Healthcare Strategic Sourcing: The Case for a System-Wide Approach
As the head of procurement for your healthcare system, cutting costs and increasing efficiency are two things that are always on your to-do list. Your job is a balancing act – reducing expenses while still ensuring high-quality patient care. Using a system-wide strategic sourcing approach is one buying approach that could dramatically reduce costs and increase efficiency for your organization. Rather than each hospital campus operating independently, think about leveraging the combined buying power of your entire system.
When you source strategically at a system level, you open up opportunities to negotiate better pricing through increased volume and gain more control over product selection. You can also reduce administrative costs by centralizing and streamlining many sourcing and purchasing functions. The key is having visibility into what each campus is buying and finding where there are opportunities to consolidate. It may require an upfront investment in tools and resources, but the long-term payoff could be huge.
Does a system-wide strategic sourcing model make sense for your healthcare organization? For many, the answer is yes. Keep reading to learn how to system-wide strategic sourcing can transform your procurement function.
The Benefits of a System-Wide Strategic Sourcing Approach in Healthcare
Managing spend across a healthcare system with multiple locations is often quite challenging. When you take a system-wide strategic sourcing approach, your procurement team can gain more insight into spend, control maverick spending, reduce costs through improved contracting, and free up money for patient care.
By centralizing sourcing decisions at the system level, you can leverage your combined purchasing power to get better prices from suppliers. You’ll also gain visibility into total spend on categories across all hospitals and clinics, allowing you to spot areas of overspending and make data-driven decisions.
A coordinated sourcing strategy allows you to standardize product usage throughout your healthcare system. This standardization helps minimize the number of SKUs to manage and leads to lower prices through volume discounts and reduced administrative costs. It also ensures the quality and consistency of products used for patient care system-wide.
Developing system-wide relationships with preferred suppliers provides opportunities for partnership and innovation. Suppliers are more willing to collaborate on custom solutions and pilot new technologies when there is a long-term, high-volume commitment. This collaboration benefits both parties and improves the quality of patient care and patient outcomes.
While a system-level approach requires upfront investment and change management, the long-term rewards of cost savings, quality improvement, and clinician satisfaction make it worthwhile. By implementing centralized sourcing policies and negotiating from a place of greater strength, you’ll gain control of spend and free up funds to enhance patient experience across your healthcare system. The benefits of a centralized procurement model far outweigh the challenges of implementation. With strategic system-wide sourcing, you can transform procurement into a strategic function that fuels clinical and operational excellence.
Aligning Key Stakeholders Across Your Healthcare Network
To successfully source strategically across a healthcare system, you need buy-in from key stakeholders at each facility. That means aligning executives, physicians, nurses, department heads, and others around the benefits of an enterprise-wide approach.
First, bring leadership together to establish shared goals. Explain how consolidating purchasing power can lower supply costs, free up the budget for new services, and strengthen the system’s financial position. Get their input on priorities and concerns. Address these issues to build support.
Next, meet with lead physicians and nurses to understand their needs and preferences. Work with them to find the products and suppliers that balance quality, service, and value successfully. Frontline perspective from lead physicians and nurses is invaluable for choosing supplies that improve patient outcomes, experiences, and safety.
Department heads are also crucial allies. Meet regularly to review budgets, track savings, create efficiencies, and ensure critical materials and equipment are readily available. Provide data and reports to demonstrate any progress or system improvements.
Finally, communicate early and often with staff at all levels. Explain the benefits of an enterprise approach in a way that resonates with their day-to-day reality. Highlight ways it will make their jobs easier or give them more resources to do their work. Answer questions openly and honestly. With the backing of leadership and clinicians combined with transparency for staff, you’ll gain the widespread support needed for strategic sourcing success across the healthcare system.
Conducting a Comprehensive Spend Analysis
To effectively apply strategic sourcing to a healthcare system, you must understand where your money is going. This means conducting a comprehensive spend analysis across all your facilities.
Gather Data from Each Campus
Work with department heads from each facility in your network to collect purchasing data. Ask for reports showing what products and services they’ve bought over the past 1-2 years, including details like:
- Volume and pricing for medical supplies, devices, and equipment
- Costs for facilities management, IT infrastructure, and professional services
- Spending on temporary staffing, travel, and other indirect expenses
Look for Spending Patterns
Once you have the data from each location, look for spending patterns across your system. For example, you may find that multiple hospitals have contracts with the same medical supply company or staffing agency. Or specific clinics may be paying higher prices for the same lab equipment. Identifying these patterns will show where you have opportunities to bundle volume for lower pricing.
Analyze Total Costs
Add up what your organization spends in major cost centers like medical supplies, pharmaceuticals, facilities, IT, and staffing. Calculate the total current cost for each category and your overall annual spend. This overview will help set savings targets and determine where to focus your sourcing efforts.
Share Insights Across the System
Conducting a comprehensive spend analysis is a critical first step to optimizing purchasing for your healthcare system. You’ll uncover ways to save money system-wide by collecting data from each facility and analyzing costs and spending patterns.
Share the results of your spend analysis with leadership and department heads at each campus. Review the pricing, volume, and total cost insights you found. Discuss opportunities to consolidate purchases across locations for the best overall value. By aligning stakeholders around spend reduction goals, you’ll gain support for implementing a system-wide strategic sourcing program.
Developing System-Level Specifications and Standards
Healthcare systems must develop and enforce system-wide product specifications and standards to achieve maximum cost savings and operational efficiency. This means gathering stakeholders from across your facilities to determine which products and services should be standard for the whole system.
Identify Common Purchases
Items frequently purchased in high volumes, such as surgical gloves, IV bags, linens, and syringes, are prime candidates for standardization. Get input from doctors, nurses, and department heads on their product preferences and requirements.
Review the different products and vendors that could meet your needs. Consider things like quality, price, availability, and service. You want to find options that will work well for all facilities and provide the best overall value. Expect to compromise to find a solution that satisfies everyone.
Choose System Standards
Select a single vendor and product for each item you want to standardize. These will become your system-wide standards that all facilities are required to purchase. Exceptions can be made in some cases based on unique needs, but the goal should be to have as much system-wide consistency as possible.
Ensure system standards are followed by implementing policies and controls. This can be done by revising purchase order approval processes, setting limits on non-standard purchases, monitoring invoices and spending reports, and training purchasing staff and end users. Compliance is key to achieving the full benefits of your standardization efforts.
Developing and implementing system-level standards is challenging, but the rewards are substantial. By consolidating your healthcare system’s spending power, you gain significant leverage with suppliers to lower costs and improve service. Operational efficiencies also result from the consistency and familiarity of standardized products across all your locations. The key is getting buy-in from stakeholders and strict enforcement of the standards you establish. With time and practice, system-wide strategic sourcing can become second nature.
FAQs About Implementing Strategic Sourcing in Healthcare
Will strategic sourcing save my healthcare system money?
Absolutely. Strategic sourcing is shown to reduce costs by 5-15% on average for healthcare organizations, but some systems have achieved up to 36% cost savings. By leveraging your system’s combined purchasing power, you can negotiate better pricing and terms with suppliers. You’ll also gain visibility into what each facility pays for the same items, allowing you to standardize at the best price.
How much time does it take to implement strategic sourcing?
The time required depends on the breadth and complexity of the categories you want to source. Rolling out a comprehensive strategic sourcing program for a multi-facility system may take 12-18 months. However, you can achieve quick wins in 3-6 months by starting with a few high-spend, non-clinical categories like office supplies, food, linens, and facility services. Focus on the “low-hanging fruit” before moving on to clinical categories.
Do we have to switch to single-source contracts?
No. Single sourcing is not required for strategic sourcing. Consolidating suppliers can maximize savings, don’t rely on one sole vendor. Multi-sourcing, dual-sourcing, and regional sourcing are great options that help create competition, ensure supply continuity, and support local businesses. The key is combining volume across the system to negotiate the best deal, regardless of the number of suppliers.
How can we get physician and staff buy-in?
Engaging stakeholders early and often is key. Communicate the what, why, and how of your strategic sourcing initiative. Highlight the benefits like cost savings, improved patient experience, and less time spent on procurement tasks. Seek input on categories and suppliers to source, and address any concerns. Once contracts are in place, provide training and guidance on using new supplies or services. By demonstrating the value to physicians and staff upfront, you’ll gain their support and cooperation.
What technology do we need?
Most healthcare systems find that a procurement and supply chain platform is needed for system-wide strategic sourcing. Look for a solution that provides spend analysis, sourcing, contract management, and supplier management functionality. SupplierGATEWAY’s all-in-one Enterprise Supplier Management Platform integrates with your ERP for a single source of truth for purchasing data across the system. E-procurement, inventory management, and analytics tools can also help drive the adoption of strategic sourcing contracts system-wide.
While it may seem daunting, the potential benefits of switching your buying strategy to strategic sourcing system-wide are huge. Start by focusing on a few categories of spend that are common across your locations to build momentum and gain buy-in. Once you have a few wins under your belt, use the savings and process improvements to make the case for expanding to additional areas. With the right tools and partners in place to support data-driven analysis, cross-campus collaboration, and supplier relationship management, you’ll be well on your way to unlocking major value through your sourcing efforts. The patients you serve and your CFO will thank you for it. Time to get started!