Finding gold in the supply chain.

In recent years, new technologies and processes have emerged that enable healthcare organizations to quickly and cost-effectively reduce supply and purchased services costs by as much as 15 percent. Studies reveal that every 5 percent reduction in supply and purchased services costs equates to a 1 percent improvement in bottom line margins.

Both mid-size integrated delivery systems and small independent facilities could save millions of dollars annually simply by applying best practice supply chain processes across the enterprise. Even with increased volume, these savings are realized by purchasing only the best of what's used at the best possible price with the best possible terms. "Right sizing" also reduces labor costs associated with replenishing and distributing materials.

The Basics of Achieving Supply Chain Savings

Described below are eight basic supply chain optimization steps that every hospital should take to raise supply chain performance to the highest level. These steps can help a hospital reap solid savings within four to six weeks. Hospitals that already have strategic plans for their supply chain are probably already taking advantage of many of these suggestions. Simply put, these are tried and true action steps that will not only lead quickly to significant savings, but also--if properly implemented and maintained--allow a hospital to achieve sustainable, substantial results over time.

1. Generate purchase orders (POs) for every item purchased. It might sound obvious, but without a PO, a hospital can't possibly know what it has bought. Adoption of a consistently applied PO policy helps to eliminate internal "rogue buying." In fact, vendors actually become participants in the enforcement process because once they understand that no invoices will be paid without the proper PO, they will demand one before they deliver products or services.

For hospitals that have not taken this step, the importance of doing so without delay cannot be overstated. Here's how to proceed:

* Create and use a PO template outlining the hospital's terms, conditions, and other pertinent information.

* Establish a policy requiring that all services and products be procured through a centralized purchasing system. Communicate this policy to staff, clinicians, and accounts payable.

* Communicate in writing to all vendors that, as of a specific date, invoices will not be paid unless they include a preissued, valid PO number.