Effective Procurement Plan and Strategies – Need of the Hour

Healthcare industry is under tremendous pressure. Revenues are declining and materials costs and manpower costs are increasing day by day. Moreover recent price fixing by NPPA on products such as drugs, stents, implants etc. has reduced our profit margins. Unfortunately, we find it difficult to revise the tariff in this competitive world. A look at our operating margins confirms the problem. The one and the only solution is to cut costs and the hospitals have to develop effective procurement plans and strategies to maintain profitability. Ideally material cost in hospitals should not be more than 25–28 percent of the revenue earned. But if we look at the P&L statement of many hospitals, the cost is more than the ideal figure. Cut costs is the slogan echoing in every nook and corner of the healthcare industry and we need to develop effective procurement strategies to reduce cost and maximize profits. Five percent of cost savings in procurement is equivalent to 25 percent increase in turnover in hospitals. Few procurement strategies can be adopted for achieving greater operational efficiency in hospitals.

Operational procurement planning. Potential savings can be achieved by improvements during planning stages. Even in situations where planning is difficult such as emergencies, proactive measures can be taken and prepared to overcome such challenges.

Direct purchase from manufacturers.  When we procure directly from the manufacturers, we get products at best prices and better margins. This can also be adopted for products such as stents and implants to avail better trade margins.

Group and bulk purchasing. It is one of the best strategies to gain volume discounts and better margins.

Supplier optimization. Choosing optimum mix of vendors who can provide the best price, right quality, and an ever increasing quality service.

Green purchasing. The strategy of procuring environmental friendly products, champions the need for recycling and purchasing products that have a minimum impact on the environment.

Consignment model. Consignment model is an effective means of controlling costs and very useful in reduction of locked up capital inventory and its carrying costs. This is an effective strategy that enables suppliers to reduce lead times required to fulfil orders. This can be adopted for many products that include expensive items like stents, balloons, pacemakers, etc.

Selection of equipment. The stakeholders at all levels are to be consulted for better understanding of the requirement. Technological updates, various requirements like power, area required, operating parameters and expenses, warranty, accreditations, training, availability of spares, feedback from the existing users, software and hardware packages, upgrading facility, life span of the equipment etc. have to be considered while selecting the equipment. If it is a replacement for an existing equipment, buy back option can be explored.

Procurement of consumables. Just-in-time purchases can be adopted to the maximum extent as possible especially for stationeries, housekeeping, maintenance items, computer accessories etc. More use of branded generic items can be considered for better margins. Reusability of the items has to be considered while procuring consumables especially for cath lab, OT, endoscopy etc.

Buy versus rental lease. If the terms of the lease include other services, such as operation and maintenance of the equipment, then the cost of availing these services should be added to the price for the purpose of the analysis. The residual value of the item at the end of the period needs to be considered.

Collaborative approach. A group of hospitals in a region or district can join hands together for procurement to avail volume discounts. For example, recently Kerala Private Hospitals Association (KPHA) has taken an initiative to bring together the hospitals for volume discounts and better outcomes.

As the healthcare industry is a complex one with myriad differences and perspectives, we need to indeed strike a chord between both the parties. Effectiveness and efficiency are required to reduce costs and maximize profitability.