For healthcare leaders, making a deep impact on supply chain costs will demand more than choices around what to cut. It will necessitate an agile response in an inflationary environment.
As health systems face continued financial challenges, 47% of healthcare leaders say supply cost reductions will be among their top cost-saving initiatives this year.
But achieving significant and sustainable savings will require organizations to creatively rethink their approach to containing supply chain costs.
Forward-thinking health systems have already “picked” much of the low-hanging fruit for decreasing costs of products, equipment and inventory. Now, they must consider how to brace for more cost increases as McKinsey predicts non-labor expenses in healthcare—including for supplies—will rise by up to $110 billion by 2027, with the increases likely to become permanent.
Inflation is a big driver: McKinsey expects the largest jump in healthcare expenses to take place between 2022 and 2023 due to inflation, then continue through 2027 at a lower rate of growth.
For healthcare leaders, making a deep impact on supply chain costs will demand more than difficult choices around what to cut and by how much. It will necessitate embracing new models for determining how expense reduction opportunities are uncovered, who leads these efforts and how to ensure an agile response in an inflationary environment.
Here are three factors to consider.
1. Overcoming supply chain knowledge gaps should be a top area of focus for health systems.
Supply chain talent is becoming harder to retain and recruit—and it’s a challenge that extends beyond frontline roles. In fact, loss of senior supply chain leaders in healthcare has resulted in a knowledge gap that is difficult for many organizations to overcome.
At a time when the pressures of global bottlenecks, inflation and depressed margins necessitate a strategic approach to inventory management and expense control, health care leaders must tap into high-level supply chain expertise. This includes leaning into outside expertise, such as leveraging relationships with vendors or developing new partnerships to close gaps in senior-level supply chain knowledge, where needed.
For instance, a Deloitte survey found 50% of health care leaders believe supplier relationships are key to supply chain resilience. Organizations also should work to create strong pipelines to develop young talent, such as among entry-level health system workers, and nurture a path to leadership among frontline and middle-level employees who show long-term potential.
According to Gartner, the best investments for attracting supply chain talent are those that focus on flexibility, well-being—including deeper connections and personal growth—and compensation.
2. It’s time for the role of supply chain leaders to be elevated.
To make a meaningful impact on expense reduction in a post-pandemic-stressed, inflationary environment, supply chain leaders should take a lead role in cost reduction in their organizations. This will allow them to provide the thought leadership necessary for determining new opportunities for expense reduction and ways to sustain savings. It will also give these leaders a voice in assessing the downstream effects of supply chain reduction on services and physician, clinician, and patient satisfaction and how to mitigate these impacts.
By bringing supply chain leaders to the C-suite table, healthcare leaders can set the stage for building a more resilient supply chain—one that defines the root causes of supply chain vulnerabilities and empowers teams to develop innovative solutions.
In leading healthcare organizations, supply chain leaders also have a voice in health system strategy.
3. New approaches to supply chain value will become critical in 2023.
The last three years of the pandemic have given all health care leaders a more robust understanding of the critical nature of the supply chain and its fragility.
To bring greater value to health systems, supply chain teams need better access to data, stronger supplier relationships and tighter collaboration across their systems—in particular, with clinicians. They also should look for ways to go beyond price points and rebates to control costs.
In 2023, there will be much discussion around the need to maintain prices for supplies rather than lower them—especially during a time of inflation—as numerous organizations already have reached the bottom of the pricing curve. That’s not to say there isn’t room to reduce waste and inefficiency, but in 2023, extracting value in supply chain will depend on leaders’ willingness and ability to do things differently.
This includes making investments in supply chain, processes, and technology. One area in particular that deserves investment: technologies that support access to actionable, reliable data that enables supply chain teams to predict their organization’s needs more effectively.
Setting the stage for success
The old ways of doing things in healthcare supply chain won’t be enough to provide the value health systems need.
Instead, in 2023, healthcare leaders must be open to new approaches that leverage talent, knowledge, systems, and data for transformational change.
By changing their mindset and exploring outside-the-box ideas for improvement, healthcare leaders can accelerate maturity in supply chain for breakthrough performance.
John Wright is chief operating office of Advantus Health Partners.