Stop the Madness with Your GPO Contracts
I have been told by value analysis managers throughout the country that they spend 96% of their time evaluating new or renewal GPO contracts, which isn’t value analysis at all. When I tell them that there is only 1%, 2% or 3% savings to be achieved with their GPO contracts and, on average, 26% to be saved on any value analysis project they conduct, they soon understand that they are spending their time on the wrong side of the supply chain equation – price!
The next question I’m always asked by value analysis managers is, “How do I STOP THE MADNESS with my GPO contracts, so that I can spend the required time on my value analysis projects?” Here’s three strategies that I tell them to employ to get organized, prioritize and optimize their time to save even more:
- Start a campaign with your peers to insist that their GPOs write contracts with 3, 5 and 10 year lifecycles – not one year terms. Not only will this tactic reduce the number of GPO contract renewals, but will enable GPOs to lock in their prices over the long-term, since inflation is the real threat to price stability in the healthcare marketplace. For example, Southwest Airlines has not been affected by the current energy crisis since they locked in their fuel prices over the long-term. Your GPO can provide this same price protection for you!
- Don’t change your manufacturers just because there is a new GPO contract being offered by your GPO, because the cost of change will usually cost your more than the contract savings being offered. You can do this by searching out comparable contracts with other GPOs (yes, you might need to join more GPOs to do so), so that you can continue to purchase from your preferred manufacturer at competitive prices. Your justification: Contract churn isn’t and will never be a cost effective way to do business.
- If you are a large enough healthcare organization to do so, write long-term custom contracts with your GPOs assistance, so that you can lock in your prices for the foreseeable future.
I’m sure you can think of a few more and even better strategies to organize, prioritize and optimize the time you are now expending evaluating your GPO contracts now that I have opened Pandora’s Box. It’s my opinion, that if we don’t STOP THIS MADNESS it will have a stifling effect on your supply chain effectiveness in the sort and long-term.
If you agree or don’t agree with my take on this topic, I would love to hear your comments on this pressing problem.
Your Partner in Innovative savings,
Bob Yokl
President & Chief Value Strategist
Strategic Value Analysis® In Healthcare
800-220-4274
P.S. If you would like more powerful savings and quality ideas like this one I would recommend that you sign-up for our “no cost” weekly Savings Beyond Price™ e-Newsletter at www.Strategicva.com. You will also get a copy of my e-book “Your Target Blueprint for Supply Chain Management Success”, as a bonus.
Are You Really Practicing Value Analysis or Are You Doing Something Else? (Revisited)
I have written often about healthcare organizations’ value teams not practicing value analysis, but are instead doing something else. But what I didn’t know, until we started conducting our Certified Value Analysis Leadership Program (CVAL) in 2007, is that value analysis coordinators, managers and directors aren’t practicing value analysis either.
What I have found from my interaction with these coordinators, managers and directors, at our three-day CVAL program, is that these individuals spend most of their time evaluating new and renewal GPO contracts! That’s not value analysis at all, that’s contract management in its purest sense.
After these very intense three days of training I’m happy to report that most of the attendees at our CVAL program finally realize that they aren’t practicing value analysis and have decided that going beyond price is where they want to go in the future with their value analysis programs.
As I mentioned last week at the North Carolina Materials Management Association annual conference, hospitals should have an annual audit of their pricing, then fill in the gaps of their contract portfolio where needed. It doesn’t make sense for these individuals to spin their wheels and waste their time trying to eke out a few more percentages savings with their GPO contracts, when there is about 26% savings on just about any commodity these individuals would investigate using the techniques of value analysis.
I went on to tell the NCMMA members that they should petition their GPOs to have more 3, 5 and 10 year contracts, with annual renewals, so their members could stop the madness of trying to keep up with their new and renewal GPO contracts that are e-mailed to them daily.
Bottom Line! Value analysis coordinators, managers and directors need to get back to basics by actually practicing the tenets of value analysis and then move away from being contract managers. Contract management isn’t your job (it’s your purchasing department’s job) and it’s not what you were hired for.
It’s your job to study the functions of the products, services and technologies your hospital is buying, and then search for lower cost alternatives to meet those functions. That’s what’s missing from your value analysis program and is holding back huge savings for your hospital.
P.S. If you would like more powerful savings ideas like this one I would recommend that you sign-up for our “no cost” weekly Savings Beyond Price™ e-Newsletter at www.Strategicva.com. You will also get a copy of my e-book “Your Target Blueprint for Supply Chain Management Success”, as a bonus.
