In 2019, CEO’s and CFO’s will continue to be forced to drive supply chain management (SCM) leadership to find additional supply chain savings. Interestingly, this “savings charge” seems to fly in the face of recent trends that have placed less emphasis on supplier rationalization and related sourcing strategies according to predictions by Prodigo Solutions.
Even among the best, health system operating margins will continue to decline in 2019. In fact, Prodigo is finding that health systems are adding diversity to their supply chains with a good portion believing that price compression has largely occurred across many meaningful categories of spend.
So, are we talking about some sort of reversal here? Not exactly. Call it a blend of the old and the new. What we’re seeing is a resurgence of good procurement practice (effective blocking and tackling) organized and executed with greater focus under the latest category managed approaches. Not only are the procurement fundamentals back in vogue, but there’s a concerted effort to bring more spend under management (no more sacred cows).
2019 will be characterized by a much fuller recognition by procurement leadership
Although the conversation will continue to cycle around the need to drive better utilization of contracts, Prodigo sees that full transparency into underlying purchasing data is essential. The pursuit of supply chain improvements without a plan to finally fix the data problem will be openly acknowledged as reckless. If it hasn’t already, it will become the “talking point.”
Supply chain leadership cannot add sustainable value to the clinical enterprise until data quality improves to a point where standards can naturally proliferate.
Controlling the Internal Point of Sale
Increasing industry SCM maturity, market consolidation (both on the provider and supply-side) and evolving GPO relationships have finally settled lingering debates around the significance of controlling the internal point of sale. Controlling it matters for many reasons and is especially pertinent as we head into 2019. The centralized management of purchasing data enable more persuasive presentation of demand to suppliers and strategic presentation of product and service value to internal consumers. Whether it’s regarded as the point of sale, point of service or point or requisition, procurement leaders will face the evidence and accept that controlling the point of sale and improving internal fulfillment performance should be integrated processes and are the cornerstones to realizing cost savings objectives.
CSO’s will find themselves in rapidly consolidating environments
The underlying M&A activity is generally justified on the basis of gains in operations efficiency and promises that such gains will result in reduced care costs. Unfortunately, there are plenty of examples where the truth has turned out to be precisely the opposite.
Simply put, leaks occur most every time a product or service is purchased outside the control of procurement. Stated differently, the leaks occur in categories of spend that are not under management and/or do not benefit from a standardized procurement process.
2019 will see the “nearing of the end” to the push back certain internal stakeholder groups have traditionally given to procurement intervention. Much like physicians are settling their personal preferences (e.g. PPI) in support of product and service choices that serve broader organizational objectives, higher preference purchased services (e.g. legal, marketing, etc.) will finally agree to more visible, structured processes.
Some of the latest category solutions are creating new flexibilities in support of this trend. These solutions can be driven by procurement, but also used by the stakeholders themselves. Where it makes sense, it allows such stakeholders to maintain their autonomy while satisfying procurement objectives for transparency and savings.
Will ERP fix the problem?
The technology landscape has already shifted. While traditional ERP will continue to serve as the transactional chassis, it’s the application vendors who are extending/driving the value of these systems. As implied above, in 2019, third party, category-focused on-demand solutions will become more popular. Those considered best-in-class are IT lite, employ use conventions that make them easy to adopt and integrate as required across the ecosystem. The best evidence of this are the introductions of competitive SCM applications from the ERP vendors themselves. The point, however, is that providers can now evaluate such competitive solutions on their merits, as the native integration advantages ERP vendors continue to promote are no longer valid. Irrespective of functional comparisons, there are plenty of cases where third party applications are more successfully integrated than the ones that are native to the ERP vendor itself.
Providers will invest to upgrade their contract management capabilities
Post-signature contract lifecycle management, versus contract authoring automation will provide the biggest gains. Although getting the data right governs any/all such progress, their integration is no longer the problem.
The goal here is not limited to matching PO’s and invoices, but perfect orders/transactions to the performance-based conditions in contracts. While stopping the leakage that occurs when discounts and rebates are not recovered, the best-in-class contract management solutions we’re seeing actually motivate buyers and sellers to negotiate more creatively, as they can have confidence in their ability to track and realize the added values.
- Predictions by Michael DeLuca, Executive Vice President, Prodigo Solutions.
