Healthcare Supply Chain Cost Management Strategies
Significant and sustained cost increases are now a leading concern for healthcare providers, particularly their CFOs.
In the years since the height of the COVID-19 pandemic, carrier rate increases, fees, and fuel surcharges have grown alongside medical supplies, equipment, and labor costs.
Overall hospital expenses increased 17.5% between 2019 and 2022, according to Syntellis Performance Solutions. Over the same time period, labor costs per adjusted hospital discharge grew 25%, followed by pharmaceuticals at 21%, supplies at 18%, and services at 16%, according to McKinsey.
The consulting firm expects cost inflation to continue:
- National healthcare spending is expected to increase by $370 billion within the next five years.
- Supply chain issues will cause non-labor costs to increase by up to $110 billion in the next five years.
Amidst these persistent challenges, financial and supply chain executives can utilize digital tools to monitor, gauge, and oversee expenses.
Healthcare Supply Chain Cost Management Starts with Visibility
The adage “you can’t manage what you can’t measure” holds, as data transparency is paramount in the healthcare supply chain.
More health systems are turning to digital technology as a tool to navigate strategic initiatives.
VPL’s Analytics & Data Visualization platform helps supply chain leaders, financial and data analysts, procurement teams, and contract negotiators identify cost savings through cost and performance optimization.
Initially, organizations should pinpoint the areas where they need to direct their efforts in managing costs, and the following four pivotal areas offer a strategic starting point.
1. Inbound Freight Analytics
The first focus area is inbound freight analytics (i.e. shipments being received within your health system).
Our data makes identifying service-level optimization opportunities to increase cost savings easy. For example, there are instances when FedEx First Overnight or UPS Early AM shipments could have been shipped Priority Overnight with only a difference of two hours in arrival times. Often, these shipments arrive on the same truck, but there is a significant difference in cost per shipment.
Additionally, our healthcare inbound freight dashboard allows you to:
- Evaluate total spend within each health system location to monitor budgeting and purchasing behaviors
- Track volume, spend, and average cost per shipment through each carrier
- Monitor carrier mix percentages over time (i.e. what is the total volume between UPS and FedEx?)
- Categorize and distinguish between actionable and non-actionable carrier surcharges
Use Case Example
Problem: “I want to identify opportunities for optimizing service levels to increase cost savings.”
Solution: VPL offers visual tools to track the trends in service level mix as a percentage of volume and expenditure over time, enabling the identification of cost-saving opportunities.
Customers can explore express service levels and enhance cost savings by adjusting supplier shipping and ordering behaviors through their buyers.
Customer Story
One of our customers had received many costly overnight shipments from a specific supplier. After investigating and talking with the supplier, we discovered they were dealing with backorders and had to send express shipments to meet the customer’s delivery deadlines, even though they hadn’t requested express shipping.
As a result, the supplier issued over $30k worth of credit to the customer.
2. Outbound Shipping Analytics
The second area of focus is outbound shipping analytics (i.e. shipments being shipped outside your health system).
With our data, you can save on shipping costs by spotting shippers who use less efficient carrier services instead of recommended options that could still meet the same delivery schedule.
Additionally, our healthcare outbound freight dashboard allows you to:
- Evaluating total spend, volume, and average cost per shipment by shipper and shipper location
- Drill down to carrier and service levels to trend shipping behaviors
- Review correlated shipment details to drive internal conversations
- Example: Labs will ship express levels due to sensitive blood tissue samples
Use Case Example
Problem: “I need to check which shippers are using express shipping, have internal discussions to understand why, and possibly modify our shipping practices.”
Solution: VPL presents an aggregated table that reveals your total spending, shipment volumes, and the average cost per shipment for each shipper and their respective locations. Our visual representations show you trends in service level preferences. You can delve deeper into carrier and service level details to better understand your shipping habits. Plus, we provide a feature to review shipment specifics that can drive productive internal conversations. As an extra advantage, our program includes its own outbound shipping platform, offering more comprehensive data compared to traditional carrier websites.
Customer Story
This is another great example of how our data breaks down missed savings opportunities through outbound shipping. Our outbound shipping platform presents the most cost-effective service level based on the desired delivery date.
When a customer chooses a more expensive carrier service level, that data is captured and easy to understand within our data analytics platform.
Within the past year, we have identified $2M dollars in savings for our outbound customer base. Our customers can understand who the shipper was, what type of products they were shipping, and the best service level presented to them. This data helps drive internal conversations to understand why and change operational shipping practices.
3. Supplier Analytics
The third area of focus is supplier analytics.
Our supplier analytics equips customers to control prepaid and add spend (i.e. shipments invoiced directly from a supplier versus through their VPL program, which is significantly more costly).
Additionally, our supplier dashboard allows you to:
- Evaluate total shipment volume, spend, and average cost per shipment by supplier
- Monitor and trend supplier shipping behaviors over time
- Identify suppliers who are not compliant with your freight program
- Determine which suppliers are assessing fees, fee types, and fee trends
- Drive changes in buyer behaviors to minimize minimum order fees
Use Case Example
Problem: “I want to understand which suppliers not shipping through the VPL program so that I can increase my managed freight spend.”
This is important because the typical invoice price is 1.5 times more when suppliers do not ship through VPL, which quickly adds up.
Solution: VPL’s data product provides a breakdown of spending by suppliers to show managed and unmanaged spending visually. Customers can identify suppliers not compliant with their VPL program and use this information to drive conversations with suppliers. They can also trend over time if their managed spend increases or decreases.
Customer Story
A supplier was charging our customer a percentage fee on their purchase orders. When the customer reviewed their contracts with the supplier, they discovered they shouldn’t have been charged this fee. As a result, the customer received $50,000 in credits.
4. Supplier & Carrier Performance Metrics
The fourth and final area of focus is supplier and carrier performance metrics.
Assessing supplier lead times based on purchase order request dates is crucial. This tells you how long it takes your suppliers to fulfill orders. This information can be valuable for inventory planning and can also initiate discussions with your suppliers.
Additionally, you should track shipments to ensure they arrive on time according to your service agreements to help prevent disruptions. One of the advantages of VPL is that our customers have access to multiple carriers, allowing them to be flexible when necessary.
Use Case Example [Supplier Performance Metrics]
Problem: “With consistent supply chain disruptions, I need to understand how long it’s taking suppliers to fulfill my orders so that I can drive supplier conversations to improve lead times or order from a different supplier.”
Solution: VPL breaks down lead times by suppliers based on purchase order request dates and how long it’s taking carriers to deliver their orders (i.e. carrier lead times), giving customers a full view of the total order time. Customers can drill down by supplier and location to review supplier lead times. This information will equip customers to drive supplier conversations to improve lead times or order from an alternate supplier if necessary.
Use Case Example [Carrier Performance Metrics]
Problem: “We have noticed shipments arriving late by FedEx at one of our main hospital locations but need more information to fully understand the problem before switching to UPS.”
Solution: VPL provides carrier performance metrics based on each carrier’s service level agreements. We assess late shipments and on-time shipments by recipient locations. Customers can drill down to the supplier, displaying total spend, volume, and late/on-time shipments received at their hospital locations. Customers can also trend carrier performance metrics over time.
Customer Story
In the past, a customer identified a slowdown at FedEx’s hub in Perrysburg, Ohio, after feeling the pain of several late deliveries to their main hospital location. For a temporary period of time, the customer switched their distributor’s shipping via UPS.
This data helps customers make shipping method decisions based on carrier performance. It also showcases the power to choose between multiple carriers.
Another customer plans to use supplier lead time data to understand if some of their products are on backorder and if they need to order a substitute product from a different supplier.
In addition, one of our customers plans to share supplier lead times with their Project Managers overseeing expansions/renovations within their health system so they can develop accurate timelines based on how long suppliers take to fulfill orders.
Looking For a Trusted Partner for Healthcare Supply Chain Cost Management?
When supply chain leaders implement a data-driven healthcare supply chain cost management strategy, the financial gains can be immediate and robust. Before partnering with VPL, we found that our customers were overspending by at least 20% for inbound freight and 30% for outbound freight.
Cost efficiency is once again a primary driver for supply chains.
Make it a priority and schedule a demo today.
