Supply Excellence — Can Procurement keep hospitals stocked & profitable?

Can Procurement keep hospitals stocked & profitable?

July 14th, 2008 · by Steffi Frawley · No Comments · best practices, supplier management, supply management, supply risk

Healthcare Purchasing News once listed 30 tips to keep the supply chain in critical care units fluid. Within the article, strategic supplier or spend management is not mentioned anywhere. The omission isn’t a big surprise, considering the panel that drafted the tips was relatively light on sourcing/procurement professionals. That begs the question, can Health Care systems with today’s health care cost pressures, afford to make sourcing decisions without involving supply chain professionals and without looking at procurement strategically?

Hospitals and other health care providers are uniquely focused on patient outcome, especially in critical care units. Having a particular instrument or drug available at the critical time of need is imperative for the patient’s well-being. So hospitals would rather stock one too many edotracheal tubes, for example, than one too few. However, stocking that inventory means (a) capital bound in supply chain and (b) risk of revenue loss for obsolete items. Rising health care costs and increased patient sensitivity to health care spending puts pressure on health care providers to manage their operations costs, including inventory, tightly. On the flip-side, ICUs cannot affort to have a critical item unavailable at the time of need.

Managing costs and ensuring optimal supply is the strategic contribution procurement organizations can make to their health care organization’s success. Thus when strategic procurement professionals are involved, fluidity and cost of supply chains are improved.

So, how can procurement professionals contribute to a successful supply chain?

Visibility - Provide the critical care nursing staff and materials management with spend data to detect and interpret supply and demand patterns, from which sourcing and stocking decisions can be made. For example this visibility can help answer how many of a specific item, like a catheter, need to be delivered. When are they needed? Are there any spikes in demand? Where are they needed? How many suppliers are needed to mitigate supply risk? Which of those suppliers are strategically important to the organization? The procurement organization has unique visibility into this data due to access to complete spend information across all hospitals in a systems, so that spend analysis and trends are not analyzed in a vacuum at a particular care unit or hospital. Results of this data analysis yield great examples of savings, such as dual/multiple sourcing strategies to ensure continuous supply, volume aggregation across hospitals, and item standardization to drive volume discounts.
Supply Market Intelligence - Procurement organizations are continuously feeling the pulse of the industry, as well as individual vendors, to understand consolidation or separation, emergence of new technologies, demographics and market changes. Obtaining and analyzing this information allows for constant sourcing strategy review, which leads to ongoing supply chain optimization. For example, supplier consolidation allows for volume consolidation with the new combined vendor to drive improved client status and savings opportunities. Or emergence of a new vendor allows for best cost vendor selection. Furthermore, understanding seasonal or demographic changes in the hospital environment helps purchase and stock the right items at the right times.
Supplier Performance Management - Ongoing supplier performance management is paramount to guarantee optimal patient outcome in intensive care units. Without monitoring a vendor’s key performance indicators, such as on-time delivery, accurateness of supply and responsiveness in rush-order situations, critical care units find themselves unable to optimally serve a patient. Therefore standards of care in a hospital system are directly dependent upon strategic supplier management. Another benefit of regular supplier performance reviews is ongoing joint process improvement with strategic suppliers. Best in class hospitals meet regularly with their strategic vendors to discuss supply and delivery improvements ranging from process to items upgrades.

Steffi Frawley is a Senior Consultant in Ariba’s Spend Management Services group.

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