The healthcare industry – and its supply chain component – is undergoing rapid transformation in the wake of the COVID-19 pandemic, inflation, and widespread supply chain shortages.
From a move toward home-based care delivery to initiatives involving ESG factors such as sustainability, diversity, and increased equity, great changes are already underway for the healthcare supply chain.
Increasing supply chain’s span of control – one of the high-reliability supply chain’s six priorities – will help with the evolution toward patient-centered, value-based care.
Visibility and Responsibility
Span of control and spend-under management are synonymous. They both refer to increasing the percentage of an organization’s spend across all product categories and purchase channels that is overseen and managed by its procurement department.
From a supply chain standpoint, this requires that more categories of spend are under supply chain’s visibility and responsibility. Some nontraditional procurement categories – such as pharmacy, purchased services, durable medical equipment, capital, research, and lab supplies – have historically either been directly managed within the departments that consumed the services or supplies or have been too difficult to administer through traditional sourcing due to the variability of demand and the complexity of matching the contract to the invoice amount.
Increasingly, supply chain is being asked to get involved in the procurement process for these categories. Amid the erosion of operating margins, net revenue declines, and inflation, CFOs are exerting more control over item formularies, prices, and inventory carrying costs.
Challenges and Opportunities for Improvement
Consider that supply chain spend over the past two years has increased more than 18% to encompass more than 37% of the total cost of patient care. Broadening span of control enables supply chain to shape demand for every dollar of spend across each purchasing pathway and expense category – acute, nonacute, or homecare – in the continuum of care.
Similarly, one goal for broadening the span of control for the supply chain across all spend categories is applying supply chain discipline to purchasing activity – and being able to realize savings – across every category of spend, including such nontraditional categories as purchased services, pharma, minor equipment, and labor.
Additionally, guidance should be provided during sourcing to ensure diversity, fair trade, compliance, and price competition. The supply chain is responsible for considering the impact of all purchasing decisions – from supplier diversity and sustainability to risk, compliance, and service levels – and not just the price paid for products or services.
No method is perfect and there are possible obstacles to these strategies – for example, if the supply chain is responding to a rush request for an order that is already placed, the reactive nature of the process might lead to an obscured line of sight from the point of demand. Additionally, many of these “one-off” requests include important but incomplete and inaccurate data about the item, its source, and the price.
However, there are actions to take that can improve the process. Category optimization helps you identify high-leverage spend categories with critical items that warrant both sourcing and clinical risk assessment and mitigation strategies. Your Value Analysis process can proactively evaluate functional equivalent products while supply chain can engage alternative or secondary sources of supply that are suitable substitutes. Ideally, this is a preemptive collaboration between multiple stakeholders that redirects demand signals to alternative, qualified sources and understands the impacts of each choice.
As we look across nontraditional spend categories, new implementation models will need to emerge. Modern, self-serve procurement technologies are tailored to address nuances in the workflow while still standardizing and centralizing control for purchased services, pharmacy purchasing, and capital equipment.
Providing Greater Discipline
Procurement tools like Prodigo’s Marketplace may not manage the entire spend footprint across each category; however, there are steps that can be taken to provide greater discipline regarding who can place orders and which vendors are approved to provide services, and to gain more transparency into requisitions and purchase commitment approvals in nontraditional spend categories.
Supply chain can define standardized forms for each purchase category – such as services, research, capital, or minor equipment – that defines the minimum data attributes that are required and controls the available vendors for various categories. Additionally, Marketplace extends the directed buying experience to mobile devices for requesters who are outside of the ERP workflow.
Prodigo continues to see growth across these nontraditional purchase categories with approximately 47% of our clients’ services and capital requests now being processed through our Marketplace tools.
At Prodigo’s recent User Conference, Marlin Doner, VP of Product Strategy, identified roadmap investments focused on broadening the span of control in Prodigo’s procurement platform, “In these challenging times, we need to be evaluating options within every spend category. We see Prodigo’s technology as a catalyst to bring the same disciplined control to each purchase decision across every expense category.”
While the overall effects on the healthcare supply chain from the past few years of disruption are still coming into focus, giving supply chain more control by broadening its reach will allow it to shape demand and realize greater savings through disciplined procurement processes.
The promise of a perfect order means getting the right item, from the right vendor, at the right price. By increasing its responsibility in the procurement process for nontraditional spend categories, the supply chain will ensure it provides the right amount of control and oversight.
To learn more about the six priorities of the high-reliability supply chain, visit this page.