I recently had the privilege of moderating an insightful roundtable of panelists representing over 75 years of collective experience in improving supply chain operations to answer the question, “How can supply chains strategically transform to move from an emergent state to a sustainable model without letting the ball drop on short-term priorities?”
Unquestionably, transforming from an urgent state of supply chain to a strategic focus in 2024 requires tackling some of the most pressing challenges facing healthcare supply chain teams today. To address this, we covered topics including staffing shortages, margin pressures across the supply chain landscape, capital equipment requisition, new product introduction to purchased services, contracting, and vendor negotiations.
Addressing the ongoing struggle of margin pressures and cost reduction demands
The roundtable commenced with a poll asking our supply chain audience, “What was your supply chain’s top challenge in the past 12 months?” It was no surprise that “margin pressures” was the most selected choice (31%), followed by inconsistent processes (25%), staffing & resourcing (22%), siloed, incomplete data (19%), and managing supplier relationships (3%).
With over 19 years of experience in contract negotiation and strategic sourcing, roundtable panelist Brandon Baca, VP of Operations of Spend Management, echoed the poll results, “We’re seeing some crazy price increases, and more vendors are shifting margins over to the operational side of maintaining equipment. I’m seeing hospitals pivoting from the typical four- or five-year replacement schedule for capital equipment and trying to get eight to ten years out of major pieces of equipment. I think everybody's feeling the margin pressure now more than ever.”
During the roundtable, we discussed how it wasn’t unusual for 15% year-over-year price increases to come across Baca’s desk. How are hospitals mitigating such increases? To offset this, hospitals are looking into cost avoidance strategies, including aggregation opportunities, timing purchases around original equipment manufacturer (OEM) fiscal year-ends when there may be a better opportunity for leverage, considering certified pre-owned or refurbished equipment where available, and potentially bringing more service agreements in-house.
Baca shared, “You really have to keep your finger on the pulse. Continue to challenge your vendor partners, and make sure that you're maximizing that spend. At the end of the day, supply chain teams have to protect their capital and operational budgets like it's their own checkbook.”
The importance of categorization in spend reduction
Price escalations during and after the pandemic have created a reality where organizations must navigate a contract frenzy in the market, making it difficult to benchmark and achieve cost avoidance. To manage renewals strategically, it is critical to consolidate similar categories of vendors to negotiate better contracts, understand your categories as a whole, pulling forward expirations where possible. Separately, proactively renegotiating the largest spend contracts regardless of expiration can be achieved by benchmarking pricing and fees to uncover and address areas of misalignment.
Dawn Plimmer, Director of Purchased Services, shared a recent story from the field on the importance of understanding the contract. When benchmarking a large nurse staffing contract, she uncovered misalignment – surprisingly, it wasn't the nurse wages, but the fee structure tied to them that had become excessive; by presenting data showing the fees were out of line, they brought the vendor to the table early to renegotiate the partnership and agree on fairer terms. As a result, proactively auditing pricing and fees even before contract expiration can reveal opportunities to address misalignment and establish better relationships.
Tackling challenges by getting back to strategy
During our live roundtable, 46% of respondents reported that cost savings was their organization’s top priority for supply chain in 2024. This was followed by standardizing processes (17%), putting resources back into strategy (14%), change management (14%), and increasing team capacity (9%). Although an exasperating reality, the importance of containing costs certainly isn’t going anywhere anytime soon. So how can we leverage strategy to address these priorities while mitigating financial pressures?
Prioritizing standard process
With over 30 years of supply chain experience, I’ve found you can have the best strategy in the world, but if you don't have a strong governance, standardized process, and evidence-based approach, it's all for naught. All of these elements must be firing on all cylinders for your engine to run smoothly. One foundational way this materializes is the way in which supply chain teams source and leverage evidence in decision-making. For many health systems, researching clinical evidence is still highly manual.
Ashley Brand, former Senior Analyst, Value Analysis at UPMC and Director of Spend Management at symplr, shared her previous challenges when researching evidence manually, “I used to spend numerous hours of my day just searching for data that I needed from various places to find critical information, such as recalls, pricing, and product alternatives. It could take hours, and when you have limited staff, you don't have time to do that. If you're really looking to be more strategic, you need to free up some time for your staff to be able to focus on those higher priorities.”
Centralizing information and processes in an accessible, standardized way, including where to request new technologies and how they are evaluated, can improve outcomes, compliance, and clinician comfort. It is also a key sign of a mature, clinically-integrated supply chain. Not only does this improve operations and save time, but it also establishes trust between supply chain and clinicians as the curtain is pulled back on decision-making processes and rationale. This visibility enables supply chain leaders to better educate stakeholders amid mergers and acquisitions, driving adoption and engagement across the organization.
Focusing on 20% of your projects for 80% impact
Across healthcare, teams are having to do more with less, and supply chain teams are no exception. The crippling contract renewal workload alone can prevent teams from taking a strategic approach to maximizing impact.
Plimmer noted, “I don't think I'm working with one team that is not understaffed. Particularly with services, it looks like this mountain of renewals coming at them, so it’s really a matter of how you get back to moving in a strategic way by figuring out what categories you’re going to attack this year. Where are your 20% projects that are going to yield 80% impact?”
To accomplish this, hospitals need to identify outlier opportunities by benchmarking against their peers and target areas that will drive the most value. Refocusing efforts on high-impact initiatives is crucial.
Savings lookback
Standardizing processes speeds time to savings, but checks are vital to ensure expected savings materialize. Through an earlier experience in her career in the hospital value analysis setting, Brand shared the importance of validating proper product use, outcomes, and cost reductions downstream.
“Funny enough, when we implemented under pads, the mentality was, if one's good, then four is better. The nurses had these under pads from head to toe on the patient protecting the bed sheet. Our lookback gave us the indication we didn't actually achieve what we were looking to achieve, and we definitely needed additional education on proper use.”
While process improvements and cost initiatives look good on paper, robust follow-up is essential to achieve projected outcomes and adjust approaches as needed.
Proactive engagement with suppliers
While vendor partners should have your best interests in mind, asking them to help uncover upcoming escalators or opportunities to improve pricing, such as reviewing utilization trends to identify volume tiers that may merit better contract rates, can be a strategic approach to cost savings. Proactively monitoring contract language and performance metrics arms you to get ahead of potential increases and maximize existing provisions to your advantage. Rather than waiting for vendors to voluntarily flag areas for improvement, take ownership of regularly reviewing the fine print and usage data yourself to identify clauses for renegotiation.
As Baca volunteered during the roundtable, “Coming into January 2024, you want to be aware of any potential escalators. I would be asking my vendor partners right now, looking at my Q3-Q4 report for utilization and pricing, is there anything in my contract language that might increase my price of goods or services in the next 12 months?
Importance of change management in realizing cost savings
Plimmer shared how she’s seeing teams hard at work in the market trying to achieve cost savings but hitting roadblocks due to stagnant processes. She emphasized, “They’re doing all the hard work of negotiating contracts and getting good pricing, but then it sits in front of service departments, finance, and legal because not everybody’s on the same page with the timeline. So, you can get all the way ready to cross the finish line, but you can’t actually check the box on cost savings because the rest of the organization isn’t lined up ready to go.”
Achieving cost savings requires aligning the full organization, not just supply chain, so pressure isn't lost pushing contracts over the finish line. Communicating strategic plans across departments ensures everyone understands the timeline and goals to coordinate approvals and execution. If change management is neglected, initiatives may be undermined by misaligned priorities once negotiated savings reach affected stakeholders who may not be prepared to support new contracts or processes.
The importance of change management is only magnified when considering new processes and technologies, for example, with the recent explosion of virtual patient bed sitting evaluations in the purchased services space. Such a complex service would require bringing stakeholders to the table for creative discussions, not just on how to reduce costs through change, but also how teams would be supported through process change as well.
While pressures remain across the supply chain landscape, I am certain that collaboration and transparency are vital to overcoming challenges. Collective leadership and open communication will help navigate the road ahead as we prioritize patient outcomes and streamlining supply chain operations together.
