Analyzing Costs in Supply Chain

This article was written by Lisa Miller.
When selecting your healthcare consulting provider, one of the recommendations I make is that hospitals look for evidence of expertise in the form of case studies. This case study in cost savings covers supply chain optimization.
Why VIE Healthcare Consulting is Different
Our “deliverable” is money in the form of significant cost savings and guaranteed margin improvement.
Supply Chain Optimization – Regaining Control of Operating Room Inventories
Each health system could potentially save around $11 million per year if it transformed its supply chain. In this case study, we examine the optimization of your supply chain in relation to the OR.
Case Study
Our client: A 600-bed academic medical center with high-volume programs in general and specialty surgery.
The Problem  

The medical center was struggling to maintain appropriate inventories of operating room (OR) supplies.
In addition, nursing units and other clinical departments frequently ran out of critical items used for patient care yet were overstocked with other surgical supplies.
The facility’s difficulties in maintaining sufficient OR inventory levels caused repeated interruptions and delays in surgical schedules which became a major source of frustration among both surgeons and hospital staff.
VIE Healthcare was engaged to:

• Develop a comprehensive long-term inventory control plan.
• Identify wasteful supply chain spending.
• Eliminate costly overstocks.
• Negotiate the returns of overstocks and expired inventory, in addition to more-favorable purchasing terms on key contracts.

The medical center faced five major challenges:

• With inventory turns of less than eight per year, the facility was not meeting its target of 12 inventory turns per year.
• Materials management lacked the resources to oversee all inventory within the facility.
• As a result, physicians and staff expressed a lack of confidence over stocking levels. Some began to accumulate stockpiles of OR supplies to ensure resources would be available when needed.
• Some OR inventory had expired as a result of overstocking, resulting in considerable financial losses after manufacturers refused to accept returns of the expired goods.
• Supply chain expenses were escalating with no associated increase in revenues.

The Solution
VIE Healthcare partnered effectively with materials management and OR staff to:

• Align inventory level guidelines with usage and surgical scheduling.
• To eliminate overstocks from the OR, the eight cardiac catheterization laboratories, interventional radiology, and other key ancillary areas.

This process helped to restore confidence among physicians and hospital staff that patient care supplies would be available when they were needed.
Next, we worked with the facility to catalog and cross-reference all overstocked items and trace them back to the original purchase order.
Once the value of expired inventory — in excess of $500,000 — was quantified, our team of experts used its proprietary return script process to negotiate returns of overstock for cash, credit, or product exchange.
Our supply chain consultants identified that certain pricing agreements were out of line based on current market conditions. We successfully renegotiated these contracts with more favorable terms for the medical center.
In one area, for example, the facility was overstocked in one size but used more common sizes with an annual expenditure of more than $1 million.
With the help of VIE Healthcare, our client renegotiated this agreement and reduced expenditure by more than 20 percent
The Result
Our results on this case study were dramatic:

• Impact on the facility’s margin improvement: $1.9 million.
• Recovery of over $400,000 in refunds and exchanges of expired and overstocked OR inventory – in less than six months.
• The hospital eliminated unnecessary overstock of more than $1 million and achieved its target of 12 inventory turns per year.
• An additional $500,000 in annual operating expenses was also cut after we directly renegotiated numerous vendor contracts.

Following the implementation of the long-term inventory control plan, satisfaction levels increased greatly among the surgical services team, physician and staff.
Furthermore, complaints to senior leadership subsided after implementation of our recommended long-term inventory-control plan.
Conclusion 
Supply chain management is crucial to the successful operation and profitability of healthcare organizations. Click To Tweet
Effective supply chain management is crucial to the successful operation and profitability of healthcare organizations but most struggle to achieve it.
As trusted partners to our clients, VIE Healthcare improves every link in your supply chain while empowering hospitals with sustainable improvement initiatives in multiple areas, including the OR.