Hospital Supply Chain Costs
What Are Hospital Supply Chain Costs?
Hospital supply chain costs involve the cost of acquiring hospital supplies. These mainly include medical and surgical supplies. The costs constitute almost one-third of a hospital’s operating expense, only coming second to labor costs. Generally, supplies are the lifeline of any health facility, which justifies the heavy spending. However, supply chains in most hospitals are characterized by massive wastage, primarily due to poor procurement strategies.
Failure to optimize the system sometimes leads to unnecessary and expensive spending, which is then passed to the patients, leading to a high cost of treatment. Some benefits of optimizing the hospital’s supply chain include:
- Saving Costs Optimizing the supply chain can lead to enormous savings in annual costs – to the tune of $25.4 billion nationally. At the hospital level, reducing wastage can save a facility’s supply chain $11 million per year.
- Minimizing risks Shortage of supplies, use of expired products, etc., are some incidences that often characterize a poorly managed supply chain. These inefficiencies pose significant risks to patients and can immensely reduce the quality of a hospital’s services and reputation. Hence, optimizing the supply chain is essential to help minimize these risks.
- Increasing service quality Hospital management’s top priority is to ensure patients’ safety and quick recovery. However, inefficient supply chains keep physicians away from patients for unnecessary long durations. According to studies, physicians spend nearly 20% of their time on supply chain tasks. This translates to low productivity and reduced service quality. By optimizing the supply chain, hospitals can increase patient-physician time, thereby guaranteeing improved service quality.
How to Optimize Hospital Supply Chain Costs
Essentially, there are plenty of opportunities for increasing the supply chain’s efficiency without compromising the quality of care. For example, a report shows that Medicare quality programs’ high performers record impressive efficiency in their supply chains by implementing cost-saving strategies. Some of those strategies include:
- Improving Data Integrity
Inaccurate and inconsistent data can inhibit the efficiency of the supply chain immensely. The biggest downside of this is that inventory discrepancies can misinform purchasing decisions. Again, when the supply chain operates with inaccurate data, the risk of supplies running out becomes apparent, a situation that can affect the service quality negatively and throw the supply department into an even deeper mess.
One of the best ways of improving data integrity is investing in data management software. This can guarantee accurate data capture throughout the supply chain by eliminating the risk of human error synonymous with manual processes. However, for complete fool-proof data management, accurate product identification is essential. Among other things, the supply chain must ensure that the correct name, cost, and quantity details are captured for better control. - Enhancing Utilization
Another way that the hospital supply chain can increase efficiency is by enhancing utilization. Past research has shown that analyzing, planning, and controlling the purchasing process can reduce costs by up to 15%. This is because it provides accurate information on the supplies needed at any particular time. Consequently, you can buy only what is required hence avoid wastage.
However, to successfully implement this strategy, you would require to insist that the medics utilize only what they need in a particular procedure. To get them to cooperate, you can hold occasional meetings to sensitize them on the benefits of prudent resource utilization. Quoting statistics and relating how they impact the hospital margins and ultimate service quality can help drive the point home. - Standardizing Supplies
Standardization is another strategy that can help reduce costs. Usually, similar-use supplies may have varying prices from one manufacturer to other. Sometimes, the products may have slight distinctions but achieve the same results on a particular procedure. By decreasing the variations in the orders requested across the hospital, the supply chain can easily achieve cost-effectiveness in supplies acquisition.
This would require researching the most affordable product among a group of similar-use items and then making it standard across the hospital. In some cases, the physicians might not be aware of the cost of their preferred products, hence continue ordering pricey supplies obliviously. Letting them know the cost of their select products versus affordable alternatives is an easy way of getting them to embrace cost-cutting measures.
Other times, the physicians may stick to specific products for lack of knowledge of using cost-effective alternatives. In this case, the hospital should provide training to equip the physicians with the necessary skills. - Retendering
Having consistent suppliers has its convenience. However, it may hurt your supply chain costs over time, especially if the suppliers exploit your loyalty through non-competitive prices.
One way of avoiding this trap is by entering into open contracts with your suppliers and retendering from time to time. Essentially, you should keep researching the market for information on changing trends. This can encourage your suppliers to keep offering competitive prices, and you can also retender whenever better deals come up. - Encouraging Internal Collaboration
As much as you want to implement strict cost-saving strategies, a more effective approach requires getting the medics involved. One thing you should expect is that they may not always appreciate your recommendations.
By having a sitting with them, they can elaborate the reasons for their dissent; then, you can take an informed action based on that. In some cases, they may have valid reasons, but other times it may be mere resistance to change, probably for lack of expertise on how to use the products.
The essence of being on the same page with them is that it can help you garner better cooperation in your cost-cutting measures. Again, the team can provide handy recommendations and opinions, which can go a long way in optimizing the supply chain. - Establishing Trading Partnership
Unless you’re a giant healthcare provider with an extensive network of facilities, forming a trading partnership with other health providers can be incredibly beneficial. This is because you can aggregate purchasing to bargain for better pricing and terms. Moreover, you can collaborate to conduct research and exchange market insights on cost-effective and efficient trends in supply management and utilization. - Stepping Up Inventory Management
Inventory management is an ever-present challenge in most hospital supply chains. For instance, a slight lag in inventory management can be felt across the entire hospital. While shortage is the worst-case scenario that can harm the patient experience and hospital reputation, overstocking also has unpleasant effects. Not only can it contribute to resource wastage, but it can strain the budget by tying up funds that could be useful elsewhere.
As poor inventory management impacts a hospital’s overall performance, stepping up the process can significantly affect the supply chain’s efficiency, cut costs, and improve the margins. Some essential tips for cost-saving inventory management include:- Automation
- Clear assigning of responsibilities
- Data collection
- Frequent analyzes and control
- Seamless recordkeeping
- Systematic supply room organization
- Reviewing Your Pricing Model Regularly
Offering competitive prices is essential in patient acquisition and retention. However, this requires regular reviewing of the pricing model to ensure you don’t run the hospital into losses.
One way to achieve this is by cutting costs, as it allows you to offer competitive prices without affecting the margins. This requires regular research on cost-effective products and procedures that improve efficiency without compromising on the quality of service. Again, you need to regularly research your competitors to find out how much they charge for their services. - Improving Order Accuracy
Last but not least, ensuring data integrity during the ordering process is essential not just for the supply chain efficiency but for the entire hospital. Ordering the wrong supplies can harm both your service delivery and margins.
To begin with, it can mess up your lead times, leading to supply shortages. Consequently, lacking the right supplies may delay essential procedures. And as we have mentioned, negative patient experience can harm your margins. Again, erroneous ordering results in massive losses. For these reasons, improving order accuracy can go a long way in optimizing your supply chain.
Start Optimizing Your Hospital Supply Chain Costs
As much as new trends such as automation of inventory management processes have drastically reduced hospital supply chain costs, they still constitute a huge chunk of a facility’s overheads. Studies have also indicated that part of the costs results from wastage, costing hospitals millions of dollars. But a good thing is that you can implement cost-saving strategies that optimize the supply chain without compromising the service quality. Besides saving costs, optimizing the supply chain can help minimize risks and increase the quality of your services. As we have discussed above, you have tons of optimization tricks at your disposal; you only need to implement them.
And should you require expert assistance along the way, we are here to help. At VIE Healthcare, we offer customized cost-saving insights to help you improve your margins and remain competitive. With a bagful of hospital supply chain optimization strategies, we will help you create a perfect cost-saving solution that will deliver impressive results. Ready to give it a try? Schedule a call.