Want to slash supply chain costs? Don't skip over these 3 areas

Hospitals and health systems cannot effectively quantify and control costs without first targeting key expense areas. However, administrators inundated with cost responsibilities regularly overlook major savings opportunities.

During a Sept. 18 webinar sponsored by Cardinal Health and hosted by Becker's Hospital Review, Cardinal Health's Clinical Operations Director Sue Champion, RSN, BSN, and Supply Chain Services Director Paul Farnin joined OptiFreight Logistics' Vice President Brad Wilson to discuss the three areas of expenses hospitals and health systems often overlook — and how to achieve savings in them.

1. Procedure trays

Up to 50 percent of products in procedure trays go unused, Ms. Champion said, citing her years of perioperative nurse experience. The problem stems from pulling too many products for a given procedure, resulting in a significant amount of dollars lost.

"Opened products are thrown away," Ms. Champion said. "Once you open a product and introduce it to the sterile field, there's nothing you can do with it. You have to throw it away whether it's used or not."

To minimize the risk of wasting products, hospital leaders should optimize custom procedure trays by creating a template of tray components. The template should include approved items on the hospital formulary, the integrated delivery network formulary or a group purchasing organization contract — as long as they're clinically and economically sound preference items.

Product standardization is key to reducing the number of managed SKUs and decreasing clinical and supply variation that inhibit efficiency, Ms. Champion said. She recommends utilizing analytics to quickly identify opportunities for standardization, as a single procedure pack can contain up to 60 products.

When standardizing procedure trays, it's essential to get physicians on board, Ms. Champion said. Objective data proving that procedure tray customization improves efficiency and lowers costs without impacting quality is the best way to get physicians on board.

2. Freight management

Freight costs are the "low-hanging" fruit of savings opportunities because they impact the bottom line without affecting patient care, according to OptiFreight Logistics' Mr. Wilson. Even when facilities take steps to manage supplier freight, it's not enough. Up to 70 percent of the costs for moving goods to and from facilities may remain unmanaged, he said.
Individual freight cost might seem diminutive, but it quickly adds up when all departments are taken into consideration — heightening the importance of effective freight management.

"When you think about it, you centralize other features and functions," Mr. Wilson said. "So, why not think about a centralized approach to freight and transportation management?"
While traditional freight management programs include only inbound and outbound shipping expenses, systems should incorporate all transportation costs to gain a complete view of freight expenditure, Mr. Wilson said. Administrators should include couriers, which are often marred by inconsistent pricing, as well as private fleets, which may be associated with hidden soft costs.

Health systems can realize savings by consolidating inbound shipments in a single location and redistributing them throughout the system. Analytics cut through the complexity, enabling organizations to make smart decisions about demand planning, purchasing, utilization tracking and freight management.

Hospitals and health systems may choose to implement these freight management solutions with the help of a professional management company. It's important to select a company with established relationships with key suppliers, a proven system for driving savings and expertise improving supplier and employee compliance, Mr. Wilson said.
"You can't save any money if your suppliers or employees or shippers within your system aren't using the program," he said. "But when they do, you will see as much as 25 [percent] to 40 percent savings on both inbound and outbound packages."

3. Direct manufacturer shipments

With direct shipments coming from hundreds of manufacturers — adding up to thousands of individual shipments arriving in multiple deliveries — it's difficult for hospitals to achieve total supply chain visibility, according to Mr. Farnin. A lack of data standards, uniform lead times and consistent service to manage the shipments adds to the complexity.
"The problem with this model I've just described is that each manufacturer is working independently in its own silo — in effect, its own supply chain," Mr. Farnin said. "To save money, you can aggregate these individual supply chains into a single, streamlined one."

With simplified receiving, internal distribution and ordering processes, hospitals can reduce the risk of errors. Streamlining frees up resources for patient care by decreasing paperwork and product touches, and financially, it helps hospitals avoid unnecessary freight charges associated with direct shipments, Mr. Farnin said.

Starting by identifying products that could be delivered in a more cost-effective way, Mr. Farnin said, hospitals and health systems can realize valuable new savings opportunities.

Listen to a recording of the webinar here. View the webinar slides here.

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