Close

February 4, 2019

Reflections on the Supply Chain – Part IV

In our newest article about the healthcare supply chain, we discuss the misalignment of C-suite expectations. The traditional reaction of hospitals to rising supply-related costs has largely been to ask contracting departments to obtain price reductions from vendors. Contracting staff achieves this through contract negotiations with vendors, and they have hundreds, if not thousands of contracts to deal with. 

This myopic focus on reducing the prices of individual items unfortunately leaves little to no room for appreciating and addressing how supply chain and other operational processes can both mitigate these increasing expenditures and contribute to the overall profitability of the organization. Hospitals would benefit by paying greater attention to what happens after an item is purchased – for example, has it been used or has it expired? After all, what good does it do to negotiate a discount for an item which just ends up sitting on the shelves for months unused? 

The bottom line is that you can’t achieve your cost reduction strategies without addressing operational and inventory management issues as well as contracting. The complexity of these operations today causes plenty of “bleed out” issues financially, such as when items expire on the shelves or aren’t billed for, plus there are other implications for patient care, such as when a product is not in stock and available for a procedure.

The C-suite rarely examines the magnitude and impact of wasted (expired, obsolete) items, the productivity hits on clinicians due to unavailable, displaced, recalled, or expired items (not to mention patient risk), or the impact of reactive (just in case) purchasing habits, not to mention the failure to ensure the accuracy of supply documentation at the point of care.

The C-suite needs to understand how all aspects of the supply chain function and are handled in order to understand how best to address inefficiencies, prevent waste, and find savings. It isn’t sufficient to only focus on price negotiations as the primary means of achieving savings. 

February 4, 2019