Looking to Squeeze More Value Out of Your Supply Chain?

Try Category Management

We’ve written a lot of posts about supply chain recently—and with good reason. Supplies represent a prime target to realize savings without impacting quality, but of all the hospitals I work with, few are truly capitalizing on opportunities to derive maximum value from their supply chain.

Your supply chain is unique in that it is involved in every step of the care continuum. However, many supply chain departments still operate as a transactional department – processing POs and reacting to contract expirations or renewals. 

Supply chain leaders and staff struggle to engage physicians and other end-users in meaningful conversations about contracting or utilization decisions, and are hampered by imperfect data.  In order to succeed in the changing healthcare landscape, it’s time for supply chains and supply chain leaders to evolve.   

6 supply chain myths and our rebuttals

What is category management?

Category management is a technique that has proven successful in other industries and is just beginning to be adopted by forward-thinking health care organizations. Beyond simply reducing costs through price negotiations, category management is helping leading organizations reduce variation in care and total case costs.

Category management isn’t easy. At a minimum, it will require intensive training and restructuring to bring about a cultural shift not only in your supply chain department, but also across your entire organization. Your department may not currently have the right resources or knowledge, and you may have to invest significant time and money to carry out true category management. However, while the effort is significant, so are the rewards.

Unlike traditional sourcing practices, which focus primarily on extracting the lowest possible price from a supplier for each individual transaction, category management segments a hospital’s spend into groups by the function of items and by the way these items are sold. For example, a category might be a type of purchased service, such as hotel services, or a group of similar supplies, such as orthobiologics.

Once categories are determined, an organization then sets a uniform strategy for that entire category based on the needs of the end user and the goals of the organization as whole.

The value of category management

While the price of a particular supply still plays a role, category management measures savings based on the total cost of an entire procedure or episode of care. In many cases, an organization may realize more savings by reducing unnecessary utilization, or curbing the use of premium devices than from negotiating better line-item pricing. In addition, category management also takes quality outcomes into account. If a surgeon’s cases are more expensive than his or her peers, but his or her cut-to-close and readmission rates are lower, it may be worth maintaining the use of that item.

A major benefit of this shift in focus is that it allows hospitals to have a collaborative relationship with suppliers, enabling suppliers to actually use their expertise and creativity to deliver greater value and a higher level of service. Better quality service from a supplier can have a significant impact on OR efficiency by improving store room management and ensuring that equipment is fixed more quickly.

Achieve more savings with category management 

Category management can realize far more savings than traditional sourcing practices. It allows organizations to identify sustainable savings throughout the entire lifecycle of a supply or contract—including price, service, quality and utilization—and provides an infrastructure to ensure you aren’t leaking savings in any of these crucial areas.

It can also help to standardize care. Category management takes a much broader and more holistic approach that includes identifying areas of variation throughout the organization and honing in on opportunities to improve.

Finally, stakeholder engagement is both a critical component and a distinct benefit of category management. Category management requires developing close relationships with end-users and spending time to truly understand their needs. When done correctly, it can be a great vehicle to build trust with customers across the organization. 

Want to learn more strategies for improving your supply chain? Download our playbook for clinical supply savings