Linda Comisar
Supply Chain Management – Centralized purchasing saves millions of dollars
May 24, 2016
by Linda Comisar, Division Vice President
When my new employer tasked me to consolidate its existing purchasing process, it was a daunting task. The concept was just that, a concept. I had to develop process, protocol and a software module to work with our existing system to accomplish this feat.
Technicians reported spending 30 to 35 percent of their time daily sourcing parts, versus spending time doing only what trained technicians can do, which is diagnose and repair broken devices and equipment. When a part fails, the technician may not have had to source that part for months, or in some cases, years. The marketplace is dynamic and changes rapidly. A third-party vendor who was a great source a year ago may not be today. This is problematic in that every minute a piece of equipment or room is down, it is not generating revenue, or more importantly, has a negative impact on patient care. While revenue is certainly important, patient care will always be No. 1.
If you take care of patients, the revenue takes care of itself. I have spoken to many technicians who have told me they have spent days trying to locate a part to no avail. However, I am able to locate the item in minutes. This is because with a centralized purchasing group, one is able to utilize every aspect of economies of scale. A group of educated buyers is purchasing the item on a weekly or monthly basis, whereas the tech may only encounter the same need every 1 to 3 years.
A centralized purchasing group has its finger on the pulse of the market and knows what items can only (in some cases should only) be procured from the OEM and, conversely, when it makes more sense to obtain an item from the aftermarket or a third-party vendor. Another challenge that exists is consistency in pricing. In many cases within a given hospital group, even with an OEM, Hospital A is not paying the same price (obtaining the same discount) as Hospital B. This happens for several reasons.
Technicians are spread thin and most concerned with obtaining the correct part to get the system up and running, and while quoted one price may often be invoiced at a different amount and never know. A technician often does not have the visibility to know what his counterpart paid in another facility. Resolving these issues is also very time-consuming. Preventing the issue is the answer. This is where centralized purchasing is worth its weight in gold. Front-end due diligence takes only a few extra minutes and greatly reduces these and most issues.
In addition to inherent knowledge of what vendor is best suited to meet the immediate need, there is the negotiation factor. Buyers are comfortable having these conversations daily. There are some technicians who are more than willing to negotiate. However, there are also a number of technicians who for a host of reasons — urgent need, lack of experience, lack of time, etc. — will never ask for a better price, or will just ask Vendor A to match Vendor B pricing. In this practice literally millions of dollars are left on the table daily.
The benefit of a centralized purchasing group to technicians is that they are now able to devote 100 percent of their bandwidth to performing PMs and repairing equipment. It took a while to build the trust required within the community of technicians, but by hiring buyers with the correct experience and giving them proper training, technicians were exposed to new solutions to help them better accomplish their work without the added stress of not just sourcing parts, but also investing time required for proper expediting and logistics.
Developing an organized approach to strategic sourcing has many benefits in addition to time saved. The potential savings for hospital groups is in the millions. When a finance department independently studied transactions, it was revealed that technicians who manually purchased their own items spent on average 32 percent more than the centralized purchasing group spent across the board. These savings don’t factor in the time spent by the technician sourcing the item. The savings are attributed to economies of scale and leveraging position in the marketplace, along with knowing the correct vendor to utilize, given the dynamics of each situation. Often it is important to source the part from a vendor who also possesses the expertise to install the item. It is in this instance where a centralized procurement group can also be of great assistance in exploiting the developed network to ensure a quality part is installed by the best quality vendor within a certain geographic zone.
Centralized purchasing is a huge opportunity that most hospitals throughout the nation are not taking advantage of. This is low-hanging fruit. The savings generated can far exceed the cost of implementing and operating a centralized purchasing group.
About the author: Linda Comisar serves as division vice president at DOTmed.com. She was formerly the national procurement manager at Catholic Health Initiatives and has over 30 years of experience in supply chain management.
Technicians reported spending 30 to 35 percent of their time daily sourcing parts, versus spending time doing only what trained technicians can do, which is diagnose and repair broken devices and equipment. When a part fails, the technician may not have had to source that part for months, or in some cases, years. The marketplace is dynamic and changes rapidly. A third-party vendor who was a great source a year ago may not be today. This is problematic in that every minute a piece of equipment or room is down, it is not generating revenue, or more importantly, has a negative impact on patient care. While revenue is certainly important, patient care will always be No. 1.
If you take care of patients, the revenue takes care of itself. I have spoken to many technicians who have told me they have spent days trying to locate a part to no avail. However, I am able to locate the item in minutes. This is because with a centralized purchasing group, one is able to utilize every aspect of economies of scale. A group of educated buyers is purchasing the item on a weekly or monthly basis, whereas the tech may only encounter the same need every 1 to 3 years.
A centralized purchasing group has its finger on the pulse of the market and knows what items can only (in some cases should only) be procured from the OEM and, conversely, when it makes more sense to obtain an item from the aftermarket or a third-party vendor. Another challenge that exists is consistency in pricing. In many cases within a given hospital group, even with an OEM, Hospital A is not paying the same price (obtaining the same discount) as Hospital B. This happens for several reasons.
Technicians are spread thin and most concerned with obtaining the correct part to get the system up and running, and while quoted one price may often be invoiced at a different amount and never know. A technician often does not have the visibility to know what his counterpart paid in another facility. Resolving these issues is also very time-consuming. Preventing the issue is the answer. This is where centralized purchasing is worth its weight in gold. Front-end due diligence takes only a few extra minutes and greatly reduces these and most issues.
In addition to inherent knowledge of what vendor is best suited to meet the immediate need, there is the negotiation factor. Buyers are comfortable having these conversations daily. There are some technicians who are more than willing to negotiate. However, there are also a number of technicians who for a host of reasons — urgent need, lack of experience, lack of time, etc. — will never ask for a better price, or will just ask Vendor A to match Vendor B pricing. In this practice literally millions of dollars are left on the table daily.
The benefit of a centralized purchasing group to technicians is that they are now able to devote 100 percent of their bandwidth to performing PMs and repairing equipment. It took a while to build the trust required within the community of technicians, but by hiring buyers with the correct experience and giving them proper training, technicians were exposed to new solutions to help them better accomplish their work without the added stress of not just sourcing parts, but also investing time required for proper expediting and logistics.
Developing an organized approach to strategic sourcing has many benefits in addition to time saved. The potential savings for hospital groups is in the millions. When a finance department independently studied transactions, it was revealed that technicians who manually purchased their own items spent on average 32 percent more than the centralized purchasing group spent across the board. These savings don’t factor in the time spent by the technician sourcing the item. The savings are attributed to economies of scale and leveraging position in the marketplace, along with knowing the correct vendor to utilize, given the dynamics of each situation. Often it is important to source the part from a vendor who also possesses the expertise to install the item. It is in this instance where a centralized procurement group can also be of great assistance in exploiting the developed network to ensure a quality part is installed by the best quality vendor within a certain geographic zone.
Centralized purchasing is a huge opportunity that most hospitals throughout the nation are not taking advantage of. This is low-hanging fruit. The savings generated can far exceed the cost of implementing and operating a centralized purchasing group.
About the author: Linda Comisar serves as division vice president at DOTmed.com. She was formerly the national procurement manager at Catholic Health Initiatives and has over 30 years of experience in supply chain management.