PERSPECTIVE

Why Group Purchasing Is Only One Side of the Savings Triangle Equation

Robert T. Yokl, President/CEO, SVAH Solutions

It has been my experience that very few things in life and in business have one all-encompassing solution. However, group purchasing seems to be the only savings strategy that supply chain professionals have embraced since 1910 when the Hospital Bureau of New York was founded to provide group purchasing services nationwide. Don’t get me wrong! I’m a strong proponent of group purchasing, but it's only one side of the “Savings Triangle.” Only using this strategy limits you from obtaining maximum savings results at your healthcare organization. Here are the reasons why.

Standardization Vs. Customization: A Paradigm Shift

While standardization goes hand in hand with group purchasing since you can’t maximize your GPO savings without standardizing on one product, service, or technology organization wide, it can also cost you money. That’s why customization might be a much better cost management tactic than standardization.

Perspective

Robert T. Yokl

It comes down to this: Standardization necessitates you to embrace a one-size-fits-all philosophy (or one product, service, or technology to fit all situations), which is irrational at best and costly in almost all situations. For example, if you standardize on a 17” x 24” standard incontinence pad, you will find that 80% of your customers can use it effectively to “protect linens.” However, if you have done your research, you will discover that 20% of your customers (e.g., pharmacy, radiology, operating room, etc.) use these pads for different functions (table and shelf liners, catch drainage, drug preparation, etc.) and that, most often, you can find a lower cost alternative to meet their requirements. This way, your total overall cost will be lower than standardizing to one pad.

As a general rule, customization will cost you less overall than standardizing on one product, service, or technology organization wide. More importantly, customization will provide the right product, service, or technology that is required for all of your customers as opposed to them ordering off contract or performing workarounds to employ the standardized products, services, or technologies you have provided for them.

Utilization: 1:4 Savings Ratio To Your Price Savings

For every dollar you save in price, we have documented a minimum of $4.00 in utilization savings can be achieved on the hundreds of thousands of commodities you purchase annually. This is because once you hand over a product, service, or technology to a department, anything can happen (e.g., wasteful and inefficient consumption, misuse, misapplication, and value mismatches) to it and it usually does over its lifecycle. That’s why it’s just as important to master utilization management as it is to bid/negotiate to obtain the best price for your hospital, system, or IDN.

The Worst Number in Supply Chain Management is One

It is an accepted axiom that “the worst number in supply chain management is one,” because it limits your options, holds you captive to one source, or restricts your alternatives. That’s why the Savings Triangle has three sides for savings: price, customization, and utilization. When one becomes depleted, you still have another two to dig deeper for savings, or you can utilize all three to maximize your supply chain expense savings!

SUPPLY CHAIN