The supply chain represents the second largest operating expense for most hospitals, but it is also the fastest growing. In fact, based on studies conducted by the Strategic Marketplace Initiative, supply chain costs are on a trajectory to supersede labor costs as early as 2022 for some hospitals.

It not just about price
The challenge in reining in supply chain costs is that most hospitals have historically focused their efforts on lowering the price they pay for products, which is only part of the cost. They have neglected to look at ways to reduce direct and indirect costs—things like error-ridden manual processes, discrepant data, logistics and inventory carrying costs, to name just a few.

Gartner Research says supply chain represents 40 to 45 percent of hospital or healthcare system operating expense. Gartner also says healthcare delivery organizations can reduce those costs by 5 to 15 percent if they better analyze, plan and control the purchase and use of goods and services, which can translate to a profit increase of 2 to 7 percent. Unfortunately, few organizations have the level of supply chain talent and leadership necessary to make this possible.[i]

The power of consolidated purchasing
Supply chain professionals are often limited in their ability to drive significant change because they only have responsibility for a portion of non-labor spend. In many hospitals, materials management is responsible for commodity-type purchasing, while the OR, lab, radiology do their own thing. Then there’s food service, linens, office supplies and purchased services. And that’s just within the hospital walls. What about purchasing at non-acute care facilities within the same organization? If healthcare systems are going to have an understanding of how much it costs to deliver care, something that will be required under healthcare reform, consolidating supply spending and operations will be critical. Only then can supply chain leaders have visibility into the data that can drive better operational and financial performance, as well information on the efficacy of supplies to improve patient care.

GHX helps you rein in costs
By automating more of their purchasing, hospitals and other healthcare delivery organizations working with GHX are improving productivity and gaining better insights into not only their supply spend, but also opportunities to further streamline operations and expenditures. Perhaps more importantly, they are working more closely with their trading partners to find new ways to optimize business practices across the supply chain.

^{[i] Supply Chain Consultants and Outsourcing Providers for Healthcare Delivery Organizations, Gartner Research, 5 July 2011}