Supply chain improvements could save US hospitals $9.9mn, says new study
Hospitals in the US could reduce annual supply expenses by approximately $23bn in aggregate through improvements in supply chain operations, processes, and product use, according to a Navigant analysis of more than 2,300 hospitals.
The figures represent a 17.8% average total supply expense reduction opportunity or up to $9.9mn a year per hospital – an amount equivalent to the annual salaries of 150 registered nurses, or the cost of 4,000 cardiac defibrillators or five Da Vinci robots.
The analysis also shows lower supply spending does not have to reduce quality, as hospital-acquired condition and value-based purchasing scores are slightly better at top-performing supply chain facilities.
Moreover, the chance to realise savings may exist for all types of hospitals, with opportunities relatively equal across such characteristics as size, regional location, and whether the facility is urban or rural, for-profit or not-for-profit, or system-based or standalone
“The pressure on hospitals and health systems to reduce costs and maintain quality will only intensify, no matter the outcome of healthcare reform,” said Christine Torres, System VP of supply chain management for Philadelphia-based Main Line Health.
“The supply chain represents close to a third of the average hospital’s overall operating expense, and it’s predicted to surpass labour as a hospital’s greatest expense by 2020. Opportunities exist for all organisations, even top performers, to improve supply chain efficiencies while continuing to offer the highest levels of care to the communities we serve.”
The study found that the top 24% of 2,331 U.S. hospitals analysed spent $23bn less a year than other facilities on supply chain products and related operations, processes, and procedures.
Navigant said savings could be achieved if the remaining 76% of hospitals perform at the level of top performers for supply chain budget efficiency.
Top performers consistently leverage evidence-based protocols and data analytics to reduce variation in pricing, product use, and clinical outcomes. This information better equips supply departments to:
- Reduce the number of suppliers and contracts for like items, particularly with products needed for routine procedures.
- Optimise the type and frequency of products used based on specific patient circumstances and cases.
- Engage physicians to standardize use of implantable devices proven to produce clinically equivalent outcomes at a lower cost.
- Automate requisitions, purchase orders, invoices, and other manual supply chain processes that can lead to documentation errors.
“It’s clear that some hospitals have the appropriate strategies and processes in place to efficiently manage supply chain budgets while maintaining high-quality outcomes,” said Rob Austin, Associate Director at Navigant.
“For example, we have found, somewhat counterintuitively, that the highest-performing providers are simultaneously able to decrease cost and improve quality, in part by reducing clinical variation. Lower-performing supply chain departments need to leverage these types of proven best practices to drive care delivery improvements.”
Benchmarking data is also essential, but providers must look outside their organisation to obtain a true snapshot of performance.
“In-hospital benchmarks and year-over-year improvement goals are valuable in monitoring internal supply chain performance, but these measures don’t reveal an organization’s true improvement potential,” said Paul Weintraub, director at Navigant. “To accurately uncover efficiency opportunities, providers must look beyond their facility’s four walls and leverage industry-wide benchmarking data that compares their supply performance against that of their peers.”
5 Minutes With: Jim Bureau, CEO Jaggaer
What is data analytics, and why is it important for organisations to utilise?
Data analytics is the process of collecting, cleansing, transforming and analysing an organisation’s information to identify trends and extract meaningful insights to solve problems.
The main benefit for procurement teams that adopt analytics is that they’re equipped to make faster, more proactive and effective decisions. Spend analysis and other advanced statistical analyses eliminate the guesswork and reactivity common with spreadsheets and other manual approaches and drive greater efficiency and value.
As procurement continues to play a central role in organisational success, adopting analytics is critical for improving operations, meeting and achieving key performance indicators, reducing staff burnout, gaining valuable market intelligence and protecting the bottom line.
How can organisations use procurement analytics to benefit their operations?
Teams can leverage data analytics to tangibly improve performance across all procurement activities - identifying new savings opportunities, getting a consolidated view of spend, understanding the right time for contract re-negotiations, and which suppliers to tap when prioritising and segmenting suppliers, assessing and addressing supply chain risk and more.
Procurement can ultimately create a more comprehensive sourcing process that invites more suppliers to the table and gets even more granular about cost drivers and other criteria.
"The main benefit for procurement teams that adopt analytics is that they’re equipped to make faster, more proactive and effective decisions"
Procurement analytics can provide critical insight for spend management, category management, supplier contracts and negotiations, strategic sourcing, spend forecasting and more. Unilever, for example, used actionable insight from spend analysis to optimise spending, sourcing, and contract negotiations for an especially unpredictable industry such as transport and logistics.
Whether a team needs to figure out ways to retain cash, further diversify its supply base, or deliver value on sustainability, innovation or diversity initiatives, analytics can help procurement deliver on organisational needs.
How is data analytics used in supply chain and procurement?
Data analytics encompasses descriptive, diagnostic, predictive and prescriptive data.
Descriptive shows what’s happened in the past, while diagnostic analytics surface answers to ‘why’ those previous events happened.
This clear view into procurement operations and trends lays the groundwork for predictive analytics, which forecasts future events, and prescriptive analytics, which recommends the best actions for teams to take based on those predictions.
Teams can leverage all four types of analytics to gain visibility across the supply chain and identify optimisation and value generating opportunities.
Take on-time delivery (OTD) as an example. Predictive analytics are identifying the probability of whether an order will be delivered on time even before its placed, based on previous events. Combined with recommendation engines that suggest improvement actions, the analytics enable teams to proactively mitigate risk of late deliveries, such as through spreading an order over a second or third source of supply.
Advanced analytics is a research and development focus for JAGGAER, and we expect procurement’s ability to leverage AI to become even stronger and more impactful.