Empowering Your Supply Chain in a Time of Transformation

As elective surgeries resume, there is incredible opportunity for hospital supply chains to take back control over their spend.

Featured in Modern Healthcare 

For far too long, hospitals have been operating with an unsustainable model – healthcare expenses continue increasing, forcing operating profit margins down, while supplier profit margins continue to rise. Additionally, supply chain teams spend most of their time fighting fires – negotiating with suppliers, dealing with backorders, product procurement and identifying cost savings, all while maintaining a balance between payor mix and savings goals. All that ‘firefighting’ leaves little time or energy for projects that will affect lasting change. Adding in the stresses of COVID-19 shortens the already limited budget and time for targeted strategies. However, as operations and elective surgeries ramp up, there is an incredible opportunity for transformation in which hospitals can take back control over their purchases through data-informed decisions.

Consequences of the pandemic as your opportunity for change

COVID-19 has had a major impact on the healthcare supply chain – from supply shortages and price gouging, to decreased staff and increased workloads. Perhaps the biggest hit to the bottom line comes from the lack of elective procedures. Analytics show an average revenue loss of $1.4 billion per day since the initial outbreak in the United States. Hospitals that are already operating with slim budgets are now having to furlough employees, reduce hours and cut back on much-needed supplies while stocking up on PPE. However, with the industry’s current volatility, this also creates an opportunity to transform your organization’s supply chain for the better.

Before the pandemic, it was typical for supply chain teams to be apprehensive when negotiating with suppliers, as to maintain relationships for favorable contracts. Many supply chain teams are unaware of the variation in supply pricing because there is no true transparency across the market. Analytics and sourcing resources that compare pricing to peers based on spend, volume and market share reveal your position in the market and give you the tools to fight for a fair, data-driven price. With this indisputable data information, hospitals are equipped to demand better service and fair pricing.

Empowering the supply chain – Action, Opportunity, Negotiation

Empowering your supply chain starts by holding your suppliers accountable. Currently, the healthcare supply chain industry is running on an unlevel playing field – hospitals operate on razor thin margins, while suppliers are working with massive budgets. Healthcare organizations need action plans in place to tip the scale in their favor. An effective action plan is strategic, swift, multi-wave and emphasizes physician involvement, so that everyone is working toward a common goal.

As part of your plan of attack, you must consistently vet opportunities for cost savings, especially considering there’s over 300% variation in supply costs across the market. Your team needs access to analytics that provide insight into peer organizations’ purchasing data to understand how supply costs are trending and to stay on top of rising costs. Additionally, data solutions that organize peer pricing by market share and spend give you the upper hand with real, actionable data to leverage during negotiations. It’s also essential to develop a ‘supplier scorecard‘ to monitor objective behaviors for all your suppliers, including how responsive they are to your needs, their initiative in presenting and assisting with savings opportunities, any value adds and consistent satisfaction reviews. Having this information readily available prepares you for any challenges during negotiations and helps evaluate the value of your relationship with that supplier.

Once you’ve analyzed your data and identified savings opportunities, it’s time to ready your team for those negotiations. You need to present a unified front with your clinicians and physicians – provide them with the analytics needed to enforce your data-driven decisions and the results of your supplier scorecard so they know where you stand. Then, set up a meeting with your suppliers to request a pricing adjustment for the product(s) in which you’ve identified your contracted price is out of market. This is where it’s important to have your comparative data tools and sourcing resources – support your reasoning with unbiased analytics to show your suppliers exactly how much your pricing varies from your peers. Make them aware of your expectations and grading scale set in your supplier scorecard and how they measure up. After you’ve made your case, give them five days to respond. Have an escalation process in place in the event your suppliers still won’t budge. If needed, bring your data to your executive team to evaluate the situation and take the appropriate next steps. Your goal is to secure a fair price without switching products or increasing market share.