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By: Healthcare Publishing News

Posted: 12/26/16


Today's healthcare organizations are transforming themselves into lean, mean, care-providing machines. Well, with more of a focus on "lean" than "mean," hospitals are executing a "less is more" approach to operations. Deloitte Touche found that a hospital would need to generate $11.7 million in new revenue to have the same impact as a $100,000 reduction in operation costs. The supply chain is an optimal access point for excising the excess of operational expenses.

Many healthcare organizations turn to their item master as a baseline source of supply data, but a recent Association for Healthcare Resource & Materials Management (AHRMM) study estimated that an organization's item master is only 70 percent accurate. Data quality issues spanning multiple sources, description limitations, non-item file purchases and supply leakage challenges plague supply chain management professionals who aim for efficiency. Alternatively, placing key pieces of information -- such as last price paid, correct contract price and less expensive alternatives -- at the fingertips of requisitioners empowers them to make informed decisions and control costs.

"An assessment of our supply chain revealed that we were missing many opportunities for savings," says Binh Pham, Director of Materials Management at Lawrence Memorial Hospital. "Items were difficult to find, our master data had room for improvement and we had lost some control. We needed a solution to drive data accuracy and promote savings through formulary-managed requisitioning."

Lawrence (Kansas) Memorial Hospital (LMH) is one of many premier healthcare providers seeking out increased spending visibility at the point of requisition. The 173-bed hospital, located between Kansas City and Topeka, was named one of the country's top 100 hospitals the past two years by Truven Health Analytics, Most Wired 2011, Top 100 HealthStrong and top 100 Great Community Hospitals by Becker. While the organization boasts many accolades, management determined it needed to reduce operating costs and improve efficiencies to thrive in the current healthcare marketplace.

LMH previously used a manual, paper-based process to drive standardization. Data attribution was lacking, categories were narrow and there was no consistency in the naming conventions. Requisitioners could not find or compare products, which created an excess and obsolete inventory of certain critical items.

With each added manual step in the chain, costs skyrocketed and frustrations ran high. Requisitioners were forced to seek frequent decision support from materials management staff. LMH also relied heavily on the suppliers to correct or identify pricing errors during transactions, which did not always occur. Non-file trunk stock was often priced by the supplier sales representative with limited hospital controls in place. As product prices fluctuated significantly over a one-year period, supply chain management uncovered contract overpayment with physician preference items, resulting in a 7 percent to 38 percent higher charge compared to contract.

"Every time our requisitioner couldn't find an item, our organization was exposed to additional processing costs, spend leakage, and frustrated users," says Pham. "And it's not just about seeking out the right item: Without an effective process in place that drives standardization, we were exposed to diluted spending power and excess inventory."

LMH sought a solution that would lead product users to purchase on contract. With built-in contract information, requisitioners have all relevant data at their fingertips. If buyers want non-contract or high-dollar items, the solution prompts alerts-on directors' mobile devices for approval, a huge improvement over their tedious, paper-based system.

"With a reasonable investment in the strategic supply sourcing solution, we are targeting an annual reduction in operating costs of over $500,000," says Pham. "Its ease of use and intuitive ordering has improved end-user satisfaction, and our employees have also reclaimed time for other tasks."

Built-in price and contract checking were also a must for optimal spending visibility. After all, LMH primarily sought control to maximize the economic advantages of contracting and standardization. "If your requisitioners aren't presented with the last price paid, the contract price and a less expensive alternative product, you are actually paying for group purchasing organization services that are not rendered," notes Pham.

A preemptive, formulary-guided procurement system provides data relevant to each organization's pricing and contracts. With standardized descriptions and unlimited product attributions, a SaaS-based solution with an artificial intelligence engine makes supply chain shopping simple and seamless. With access to functional equivalency, normalizing data and lower cost alternatives, requisitioners yield both power and efficiency.

"With the right tools and technologies driving our supply chain, we gain control of procurement with at least a 2.14 percent savings on annual supply spend," reports Pham.

Formulary-managed requisitioning delivers new efficiencies in spending, inventory oversight and workflow, enabling organizations to achieve financial gains where they need it most.



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