Despite the challenges, HealthTrust members have found plenty of paths to lowering product costs while improving the productivity of maintenance staff and reducing accident liability.
In the basement of most hospitals, outside the purview of supply chain, maintenance staff regularly makes discreet purchases of low-dollar, high-need items such as pipe fittings and disinfectants. More often than not, they phone in their order and then head to that favored hardware store or parts supplier for what they lack to keep facility space functional.
This scenario, while typical, has disadvantages in terms of product costs and staff productivity as well as accident liability.
If MRO (maintenance, repair & operations) purchases are being made on demand at the nearest retail store, then hospitals are giving up a potential 8 to 12 percent in volume-leveraged savings in categories such as air filters and televisions. Further, if staff is making multiple trips to purchase supplies, labor costs on a per-hour basis can grow to substantial sums over time. And that is to say nothing of what they could have been doing back at the hospital―say, testing fire suppression systems or maintaining air handlers in the boiler room. Or what the facility might end up paying to settle claims when those employees get in a car accident driving to and from the store.
The MRO category is unquestionably challenging on a number of fronts. Among HealthTrust members, over 90 percent of MRO items are purchased only once or twice a year, in part because facilities vary widely in age, design and clinical purpose. It is not uncommon for the boiler at one hospital to have a life cycle twice as long as its affiliate down the street. MRO is also a highly fragmented space, where leading distributors Grainger and Fastenal together share only about 10 percent of the market. All the disparate needs, coupled with the enormous number of niche suppliers, have made poor contract compliance an industry-wide phenomenon.
But there are plenty of paths to improvement with MRO, as has been demonstrated by the experiences of HealthTrust member hospitals:
- Thanks to preferential pricing from Grainger on 6,000-plus SKUs, HealthTrust members enjoy discounts on more than three-quarters of their total spend in the category. Moreover, on-contract products are delivered to hospitals at no charge. Other value-adds include audits to calculate savings from switching to more energy-efficient lighting and assistance in preparing for visits from The Joint Commission.
- More than 300 HealthTrust members are now using Grainger’s popular KeepStock inventory management program to inexpensively stock and replenish MRO supplies in needed quantities to meet the bulk of their on-demand needs. Items not on the shelf can usually get there by the next day. Maintenance staff, as a rule, no longer has to leave the building before the end of their workday.
- Some larger healthcare systems utilize Lawson electronic data interchange (EDI) to order stock, which has aided contract compliance. Broader adoption of any sort of electronic order management tool will require significant training on the enabling technologies. But it’s well worth considering, given that EDI can shave up to 50 percent off process costs.
Considering hospitals’ cost constraints, it’s a safe prediction that MRO will be moving up their priority list when it comes to GPO due diligence. Adhesives and screws may not seem quite as important to healthcare as orthopedic implants, but CFOs will be pleased with what gets unearthed by a thorough examination of their organization’s AP file.