Many materials management directors and product managers that we’ve spoken with too often fall into the habit of attaching value to vendors based on a single criterion: price.
But price is far from the only input that affects the overall cost and efficiency of a provider sourcing strategy. Holding vendors accountable for performance throughout the supply cycle can potentially drive a six-figure reduction in annual spend. Here’s how one hospital in New Jersey was able to achieve it.
Crearting scorecard to assess performance
Holding vendors accountable for performance on measures such as fill rates, transportation costs, billing errors, and other operational metrics can enhance the value of vendor relationships and decrease overall supply chain costs as those measures improve over time.
With this in mind, pseudonymed Vomer Medical Center turned those measures into a functional scorecard with seven categories of metrics to assess performance for each of its vendors. Supply chain leaders at the organization selected and weighted metrics based on which had the greatest potential to impact sourcing improvement goals.
A substantial boon to spend performance—and a promising ROI
For this organization, vendor performance following the implementation of the scorecard surpassed expectations. The medical center enjoyed a $462,000 supply chain spend reduction—nearly double the initial savings goal set by the organization.
The investment and effort needed to build a scorecard and trend vendor performance is relatively minimal, and the return for many systems could be substantial. The average hospital could attain a 3% to 5% increase in annual margins through the development of a vendor performance scorecard.
Want more strategies from progressive systems aimed at reining in hospital expenses? Members of the Health Care Advisory Board can log in to read our resource guide, Bending the Expense Growth Curve.