Best Practices in Price Management Yields Significant Savings

By Ronda Wirth, Procurement Operations Manager, Supply Chain Management, Northern Arizona Healthcare

At Northern Arizona Healthcare (NAH), we believe paying any price for a product other than what has been negotiated with the supplier is a disservice to our customers. But doing so is easier said than done. 

In 2012, we were faced with year-end price changes that exceeded $468,000 resulting from distributor discounts and changes in supplier contract pricing. Price exceptions rose to record levels because our buyers and contract team did not have a way to manage them in a standardized, accurate and repeatable method, and there was no automated and efficient process for price validation. Furthermore, contract data among NAH, our distributor and GPO were not synchronized, with each party having different tier levels and pricing within their systems.

It took our team a minimum of two weeks to process price changes from our distributor because of duplication of manual processes, and two-to-three weeks or more to resolve price exceptions and release invoices, resulting in an average days sales outstanding (DSO) of 28 days, which impacted our distributor’s cash flow.

In early 2012, we implemented the GHX NuVia solution for content management and GHX CCXpert for contract management. Once we had an automated process in place for managing our item master and contract data, we began meeting weekly with our distributor and GPO to determine how we could collaborate to improve pricing accuracy across the board. Using GHX solutions, our team ran reports to identify problem areas, such as when the distributor had not implemented contract changes correctly in its system, or a supplier had not notified the distributor of a contract extension or renegotiation. Our GPO and distributor ran their own reports as well so that all three parties could compare data and address discrepancies.

This collaboration has made all the difference. The results of this effort include:

• $450,000 in cost avoidance by ensuring products are purchased at negotiated prices
• DSO reduction from 28 days down to 8 days, resulting in a distributor mark-up decrease that generates an estimated $25,000 in annual savings 
• $132,000+ in savings resulting from validation of 2013 price changes 
• GPO expired contracts reduced from 32 to 5 per month, an 84 percent improvement 
• Distributor expired contracts reduced from 30 to 4 per month, an 87 percent improvement
• Elimination of overpayments and underpayments