Supply Cost Reduction & Procurement Control
Client Profile:
Pain management and physiatry medical practice with 21 locations in 5 states.
Scenario:
This practice wanted to have greater control over the supply formulary available to its staff, wanted to reduce supply costs significantly to generate additional cash for acquisitions, and wanted to make the overhead related to new acquisitions predictable and consistent with existing offices.
Action:
drs4drs analyzed all areas of supply costs as well as existing systems of procurement and supply sources, then provided supplies at 15.8% below the client’s current pricing, and designed a custom catalog in which a restricted formulary was available to only certain staff authorized to buy. OTTO housed – in one place – the supplies previously obtained from 24 sources/sellers.
OTTO applied spend limits and order frequency limits to buyers and electronically pushed orders from all locations to various levels of management so that every purchase, every dollar was controlled in real-time prior to shipment.
Finally, OTTO customized a single invoice that compartmentalized charges by GL and allocation codes.
Results:
OTTO gave company ownership/leadership FULL control over every dollar spent on supplies in all locations.
Hard dollar savings of 15.8%.
Additional hard dollar savings of 6.1% in year two via data analyses and re-negotiations with manufacturers/vendors.
No price increases over 7 years on 92% of all supplies.
Further price decreases in subsequent years on 6% of all supplies through continued negotiations.
Generation of analyses to compare supply usage levels in various markets and among locations, and to identify lower cost alternates/brands.
Additional Impact:
This client does extensive procedures and utilizes expensive pre-packaged, custom procedural trays. They were concerned over cost and frustrated that some items were wasted since not all physicians had the same content preferences.
OTTO and the drs4drs analytical teams monitored usage and confirmed that approximately 21% of tray contents were not being used and, on average, 3-4 other supply items were having to be pulled and used in addition to the tray contents.
We priced the contents of each tray as individual supply items and determined that an MA-level individual at each office could compile the trays a certain number of hours each week. These combined costs were 23% below the cost of the custom trays. After launching the process in a few key offices, refining the way in which we shipped tray contents and creating electronic and hard-copy prompts for compiling the trays, the program was rolled out to all 21 offices and reduced tray costs by 23%.