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Top six ways to manage supply expenses in long-term care

July 1, 2008
by John Kautzer and Chet Chandler
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Development and maintenance of staff skills in this area will pay off

With rising costs and the threat of reduced reimbursements looming, now is the time to evaluate how your facility's supply expenses are managed. To improve supply chain management and efficiency in the long-term care setting, consider the following six areas of focus: Organization, Setting Goals, Prioritizing, Sourcing, Training, and Technology.

Organization

Does your facility have a centralized or decentralized purchasing structure? Does your facility or company have well-communicated purchasing policies and procedures? Organization is the key to any endeavor, especially in purchasing and managing inventories. Taking action on these two questions will provide instant savings at any facility.

A centralized purchasing structure permits a few authorized buyers to coordinate supply purchases, which not only helps to control spending, but also to exercise tighter controls over inventories and utilize the varied expertise of employees in the procurement process. Also, this structure can help leverage buying power with multiple vendors and/or distributors.

When an organization has a decentralized purchasing structure, department heads are empowered to make buying decisions and are also held more accountable to the end user. One drawback to this structure is that its success in managing supply expense depends greatly on the department head's negotiating abilities. To address challenges in a decentralized purchasing environment, some facilities have developed formularies, i.e., a set group of vendors or items, for their buyers, along with strict dollar thresholds to help contain costs.

Establishing clear and concise policies and procedures is essential to optimal management of the supply chain. Protocols should be comprehensive policies, outlining everything from who has access and authority to enter a storage room to who is accountable for managing inventories. These procedures should be used to train new employees, with a thorough explanation of how and why the policy structure is relevant and the importance of adhering to the protocols.

Setting goals

In addition to finance or internal audit development goals for the inventory, factors such as cycle counts, inventory stratification, turn rates, inventory valuation, and variance rates should also be at the top of the list for performance evaluation. These tools and measurements are used across multiple industries to help manage inventories. Like the supply purchasing policies, these goals should be shared and embraced by the entire purchasing team.

In today's world of high gas prices and reduced reimbursements, a goal of saving 10% in each department and incentivizing the department to achieve this objective can positively affect the bottom line.

Prioritizing

Large capital purchases always get—and deserve—extra attention. However, an audit of all expenditures over the course of a year provides a clear picture of the items you must have to operate your facility, as well as what should be inventoried and perhaps shouldn't. Focusing on priority items and efficiently managing suppliers is essential to the success of an inventory management program.

Prioritizing is also essential for disaster planning. The importance of knowing which items and suppliers are mandatory in a time of need cannot be overstated. Make sure to review your disaster plan with each vendor. Remember, some vendors may have prioritized their products by marking them to go to a hospital before reaching a long-term care facility.

Because healthcare is a 24/7/365 operation, maintaining appropriate inventory levels is a balancing act. It is, of course, necessary to have sufficient inventories and storage space, but some facilities rely on “just in time” suppliers to reduce storage overhead. This can work, but be careful about critical products. If there is a disaster, such as Hurricane Katrina, can your vendor still supply you “just in time”? You should also analyze delivery costs and the cost of ordering and processing invoices versus more inventory/storage to determine if this method could work for you. Cultivate a good relationship with all vendors, but especially those vendors supplying the critical products necessary to operate your facility.

Sourcing

With so many healthcare vendors and new products in the marketplace, it is hard to keep up with product advances and maintain purchasing efficiency. Choosing good direct vendors and food, pharmacy, housekeeping, and medical supply distributors can help. Vendors and distributors should keep you informed of the latest products and services and work with you as a partner to ensure that your operation runs more efficiently.

Whether your facility is a centralized or decentralized operation, policing the number of vendors coming in and out of the facility can be a job in itself. Develop policies such as having all vendors sign in at the front door. Make sure the purchasing department reviews the list daily and have decision makers inform the purchasing department of all vendors they have contact with. New technology such as a single-source ordering system that combines your selected vendors is a very effective tool for maintaining control on spend and vendors, regardless of your purchasing structure. You may also consider implementing a vendor credentialing system to ensure procurement policies are observed.

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