses Amazon's website to reorder supplies ranging from syringes to exam gloves.
All together, 90 percent of Summit Medical Center's supply needs are now capable of being provided by Amazon Business.
Beyond the labor and shipping cost reduction, using Amazon Business for supplies has created visibility into the hospital's supply chain, narrowed its vendor network and reduced expenses from lead time delays.
Leading the charge behind the partnership and supply chain transformation was Matthew Palcich, manager of business analytics and logistics at Summit Pacific.
Mr. Palcich came to Summit Medical Center in 2017 as a materials manager, where he oversaw contracting, purchasing and logistics. He now oversees the medical center's supply chain operations and business analytics department.
Before joining Summit Medical Center, he worked in various distribution and supply chain roles at Providence Health & Services in Renton, Wash.
Mr. Palcich, a supply chain enthusiast and black belt, spoke with Becker's Hospital Review about the partnership and how hospitals can implement Amazon Business into their supply chain to drive significant savings.
Editor's Note: Responses were edited for length and clarity.
Question: How were you purchasing supplies before integrating Amazon Business?
Matthew Palcich: Most of our supplies were purchased after being routed through an online ticket system. If someone on the team needed a special item or something we didn't have on hand, they would put in a ticket request to procurement. That team would then look at that ticket and source of the item. There was always a lot of back-and-forth between the procurement managers and the person requesting the item, and often some miscommunication. Eventually, procurement would buy the item. The ticket system took a long time and caused a lot of work for procurement.
Q: Why did Summit Pacific decide to use Amazon Business for its buying needs?
MP: We wanted to focus our efforts on improving customer service, operations and efficiencies instead of being professional shoppers. We wanted to drive cost savings in the supply chain, and we thought we could do that with the help of Amazon. It was mainly about efficiency and reducing friction. Plus, the free shipping was a nice cherry on top.
Q: What cost savings have you seen since implementing Amazon Business into your supply chain?
MP: We were able to save 80 percent on procurement labor. This meant being able to eliminate a full-time employee's salary. We had four dedicated supply chain personnel, and today we have three. We were able to save around $50,000 from that reduction. On the shipping side, we were spending about $30,000 to $40,000 on shipping per year. We were able to bring that down about 60 percent. We have been able to save costs on an item-specific level as well.
Q: Beyond cost savings, how has the partnership affected your organization?
MP: It's allowed managers to implement and respond to changes in their business quicker. They feel comfortable purchasing things via Amazon and knowing that they can return them if it's not exactly what they wanted. I guess they're a little more apt to implement new ideas or strategies.
Additionally, we really don't have to train people on how to use Amazon Business. We used to have to train people on the ticket system and how to fill things out appropriately. Now we just give them the Amazon login, and virtually everybody knows how to use it. It's really cut down on our lead time. We also saw that it causes people not to hoard supplies as much, and they carry lower inventory levels, because products are always there in two days. That's helped our inventory footprint and space footprint quite a bit.
Q: What best practice advice would you offer to other health systems looking to use Amazon Business for some of their purchasing needs?
MP: It will change the workflow for your procurement staff. My advice is to be mindful of how much time it is going to free up for them and make sure that you have projects lined up for them to focus on that will add value to the organization. You don't want people just sitting around. Prior to implementing, I'd say establish some baselines. Get your metrics and key performance indicators established so that you can prove that the system is effective. If you can, prove to finance that it's a good move. Spend some time understanding how Amazon Business is configured and make sure you configure it correctly for your system, your approved sequence of approvals, and make sure that you heavily involve the accounts payable department in the setup.
Q: What else should we know?
MP: In healthcare, we have been hesitant to use Amazon for certain categories of supplies. Medical surgical supplies are one example. So many people say, "Oh we aren't comfortable buying those supplies from there."
But as people become more familiar with it, there are certain categories of items where it's starting to move the needle. We're starting to see our purchasers say, "Hey, it really is cost-effective to use Amazon for these supplies."
Additionally, some of the products offered on Amazon are becoming more attractive to our hospital and even more competitive in pricing than with GPOs. In fact, we started to build out locations that we've almost entirely sourced, 95 percent or more, through Amazon. It's just awesome to see how they are growing and expanding.