The majority of healthcare executives expect their information technology budgets to grow by more than 10% in 2019, and they’re spending big on headline-grabbing technology like digital health, automation, artificial intelligence and analytics.
Procurement may not be the flashiest area of a healthcare organization, but it’s one department where a new technology investment can make a big difference to both patient care and financial performance. Traditionally, procurement teams spend countless hours manually ordering supplies; in some hospitals, staff are required to push a button every time they take an item—which doesn’t often happen during the rush of an emergency. Inventory isn’t always accurately reported or in stock, leading to delayed procedures and increased costs.
Leaders in procurement are already on board with digital transformation; 83% say it will be impactful to their supply chains. But only 5% currently have “highly automated processes.” Now, procurement leaders must prove the value of automation to their healthcare organization’s finance department to move the needle on process efficiency.
Break down the cost savings
Finance departments, as they should be, are most concerned with one thing: The organization’s financial bottom line. If an application doesn’t make good financial sense, it doesn’t make good business sense. That’s especially true in a healthcare setting, where margin pressures can sink short-term investments that will pay off in the long run.
This frugality can make it tough for procurement departments to immediately justify automated programs. But they can prove its worth by demonstrating how tech can reduce costs, risk and waste—especially when it comes to data management.
The quality of data in procurement systems is crucial, as is data transfer between systems—even though these systems frequently aren’t linked. Instead, procurement professionals often rely on manual, repetitive workarounds like the following scenario.
From the outside, it might not seem like a burden for procurement professionals to open an email, download an attached Word document, find a key piece of information, and then enter that data into a system. But consider the time it takes to perform that task many times over. It results in the loss of a significant chunk of their workday and opens the window for human data-entry error.
Automation is the answer to these repetitive, onerous and costly manual activities that are weighing down modern healthcare organizations. Here’s a more detailed look at three ways automation can create procurement cost-savings.
- Supplier data management. Most procurement organizations receive data in a variety of formats across a diverse group of suppliers; and there are simply too many supplier records to be proactive about maintaining master data. The problem is widespread within the healthcare landscape—just 15% of hospital decision-makers say they have a sufficiently broad view of their supply chain.
Healthcare procurement departments have a unique burden here—the precision around maintaining and cataloging medicines, equipment and other critical supplies can literally mean the difference between life and death. To make matters worse, supplier data is liable to change, and manual updates have a naturally high rate of error.
Fortunately, simple automation can be applied to check suppliers’ contact information. In one instance, a procurement department found a 26.4% error rate in their records of suppliers. To correct them, this automation sends those suppliers a standard web form requesting updated information. It then updates the system of record without any manual data entry.
Multiplying this 26.4% error rate by the number of suppliers in your system, and using a conservative $100 estimate for the cost of an error, gives a safe measurement for the cost savings of $26,400 per 1,000 suppliers.
- Purchase order processing. From entering a requisition to multiple levels of approval to final conversion, it’s easy to underestimate the total cost to fully process a purchase order (PO). But machine learning capabilities can analyze existing data to estimate the likelihood that an order will be approved, then automatically approve orders above a predetermined confidence level.
To calculate potential savings, start with your PO processing cost. For this example, we’ll use reported median and world-class values of $162.08 and $35.88, respectively. The difference in these values gives us a savings of $126.22 per PO. Multiply this by the number of POs your organization processes in a year to calculate an annual savings of $126,220 per 1,000 POs.
This same machine learning also can be applied to predictive ordering, an especially valuable benefit in the healthcare environment where the nature of emergencies makes it difficult to estimate how much of a given item will be needed every month. Healthcare organizations tend to over-order supplies in preparation, but this leads to expired inventory and ineffective planning. Applying simple RFID tags and placing items in smart cabinets that self-count can lead to a significant reduction in time spent on inventory counts, ordering and tracking expired items.
- Spend under management. Increasing spend under management (SUM) can result in a 6% to 12% savings on each additional dollar, according to CPO Rising’s 2019 research report. Automation allows your firm to leverage data from all of your systems for better spend analytics. These reports can be totally automated and shared with the right decision-makers for a quick approval.
For this example, we’ll use the 2019 CPO Rising survey average SUM of 53.6% and world-class SUM of 89.1%. The difference in these numbers is the potential opportunity for improvement in your SUM. Multiplying by the low end of the above savings per dollar (6%) gives the potential savings per dollar of your total spend. By improving SUM, organizations save an average of $213,000 per $10 million of annual organization spend.
Data is the key to making proactive, informed spending decisions for any modern healthcare procurement department. In organizations where work is done manually, doctors and insurance companies make decisions in silos—over the phone and in-person. But when all financial data flows seamlessly, SUM is improved—as are efficiency and patient care.
Consider the human element of automation
Procurement departments are filled with valuable, skilled professionals who waste a lot of time on busywork. And these human employees aren’t infallible—86% of mistakes made in the healthcare industry are administrative. Your talent is wasting their time and unwittingly introducing errors, which hurts their morale and commitment to your healthcare company.
Employees who use automation instead have time to focus on the human elements of their jobs, like making connections and improving customer experience. Even if your healthcare company can automate just one step in the procurement process, that’s one less nagging thing on a worker’s plate.
While the benefits of automation to your procurement department are huge, they won’t happen overnight. Start with initial use cases in an area of need to prove automation’s worth, aided by an ROI calculator, then plan a larger investment. Your healthcare organization’s future is one of connectivity—make sure your procurement department doesn’t miss out.
Jeff Grisenthwaite is the vice president of product at Catalytic, a provider of cloud-based technology for managing business processes.