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May 31, 2024

Supply Chain Grows Up: Create a Mature Purchased Services Strategy

Purchased services keep health care running. But these essential purchases — like technology maintenance, hospitality services and business supplies — can easily become a financial drain on your health system. And simply achieving a lower price won’t create long-term cost savings. It takes many small steps of continuous process improvement to achieve a sustainable and mature purchased services operation in any health care system.

What exactly does “mature” supply chain management look like? A sophisticated purchased services approach is one that:

  • Has insight into all expenses in purchased services.
  • Reduces unnecessary variation in the products and services used in patient care.
  • Prioritizes patient care, outcomes and experience.

When supply chain leaders focus on these areas, they will achieve results that impact patient care and the bottom line, such as:

  • Lower costs
  • Improved quality of clinical care
  • Fewer medical errors and adverse events
  • Evidence that certain products and services work best for the patient population

Gain insight into purchased services expenses

Purchased services comprise the largest non-labor expense category in most hospitals and health care systems, often more than 40% of a system’s operating costs. Their effect on a health care system’s bottom line is undeniable.

Yet, many systems may not understand their total spend on purchased services in both clinical and non-clinical areas. Purchases services can represent hundreds of categories, including:

Locating all a hospital’s vendors and calculating the expense of purchasing services requires a total team effort. Supply chain managers can serve as leaders who engage department leadership and clinicians. This is a crucial first step to gain insight into all purchased services expenses.

Reduce unnecessary variation in purchased services

After you have insight into all of your purchased services, you can reduce unneeded variety. In fact, variation can lead to more work and poorer patient experience. For example, say your hospitals use multiple companies for patient transport. Those two vendors have different processes, making it difficult for you to standardize your patients’ transport experience. And you have to maintain vendor communications and relations with more than one company.

“No matter what anyone tells you, medicine is not an art. There’s no room for creativity. There’s no room for preference,” says Jimmy Chung, MD, chief medical officer of Advantus Health Partners who leads clinical transformation efforts. “Individual preference should not be a decision-making tool for health care, and the data supports that.”

Use data to guide your decisions when reducing variation. Value chain analysis roots out waste and uncovers opportunities for maturing a purchased services strategy.

Together, stakeholders can dig into data to identify critical metrics, variability from goals and the value provided by vendors in the areas of:

  • Financial performance
  • Initiative success rates
  • Patient outcomes
  • Utilization management
  • Waste reduction

Our approach to value chain analysis 

Considering the high-intensity atmosphere in many health care systems, such analyses can seem too ambitious and time-consuming to tackle. That’s why Advantus Health Partners helps health care systems mature their purchased services strategy with management and consulting services.

“The way we go about tackling that expense is to bring awareness to it and really understand what the problem is,” says John Wright, chief operating officer of Advantus Health Partners.

For example, expense analysis will discern whether the quality of a vendor’s service or product is at issue or whether someone has flagged the expense simply out of concern over the cost. If a vendor’s performance has dipped, what are the reasons?

Prioritize patient care, outcomes and experience

While health system leaders feel pressure to reduce costs, it should never come at the expense of patient care. And it doesn’t have to. But prioritizing patients in supply chain does require a different approach.

Traditionally, supply chain leaders cast their nets wide for vendors in a quest to promote competition for contracts. But sometimes, that can become a race to nowhere — with quality care forgotten.

“Our philosophy at Advantus Health Partners is not about being everything to everybody, and frankly, not about having many partners in a particular category,” Wright says.

Rather than focus on individual vendor relationships, Advantus Health Partners seeks to forge partnerships with suppliers, sharing goals and exchanging information and ideas freely, Wright said. This approach winnows down the number of vendors and intensifies partnerships with those that provide the highest value to hospitals and their patients.

We compare it to the “Costco model” of inventory management, characterized by:

  • Curated product selection.
  • Limiting options.  
  • Working only with reputable manufacturers.

“Ideally, we’re creating a very narrow network of suppliers because we’re identifying suppliers that are strategic in their approach and aligned with our philosophy of targeting value and not just price points of goods,” says Wright.

Pursue value-based partnerships

Advantus Health Partners works with hospitals and health care systems across the United States to evaluate their purchased services strategy and to mature it through continuous process improvement. Advantus provides a narrow network of strategic suppliers that have been vetted for cost, quality and partnership.

Together, we can transform your management strategy from one that is incohesive and lacks resiliency to one mature enough to meet the significant supply chain challenges in health care today.

Contact Us to start the conversation.

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