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.
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.
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).
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.