With increasing costs and diminishing profit margins, hospitals are increasingly exploring avenues to enhance cost efficiency and bolster their financial viability. The consolidation of healthcare organizations into more extensive organizations offers the potential to mitigate expenses and enhance the quality of patient care. This trend has led to a notable upsurge in hospital mergers, with 53 mergers taking place in 2022, 65 transactions occurring in 2023 and more in the works for 2024. But do mergers truly reduce costs? Research from Columbia University found that the savings from a hospital merger are far from guaranteed. Whether you find yourself within the supply chain operations post-merger or are part of an organization on the brink of acquisition, you can employ these strategies to reduce costs and help achieve organizational objectives.

Evaluate the Supplier Base

Whether a merger is pending or in the early stages of integration, it’s important to define current and target suppliers and categorize them based on their strategic importance and supply risk. Use groupings such as:

• Non-critical purchases - These purchases have little impact on the company's activity and their procurement remains simple. 
• Leveraged purchases - These purchases have a decisive impact on the company's business, but their procurement is also simple.
• Bottleneck purchases - These purchases have a low business risk but only have a small number of suppliers.
• Strategic purchases - The organization depends on these purchases and includes pharmaceuticals, medical devices, and IT equipment.

This allows you to assess the strategic significance of each category and the complexity of the supply chain. 

Standardization and Bundling Contracts

Armed with this data, you can then look for potential cost savings opportunities. Having too many vendors and protocols can impact costs, undermine quality, and negatively impact patient satisfaction. Standardizing services through a single partner can lead to lower overall costs and increased patient satisfaction. Group Purchasing Organizations (GPOs) including Vizient and Premier, assist hospitals with consolidation initiatives.

Here are some of the benefits of standardizing and bundling contracts:

• Reduced costs: By negotiating contracts with a single vendor, hospitals can achieve lower prices and better terms.
• Improved quality: By working with a single vendor, hospitals can ensure that all of their products and services meet the same high-quality standards.
• Increased efficiency: By reducing the number of vendors they work with, hospitals can streamline their procurement processes and save time and resources.
• Reduced risk: By relying on a single vendor for a wider range of products and services, hospitals can reduce their risk of supply chain disruptions.

However, it is important to involve clinicians in the decision-making process when standardizing and bundling contracts, especially for items that are essential to their work. If clinicians do not feel that they have a say in the process, they may be less likely to support the changes, and this could lead to problems such as lack of trust, dissatisfaction, and higher costs in the long run.

Reducing Tail Spend

“Tail spend” is the perceived low-value spend that is often unmanaged or receives minimal procurement attention. Non-critical purchases such as business services, office products, print and packaging, signage, uniforms and apparel are examples of commodities that may not get the same scrutiny as other high-value products. These areas often include smaller vendors that are managed by individual departments outside of the procurement orbit. The Hacket Group found that tail spend management brought average savings of 7.1% to survey respondents. 

Healthcare labels often fall into the tail spend category with hospitals using as many as 15 different suppliers for labels. This can impact costs in a number of ways:

• Higher product costs: With less buying power, healthcare facilities are less able to negotiate favorable prices from their suppliers.
• Increased process costs: Managing multiple suppliers requires more time and resources, such as processing orders, tracking inventory, and resolving issues.
• Reduced efficiency: Having to deal with multiple suppliers can make it more difficult to streamline procurement processes and achieve operational efficiencies.
• Increased risk: Reliance on a large number of suppliers can increase the risk of supply chain disruptions, such as stockouts and delays.

One way to reduce these costs is to consolidate the number of suppliers used for labels. For example, healthcare label providers such as UAL, with a broad product offering can minimize or eliminate the need for multiple suppliers, driving lower product and process costs.

By consolidating the number of suppliers used for labels, healthcare facilities can reduce costs, improve efficiency, and mitigate risks.

Inventory

COVID caused hundreds of disruptions, and for hospitals, managing inventory was among the most challenging. Organizations were forced to shift from just-in-time inventory strategies to expanding the amount of inventory they carried, just in case. Plus, ongoing supply chain concerns combined with low-interest rates encouraged providers to increase the amount of inventory that they maintained. But now with supply chains normalizing and interest rates rising, evaluating the amount of inventory is an essential step. One of the biggest opportunities for creating improved financial performance is by reducing the amount of inventory in a supply chain.

Optimal inventory quantities balance carrying enough inventory to prevent stock-outs with the excess carrying costs that come from over-ordering. For example, nurses can spend as much as 20 - 30% of their time on supply-related tasks, with much of this spent locating products. As a result, they may keep more inventory than necessary near their stations. Increasing the visibility and reliability of inventories can minimize these expenditures. 

Perishables, like medicines and vaccines, and new or updated products designed to replace a current item in inventory also present potential challenges. It requires an effective transition plan to ensure products don’t expire or become obsolete. 

How United Ad Label Helps Healthcare Supply Chain Operations Reduce Costs

UAL’s complete stock and custom label product offering, combined with an in-depth knowledge of hospital processes, procedures and protocols, allow us to standardize items, reduce SKUs, and reduce costs while enhancing error prevention and improving clinical outcomes. Contact us to learn more about our services.