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An Adaptable Approach Through the Covid-19 Pandemic

The supply chain leadership of a large $2B integrated health system identified the need to elevate its procurement function by establishing a strategic sourcing function that is critical in driving long-term value to the organization, then Covid-19 hit.
Pathstone Partners Chicago Health Care Consulting (11)
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The Challenge

The supply chain leadership of a large $2B integrated health system identified the need to elevate its procurement function by establishing a strategic sourcing function that is critical in driving long-term value to the organization.

The client had limited strategic sourcing resources to serve its internal customers, partner with its supplier base, and address total non-labor expenditures of $1B.

Furthermore, the client was facing budget constraints that created challenges to secure resources to recruit, train and grow a team that is critical to its ability to achieve its goals.

As a result, the client engaged Pathstone to partner with the organization to embark on a journey to transform its procurement function to deliver and sustain value over the long-term.

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Solutions

Pathstone introduced its Balanced Partnership® approach, which offers a flexible support model that scales with each of the three phases of the client’s transformation journey.

Phase 1: Start-Up (Year 0-2)

  • Pathstone led support to identify and implement non-labor and strategic sourcing savings across all categories.
  • “Quick win” categories were identified and implemented such as translation services, records management, managed print, telecom.
  • After securing several wins, Pathstone worked with supply chain leadership to develop a business case to recruit and hire additional strategic sourcing FTEs to accelerate efforts.
  • The client was able to mitigate financial headwinds by achieving $2.5M+ in annual savings through Pathstone-led initiatives.

Phase 2a: Momentum (Years 2-3)

  • Pathstone worked with the newly formed sourcing function to plan for the next wave non-labor expense reduction initiatives.
  • Pathstone and the client allocated initiative responsibilities between both teams to maximize overall return on investment (ROI).
  • Complex categories such as Rx, lab and revenue cycle, purchased services were assigned to Pathstone.
  • Less complex categories such as clinical and non-clinical supplies were assigned to the client team.
  • Achievement of $7.5M in benefit through ongoing Increased non-labor spend addressed by the client supply chain team to impact cost.

Phase 2b Resilience (Year 4-5)

  • Emergence of the COVID-19 pandemic, leading to supply chain disruption, and significant financial challenges.
  • Pathstone worked with the client sourcing team to proactive source and secure PPE (gloves, gowns, sanitizers) needed by front-line staff.
  • Pathstone partnered with executive leadership to engage top spend and strategic suppliers to secure short-term concessions to mitigate financial impact.
  • Pathstone worked with IT leadership to evaluate and rationalize IT investments.
  • Quick implementation of $15M in non-labor expense savings within 9 months by engaging strategic suppliers.

Phase 3 Sustainability (Years 6+)

  • Pathstone provided ad-hoc implementation support on targeted complex categories in Rx, Lab and Biomed.
  • Pathstone also provided market intelligence, training and post-implementation reviews to augment the client’s ability to drive and sustain long-term value.
  • Achievement of $10M of benefit (combined team effort).
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Results

As a result of Pathstone’s Balanced Partnership® approach, the client was able to achieve the following results:

  • Achievement of $35M+ annual non-labor expense reduction: The client achieved over $35M+ in annual savings in all major non-labor spend categories, including clinical supplies, information technology, telecom, pharmacy, lab, support services and purchased services.
  • Enhanced credibility and relationships with internal stakeholders: Previously, the supply chain & sourcing team had limited resources to truly serve the needs of its customers and the organization. Over time, internal customers viewed supply chain as a strategic advisor that can make a meaningful contribution to their departments. The paradigm shift led to earlier integration of supply chain
  • Increased internal knowledge & expertise: Pathstone served as an extension of the client sourcing team, which enables the client to “learn by osmosis” by jointly participating in a full strategic sourcing lifecycle from start to finish. Furthermore, through Pathstone’s ad-hoc support model, the internal team gained access to formal training and knowledge sharing sessions that facilitated their growth over time.
  • Enhanced ROI over time: Through Pathstone’s flexible model and investment in the client team, overall return on investment on supply chain & Pathstone resources increased from 4x to 10x. This was largely driven by the supply chain team’s growing capabilities, which led to a higher number of spend addressed and impacted internally as opposed to relying on Pathstone’s resources over time.
  • Sustainability: With access to Pathstone’s ad-hoc support including market insights/leading practices, negotiation support and post-implementation support, the client significantly increased its ability to sustain benefit achieved over time. For instance, Pathstone conducted a post-implementation review of a translation services sourcing event, which revealed over $1M+ in value leakage over-time due to lack of contract pricing compliance. The client utilized Pathstone’s findings to address both pricing and utilization opportunities to drive costs down with its key suppliers.

Key Takeaways

Secure quick, small wins to build momentum and credibility.

When embarking on a journey to transform your organization, identify less complex, high value spend categories that can be tackled to secure small wins for your organization. Once your team generates several small wins within the organization, communicate those wins to executive leaders to justify additional investment.

Prioritize investment in your internal supply chain resources.

Everything begins with recruiting and growing top talent to embark on your journey to transform your organization. You can achieve this by stacking small wins over time and effectively communicating these successes to executive leadership. This will lead to a clear business case in securing investments from leadership to build your winning team.

Flexibility leads to greater outcomes and return on investment (ROI).

The ability to imbue flexibility into your sourcing function is paramount in generating stronger outcomes and ROI on your resources. Pathstone’s Balanced Partnership® approach enables clients utilize the optimal level of resources and maximize ROI (the client’s ROI increased from 4x to 10x over time). Furthermore, cross-training your own resources across multiple types of initiatives and categories will allow you to quickly allocate resources to meet unexpected challenges such as COVID-19.

Focus on driving and sustaining long-term value.

Leading supply chain organizations focus on generating and sustaining long-term value. An equal amount of investment is needed to train and equip your team to uncover value in more complex categories and to monitor and correct value achieved over time. Pathstone’s experience suggests that organizations could lose 25-40% of benefit achieved if organizations do not invest in processes, technology and capabilities needed to sustain benefit over time.

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Through collaboration with physicians and the supply chain team, Pathstone achieved an estimated ~$630K in annual savings.