4 steps to measuring success within your supply chain

The expanding role of the healthcare supply chain includes increased demand for efficiently managing spend, but there are a few easy ways to measure your progress and ensure your organization is meeting its goals.

 For a healthcare supply chain professional, a typical day includes an endless workload – monitoring key budget items, managing and maintaining a steady flow of supplies for clinicians to provide patient care, renewing or negotiating new contracts and identifying opportunities to improve financial performance.

Studies show spend for physician preference items (PPIs) accounts for as much as 40 to 60 percent of a hospital’s total supply expense.[1] Between 2015 and 2017, average total drug spending per hospital admission increased 18.5%.[2] Managing these high spend categories requires access to actionable data, Key Performance Indicators (KPIs) and use of robust analytics. Establishing key metrics that best represent your organization’s financial objectives allows you to identify areas where you need to improve to reach your goals.   

Gain access to data

In order to truly measure success within your healthcare organization’s supply chain, you must first understand the scope of your supply expense. How well do you know your volumes and market shares by vendor and category for all your non-labor expenses?  How do these compare to peer organizations purchasing the same products at similar volumes?  It’s crucial to know where your healthcare organization fits in today’s market in order to determine what types of opportunities are immediately available to assist you in achieving your supply chain goals.

Access to accurate and actionable data, combined with analytical tools that show how your organization compares to peer organizations when considering spend, volume and market share will have a significant, positive impact on your bottom line. Additionally, working with data analytics resources that can pinpoint exactly how your pricing performs for each product, category, manufacturer and Group Purchasing Organization (GPO) means you can use this information to identify in what areas your pricing is out of market and how to best address those problems to achieve your goals. Such data is the ‘why’ behind your spend that provides you with the intelligence to make extremely informed decisions, gives you leverage in supplier negotiations and greatly enhances your confidence in internal discussions.

Use measurements to prioritize your work

Gaining access to actionable performance metrics will also help you prioritize your work. As previously mentioned, data analytics tools help you identify your where and why in the market. When you combine those two factors, you can quickly determine what initiatives you should focus your attention on to optimize the resources you have and to get the greatest return on investment.

You can use comparative data tools to identify areas that may have room for improvement, but don’t carry as much weight as others. For example, you can use market intelligence to determine which of your contracts that are up for renewal that should be extended versus taken to bid, so that you can focus on other, more significant and actionable savings opportunities. Using data that provides true transparency into the market allows you to efficiently prioritize your areas for opportunity so that you’re making the most of your time and resources and acting on initiatives that will bring the greatest reward available at that time.

Identify metrics that are the best success indicators

It’s important to understand that every organization is different – your measures of success will not always match your peers – but when you determine the KPIs that best align with your goals, you set yourself up for success. With the overall objective of managing supply expense in a dynamic market, it’s important to have a grasp on the root cause behind the changes in your spend. Are increases being driven by price change, increases in utilization or changes in product mix? The ability to isolate each of these driving factors will allow you to pinpoint the source of change and address any concerns.

Additionally, be sure that you fully understand any potential downfalls associated with your KPIs. For example, measurements considering net patient revenue could be skewed by fluctuations in revenue. Non-related factors can often be eliminated by utilizing category specific KPIs to measure the success of a particular department or initiative. You may choose to use average daily rental rates to measure your specialty bed rentals or cost versus adjusted patient day for commodity items. Furthermore, using the same KPIs over time will enable you to better monitor the progress of an initiative and trending performance.

Integrate spend management solutions into your daily workflow

In order to sustain success and achieve the desired results within your supply chain, your spend management solutions need to be a part of your daily workflow. Using these tools on a regular basis enables you to see how your supply chain is performing over time, whether that be tracking your spend and pricing changes, monitoring for variation within your health system, identifying areas for cost savings or any other goals you may have. Spend management solutions also provide the data needed to engage physicians in playing an essential role in the overall supply chain in terms of standardization and reducing variation. Choosing the proper performance metrics can support your supply chain’s decisions and allow you to demonstrate the effectiveness of an integrated supply chain over time. The ability to check on your performance regularly allows for predictable and repeatable results and substantially lessens the chance of missing out on opportunities for success.


[1] https://blog.definitivehc.com/reigning-in-hospital-supply-costs-and-physician-preference-item-spending

[2] https://www.modernhealthcare.com/article/20190115/TRANSFORMATION02/190119949/fragile-pharmaceutical-supply-chain-increases-costs-compromises-care

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