OBJECTIVES. Maximize and Leverage Your Vendor Relationship 5/31/2013 WHY DO WE WANT TO LEVERAGE RELATIONSHIPS?

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1 Becker s ASC Communications 11TH ANNUAL ORTHOPEDIC, SPINE AND PAIN MANAGEMENT-DRIVEN ASC CONFERENCE Maximize and Leverage Your Vendor Relationship Arthur E. Casey, CASC Senior Vice President Business Development Outpatient Healthcare Strategies June th, 2013, The Westin Michigan Avenue, Chicago OBJECTIVES Vendor Negotiation Techniques For Everyday Use Proven Methods For Saving Costs Review And Understand Pertinent Benchmarks & Operating Statistics Evaluate And Select The Best Option For Inventory Systems WHY DO WE WANT TO LEVERAGE RELATIONSHIPS? To Control Costs And Help Measure Performance 1

2 HUMOR BREAK But if we didn t measure things, we wouldn t know how good we are at measuring the things that we re measuring.. How Can You Actively Seek Cost Savings Negotiation Techniques With Supply Vendors Inventory On-hand Inventory Methodologies Operating Statistics/Benchmarks Product Standardization A R E A S O F D I S C U S S I O N NEGOTIATING WITH YOUR SUPPLY VENDORS Is Your Vendor A Friend Or Foe? Vendor Relationships -Who Benefits? Group Purchasing Organization Shop Within The GPO Different Distributers Will Have Better On Some Thing's Than Others Pricing Changes 2

3 NEGOTIATING WITH YOUR SUPPLY VENDORS Competition Is The All-knowing Soothsayer- Periodically Every Year Or So, You Should Shop Your Vendor Pricing. Take Your Top 25 Most Used Items, And Your 25 Top Priced Items And Have A Competing Vendor Price. Apples And Oranges Don't Be Locked Into Just One Vendor Don t Give Away The Answers To The Test It Is Unethical To Release Pricing You May Get An Even Better Pricing By Not Doing So. Don t Be Afraid To Ask For A Discount SO THE GOOD NEWS IS THE OPERATION WAS A TOTAL SUCCESS. BAD NEWS WE WERE OUT OF HOOKS. B I T M O R E H U M O R Days In Inventory Supply Cost Per Case Supplies As A Percent Of Revenue Margin Calculations 3

4 Days In Inventory: Simple 1. Total Monthly Supply Expense (TMSE) / Divided By The Number Of Days In The Month= Supply Cost Per Day 2. Divide That Number Into Your Total Inventory Number (TIN) From Your Balance Sheet = Number Of Days In Inventory. Example: $70,000 (TMSE) / 31 (days in the month) = $2, then $125,000 (TIN) / $2, = (so in this case you have a total of days in inventory). Days In Inventory Moderate (3-month) 1. Total 3-month Or Quarterly Supply Expense (TQSE) / Divided By The Number Of Days In The 3 Month Period = Supply Cost Per Day 2. Divide That Number Into Your Total Inventory Number (TIN) From Your Balance Sheet = Number Of Days In Inventory. Example: $220,000 (70k+65k+85k=TMSE) / 90 ( = days in the month) = $2, then $125,000 (TIN) / $2, = so in this case you have a total of days in inventory. Days In Inventory Supply Cost Per Case 4

5 Days In Inventory Supply Cost Per Case TMSE / Total Number Of Cases and / or Procedures (TC) For The Month. Example: $70,000 (TMSE) / 185 (TC) = $ Supply Cost Per Case Days In Inventory Supply Cost Per Case Supplies As A Percent Of Revenue Supplies As A Percent Of Revenue Total Supply Cost For The Period / Net Revenue Or Collections Example: $70,000 / $370,000 = 19% 5

6 Days In Inventory Supply Cost Per Case Supplies As A Percent Of Revenue Margin Calculations A LITTLE MORE HUMOR This is the only performance indicator that is moving up. unfortunately it depicts my blood pressure Profit Margin, Net Margin, Net Profit Margin Or Net Profit Ratio All Refer To A Measure Of Profitability. It Is Calculated By Finding The Net Profit As A Percentage Of The Revenue [5] (Where Net Income = Revenue Cost) Source: Investor Words, Investorguide.com 6

7 Days In Inventory Supply Cost Per Case Supplies As A Percent Of Revenue Margin Calculations How Do You Control Cost While Still Meeting Physician Expectations Category AVG National Benchmark Days In Inventory 30 Supply Cost Per Case $385 ** Supplies As A Percent Of Revenue 19% ** Depending On Specialty Mix ACTIVELY SEEK COST SAVINGS Supply Cost Per Case Budgeting Seek And Find Opportunities Top 25 Used Top 25 Highest Price Items Minimum 3 Savings Per Month. Keep A Running Total Annualize The Impact Doesn t Have To Just Be Medical Supplies 7

8 ANOTHER CONSIDERATION Jumping at several small opportunities may get you there more quickly than waiting for one big one to come along. - Hugh Allen - MONTHLY PURCHASING BUDGET ABC Surgery Center February-13 Volume 125 Budget Per Case 235 Total Expense $ 19, To Date Other / Service / Instrume nts P.O. Number Date Vendor Supply Amount With Shipping Implant Running Balance Budget Balance $ - 29,375 29, C 2/1/2013 ALCON - $ 939 $ $ $ $ 29, C 2/2/2013 B&L - $ 240 $ - $ 29, /3/2013 WESTCOAS - $ - $ 688 $ - $ 29, /4/2013 AMERICAN - $ - $ 332 $ - $ 27, /5/2013 DEPUYMITE $ 1,764 1,940 $ 1,003 $ 1,940 $ 27, /6/2013 HOSPIRA 347 $ 382 $ 2,322 $ 21, /6/2013 SMITH&NEP 5,111 $ 5,622 $ 7,944 $ 21, /6/2013 CONMED/L 246 $ 271 $ 8,215 $ 20, /6/2013 ARTHROCA 170 $ 187 $ 325 $ 8,402 $ 20, /6/2013 STRYKER 494 $ 543 $ 8,945 $ 19, /6/2013 CURASCRIP $ $ 9,443 $ 18, /6/2013 AMO 1,350 $ 1,485 $ 10,928 $ 17, /6/2013 APP 630 $ 693 $ 11,621 $ 17, /6/2013 SURGICAL 223 $ 245 $ 11,866 $ 17, /6/2013 APPLIED M 408 $ 449 $ 12,315 $ 17, /6/2013 SYNTHES 424 $ 12,315 $ 17, /6/2013 ARTHROCA 45 $ 50 $ 620 $ 12,365 $ 13, /6/2013 CARDINAL 3,088 $ 3,397 $ 15,761 $ 14,328 $ 15,761 $ 4,238 $ 332 $ 15,761 13,614 $ 20,000 $ 20,331 INVENTORY ON HAND How Much Is Too Much? How Often Do You Order? To Consign Or Not To Consign? Manual Vs. Automation? Keep Or Pay Restock Fee? 8

9 A THOUGHT TO CONSIDER When obstacles arise, you change your direction to reach your goal, you do not change your decision to get there. Zig Ziglar (born 1926) Motivational Author, Speaker INVENTORY SYSTEMS FIFO Vs. Lifo Why, Who Cares Outdates Definition Preference Cards One Per Physician / Procedure Current / Up To Date Ownership Pick Sheet Or Guidebook INVENTORY SYSTEM FIFO Vs. Lifo Preference Cards Devil Is In The Details. Physical Inventory Counts How Much Does This Item Cost? Purchase Orders The Dating Game Of Packing Slip, Purchase Orders And The Invoices 9

10 PRODUCT STANDARDIZATION Case Costing Let The Physician s Police Themselves Don t Compare Just Cost; OR Time And Technique Are Also Important Kill 2-3 Birds At One Time SUMMARY OF OBJECTIVES Discussed How To Minimize Inventory On Hand Learned Which Operating Statistics Are Pertinent To Supply Cost And What The Numbers Meant To Your ASC Discussed The Differences Between Perpetual Vs. Non-perpetual Inventory Systems Reviewed How To Leverage Your Vendor Relationship To Improve Your ASC Pricing FINAL THOUGHTS You Can Always Find A Less Expensive Product Cost Savings- And The Winner Is? Annualize Your Savings Recognize Those That Find The Savings 10

11 Imagine The Things That We Could Accomplish If We Knew We Could NOT Fail - ANONYMOUS - Questions? REFERENCES 1. ( 1) G i bson S C. ( ). L I FO v s. F I FO: a r e turn to t h e b a sics. T h e R M A J o urnal. R I NA Free f ull t e xt. 2. ( 2) " L I FO R e s erve D e finition". A c co unting To ol s. h t tp:// ols.com/lifo -reserved e finition. R e trieved ( 3) W i kipedia.com A c co unting Te rms 4. ( 4) M a nagement a n d A c counting Web h t tp://maaw.i nfo 5. ( 5) I nvestor Words. I nv estorguide.co m D e c

12 Thank you! Contact information: Arthur E. Casey, CASC, Senior Vice President Outpatient Healthcare Strategies