Supply Chain Management is practiced by most large companies with significant financial success, but what exactly is Supply Chain Management? More than just seeking to pay a lower price on products and services, it entails a disciplined, systematic process of analyzing corporate expenditures and developing strategies to reduce the total costs of externally purchased materials and services. It involves:
- What you buy.
- Who you buy from.
- How you buy.
- What you inventory.
- How you use the products and services you buy.
- How you can make those products and services better.
This is where the idea of “strategic sourcing” comes in and represents a core step in elevating the supply chain function. It generally includes basic steps such as collecting data and analyzing spend, as well as research of the market including suitable products and suppliers. Within this step, it is important to understand the total cost of ownership. This generally includes purchase costs, which are much easier to see and basically how much you pay at the time of transaction. Less apparent are things like internal business costs and joint supplier/customer costs.
Internal business costs include things like inventory carrying costs, expired products, physician preference costs, procure to pay costs, lack of standardization and non-compliant utilization. Joint supplier/customer costs can include logistics and distribution, damaged products, expediting and special delivery and payment.
Total cost of ownership forms the basis for strategic sourcing, which yields numerous benefits all aimed at lower costs, higher quality and greater customer service. In term of supplier interactions, it can lead to a reduced number of suppliers, and perhaps some new ones, but also stronger relationships with those who remain partners, including better service levels and longer-term contracts.
On the business side, consolidated buying and rigorous negotiation naturally yield lower prices. But beyond that, with an expanded focus on value, strategic sourcing offers elimination of redundancies, refinement of business processes, ideas for continuous improvement and formalized savings tracking systems. But most important to the end user – the patient – standardized product specifications can help lead to more predictable and positive patient outcomes.
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