Purchasing expert John Baldaro offers 10 steps on how to reduce the cost of medical supplies.
After staff costs, medical expenses are likely to be the biggest expense for a practice. As such, it is a logical place to look to reduce costs.
Whilst the emergence of buying groups has undoubtedly highlighted opportunities to streamline medical costs, it is questionable whether they have given practices (whether individually or whilst collaborating) best value for money.
Perhaps the single greatest barrier to negotiating better deals with medical suppliers is a lack of visibility of what is being ordered. Successful negotiation is dependent on understanding what is being bought, from whom, at what prices and in what quantities.
It is not unusual to discover that a practice is buying from upwards of 10-15 separate medical suppliers. This uncoordinated buying approach often results in unnecessary delivery charges, excess stock and additional invoice processing.
Here are ten steps that you can use to reduce the cost of your practice’s medical supplies.
1. Understand what is bought
Whilst you will probably have a fairly good idea of high turnover supplies such as couch roll, disposable ear tips and speculum you may struggle to identify the remaining product lines.
Attempting to draw meaningful price comparisons from paper invoices is both laborious and tedious. However, if you can collect the data electronically then the process of analysis is simplified.
Contact your supplier and ask for management reports detailing what was bought, including prices and quantities. Most suppliers, if pressed, will provide you with records you need. Excel format is best.
2. Consolidate suppliers
Reducing the number of medical suppliers and consolidating those orders with one, or just a few firms is guaranteed to get you the best deal. Remember, a supplier that can double or triple his sales volume is likely to offer competitive prices.
3. Look at the ‘basket’
Suppliers will often look to gain your business through eye-catching headline deals and offers. Whilst you may save a little on these ‘key value items’ it is more important that you get a good deal across the full ‘basket’ of supplies that you order.
Get suppliers to price a representative sample of say three month’s supplies as this will give you a true feel for what can be saved.
Comparing similar products in different pack sizes can be confusing. Adopt supermarket best practice (£ per kilo) and compare products on a unit-of-measure basis. Try calculate costs on a £ per metre or £ per single item basis.
5. Consider suppliers’ motives
If you are currently spending £1,000 with a supplier then they are unlikely to offer a price reduction without additional incentives. Why would they?
Look for opportunities to pass more orders their way, perhaps by combining another supplier’s account, and you will command a better deal.
6. Allocate buying roles
You will undoubtedly develop a better rapport with a supplier if they deal with familiar practice staff. Consider allocating buying responsibilities to key staff and be consistent with who places orders. It pays to develop good supplier relations.
7. Pay promptly
On average, UK businesses pay suppliers’ bills around 20 days beyond agreed payment terms. This can have a damaging effect on suppliers’ cash flow.
If you are consistently late paying invoices, a supplier in unlikely to want to deal with you. You may be an ‘inconvenient irritation’ for them!
8. Challenge yourself
Any decision to change supplier or switch products is going to involve managers and clinical staff. There may well be competing pressures such as cost and personal preference for particular product.
Challenge each other on what is best for the practice in terms of both cost and quality. Consider alternate products where consensus can be reached. Involve suppliers and manufactures who should have a good level of product knowledge and will be able to assist.
9. Respect your supplier’s position
If you have negotiated a good deal, the supplier will want to protect his agreed profit margin.
Suppliers are unlikely to warm to demands for additional prices reductions over-and-above those that have been agreed, especially if to do so would give them a negative profit margin.
10. Price matching
If you send prospective suppliers copies of your current invoices so see if they can be bettered, do not be surprised if you achieve little more than a ‘price match’. Hide the prices and ask for the most competitive deal without declaring what you currently pay.
This is the last in a series of three articles on practice efficiencies. John Baldaro is director at PracticeProfit, a firm of purchasing experts working exclusively with GPs. To assess your practice expenditure and receive a free action plan, visit www.practiceprofit.co.uk/report and follow the link to the online tool.
Streamlining your medical costs