How Westchester Medical Center Health Network uses direct sourcing to wring out more SKUs and millions of dollars in savings from its purchasing program and hospital supply chain.
Supply chain executives must control variability in order to control costs. This is true across industries worldwide, but it is exceedingly difficult in healthcare. When Jim Connor took over the supply chain and purchasing controls for Westchester Medical in 2008, he discovered the following:
- 11,000+ SKUs in the purchasing ledger
- Complete absence of a purchasing “item master”
- Payments of $100 to ship one $60 item
- Absence of extrapolated acquisition costs and distributors unwilling to provide them
The challenge – generating full cost visibility and managing hospital supply chain change
Westchester Medical Center Health Network is comprised of seven hospitals on five campuses and more than 1,500 beds in the Hudson Valley Region of New York. In just over a decade, Westchester Medical Center has grown from a single campus and the advanced-care lifeline for the residents of the region, to a $1.62 billion network with partners at every level of the healthcare continuum.
A veteran of the manufacturing industry, Connor knew there were millions of dollars waiting to be saved through his healthcare supply chain and purchasing program if the organization could engage transparent, capable partners committed to unlocking them.
“It is amazing how expensive it is to get relatively low-cost products to the right places in healthcare,” Connor says.
One of Connor’s first tasks as Vice President of Supply Chain Operations was extrapolating the cost of 10,000 items from Westchester’s distributor network. “For 90 days the distributor avoided our requests,” Connor says. “When senior management finally demanded the answers, those answers caused us to find a true partner, not a vendor. That is how costly the absence of transparency can be in healthcare.
“There is not much room to affect big ticket purchasing items like expensive imaging machinery,” Connor says. “There are too few opportunities and too many hurdles. Addressing what is within my control like ‘med/surg’ is a high value opportunity for change with the right partner.
“Our distributor makes four levels of a suction catheter,” Connor says. “I’ve never understood that. I just want one that works and I want to know exactly how much it costs to get from the manufacturer into our clinicians hands.”
Distributors typically markup costs by 20 – 60% over their own direct cost. These are costs providers pay to distributors for the distributors’ own profit, promotion, marketing and selling expenses. As much as 50% of the medical products IDNs, hospitals and large group practices purchase, commonly many millions of dollars, are not manufactured by the companies that market and sell them.
“If I’m price checking a distributor’s item every day, they’re not a partner. They’re a vendor. Everyone will help you get the product you want. But hardly anyone will tell you what it costs to acquire throughout its supply chain lifecycle. I need partners for items I’m acquiring in high volume that must be consistently of very high quality, with full cost transparency especially in the ‘med/surg’ area.”
In the first 2 years of Connor’s tenure as supply chain chief, Westchester wrung out 600 SKUs, 3 distributors and achieved average annual savings of 15% on medical supply spending through its supply chain and purchasing program.
Connor knows there is more to be gained. Westchester Medical engaged ASP Global and launched phase 1 of a direct sourcing program in 2014.
The solution: Wringing out “next level savings and quality improvement” with a transparent, trusted direct sourcing partner
Elimination of product multiplicity with full pricing visibility all the way to the factory through direct sourcing with ASP Global enables Westchester Medical to implement change that improves clinical utility and significantly reduces its healthcare supply chain and purchasing costs.
ASP Global has long-standing relationships with 150+ factories and more than 20 years of experience in the global hospital supply chain. This enables hospitals, IDNs and large group practices to acquire high quality medical products at factory prices.
The quality of any hospital supply chain and direct sourcing program is only as good as the provider’s ability to drive adoption of the products. ASP provides local, on-site resources that support all aspects of adoption from clinical considerations to inventory management ensuring high acceptance rates and shorter cycle times to change.
The result: 99% fill rates, meaningful savings and product improvements that are only achievable through the right direct sourcing partner and a highly efficient hospital supply chain.
As Westchester Medical continues to expand Connor knows that the process of acquiring goods is an area that will continue to be ripe for savings, product improvements and economies of scale.
The results – “ASP Global generated a better product at half the price. We save $70,000 per year on that product alone and trimmed three SKUs down to one.”
A new digital thermometer is just one example out of 33 products that ASP Global consulted with the clinical staff to source for Westchester.
“If you were to buy 100 items here in 2006, you wouldn’t know what 83 of them actually cost,” Connor says. “We now have 100% acquisition cost visibility with ASP Global and we take product control all the way to the manufacturer.
“We have 33 SKUs through our sourcing program with ASP Global right now that have saved us 27% since the launch of the program in 2014. We intend to double those numbers in 2016.
“Ultimately my goal is to get the product the clinicians want and get it to them efficiently,” Connor says. “I need a partner that can direct source products in a way that doesn’t change my quality and or improves our quality. That is where ASP Global excels.”
What’s next: branded items and “five star” patient comfort products
Westchester Medical’s new master plan calls for 24 facilities under its umbrella. Marketing and patient satisfaction are rising rapidly on the priority initiatives and metrics.
“Our patient amenity and branded items are going to determine, at least in part, how we are perceived and measured including our HCAHPS scores,” Connor says. “We are using direct sourcing to ensure the quality of those are high while keeping costs low.”
“When you are charging a per diem rate for patients, or guests, to stay with you, you should be able to provide high quality, comforting products without breaking the bank: pillow mints, shampoo, toothbrushes; all of those amenity products matter. At the price for a day in one of our beds, they SHOULD be the kind of items one would expect to find at a Four Seasons Hotel. We use our supply chain and procurement expertise along with ASP Global’s sourcing capabilities to provide a higher quality experience for our patients.”
You can contact Paul Albarano, ASP Global’s Northeast Area Vice President, at email@example.com or by calling (603) 401-6024 for more information.