Featured Articles: Quality Improvement

Using Your Supply Chain to Reduce Costs and Drive Efficiency

Thursday, July 12, 2018   (0 Comments)
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Managing costs and cash flow are top of mind for any organization. For Community Health Centers, they also have a direct correlation to patient care, making it even more important to fine-tune your supply chain. By leveraging these five key strategies, you can help your team and your organization be more efficient and drive down cost.  



1. Implement analytics to understand the supply chain


There are three areas you will want to measure. Pick at least one measure in each 
of these areas to create a balanced approach: 


  • Operating costs: Identify a measure for the purchase and storage of products. This is not only the actual cost of the product, but also includes: the cost to acquire the product, the time to cut a purchase order, the receipt and payment for the item, and the storage of the product. Consider what portion of your space you are using for storage that you could use for patient care. 
  • Working capital: Select a measure of your on-hand inventory costs. How much money do you have tied up in inventory? How many days are you carrying inventory (inventory days)? This also includes payables: the amount you owe suppliers and the length of payment terms.

  • Performance: Choose a measure for clinical outcomes and staff satisfaction. How often are you running out of products? How satisfied are your providers with the products? Have you missed revenue opportunities or ability to deliver patient care because you did not have something in stock? 
    These measures provide a baseline and area of focus for your team to see results. 


2. Engage stakeholders across locations and departments

Alignment of your measures across your organization is critical to building momentum and acceptance. Get all stakeholders involved up front and define what success looks like, then gain agreement. Make sure you are engaging your suppliers, distributors, clinicians, finance, and purchasing. 

Once you have a good cross-functional team, identify roles and responsibilities for developing and implementing any changes. Identify people who are responsible for implementing the changes and have one accountable person to make sure plans are enacted. Don't forget those people you need to consult in decisions and those you should inform about any changes or impacts. 



3. Develop and implement a product strategy

This is where you will begin to reduce cost and complexity once you have your measures and teams identified. As you go through this exercise, make sure you are tracking the savings and sharing the results with your team. This helps to reinforce everyone's buy-in on the change. 


  • Start easy with commodity items where you have a lot of choice, like paper towels. Pick something that does not have a lot of personal preference.
  • Don't forget about drugs, lab reagents or office supplies - anything that you order, put on the shelf and pay for.
  • Get the whole organization involved and make the change across the entire organization. 
  • Implement in small waves, one at a time. Making multiple changes at once is hard on the team and not often successful.
  • Use formularies to control compliance with the items you've chosen and to concentrate purchasing. 
  • Limit the number of places from which you buy. This provides more purchasing leverage and simplifies the buying and invoicing process. 
  • Determine when good is good enough. This does not mean you have a low quality item, just decide what is good enough for your organization or how many variations of a product you need. 
  • Consolidate with fewer items to help control cost and reduce inventory-handling complexity. 



4. Embrace the use of the right technology

There are many options - beware of starting with an expensive system with many advanced features. Many of these go underutilized. 

Start simply by leveraging the free systems available from your distributors and suppliers. Many have portals that give you the ability to order, track delivery, manage purchases, match invoices to packing slips...They have many features to help with the procurement, receiving/inventory and payment process. 

Once you start here, you can decide if you need to expand. The key is to capture and control purchasing activity in an easy-to-use platform.

  • Top Priority: Use electronic ordering with some form of formulary management. This will give you purchase history, process consistency and reduce paper-based processes, as well as manual errors. Get away from fax or phone orders. These are very time consuming and reduce the ability to track and report easily.



5. Enhance the use of GPOs and local contracts

We recommend a three-prong strategy to gain the best cost for product purchasing. Using all three can help you achieve the lowest cost. 



  1. GPO contracts provide price protection, cost consistency and a decent discount off list cost. 
  2. Local vendor agreements fill the gaps in your national or GPO contracting. If you have significant purchase volume with an item, you may be able to negotiate directly with a manufacturer. 
  3. Private label products, like McKesson brand items, offer good quality and better pricing -- especially on commodity items.


We all want to save money, but reducing inventory cost is about providing better and more efficient care. This requires a team effort and using all five strategies. 

Watch the video: https://mms.mckesson.com/content/our-story/customers-we-serve/community-health-centers/ 



Jon Pildis  Jon Pildis is the VP for Materials Management at McKesson Medical-Surgical.




NWRPCA welcomes and regularly publishes white papers and articles submitted by members, partners and associates with subject matter expertise. The appearance of any guest publication in our Health Center News database represents the views of the author and does not constitute endorsement by NWRPCA of the stated opinions or perspectives, nor does it suggest endorsement of the contributor's products or services.



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