Hospitals can gain time and money with single-vendor distribution

by | Jun 5, 2012

From: Healthcare Finance News

ALEXANDRIA, VA – According to a study released Tuesday by the Health Industry Distributors Association (HIDA), hospitals see substantial cost savings and greater employee and time efficiencies by maximizing their spend through a distributor, particularly in the areas of product ordering and receiving.

The Pricewaterhouse Coopers (PwC)-conducted study, called the “Hospital Procurement Study: Quantifying Supply Chain Costs for Distributor and Direct Orders,” looked at hospital purchasing practices for distributor and manufacturer-direct orders at 32 hospitals of varying sizes and locations across the country over the last 12 months, according to Matt Rowan, HIDA president and CEO.

“The study quantifies the efficiencies associated with the distribution channel,” said Rowan. “It’s a good business decision; time and money are saved by streamlining and having one single vendor handle as much as possible. It’s about employee productivity. Providers are able to spend little time working on distribution and more time with patients.”

According to Rowan, the study focused on hospitals that used a prime vendor distributor, and compared the time and related costs associated with distributor orders to those for manufacturer-direct orders.

Some of the major findings in the study include:

Distributor orders are three times as likely to be electronic and average less than 30 seconds per purchase line order. Manufacturer-based orders average more than three minutes per line due to manual ordering and sign-off.

Distributor-dominant practices such as advance ship notice reduce staff time spent reconciling receiving invoices and orders.

Hospitals spent an estimated $67 per day receiving distributor orders versus $131 on manufacturer-direct orders.

The study notes that while some high-dollar products do not fit within common “cost-plus” distribution models, hospitals benefited from increasing the share of commodity products purchased through a single distributor, and from examining new models that can move expensive preference items through distribution as well.

“Using a prime vendor distributor is the clear winner as far as cost and productivity go,” said Rowan. “The study just reinforced the idea that hospitals need to be streamlining their resources. It’s cost-effective and requires little or no capital investment.”

For the full study and a list of recommendations hospitals can take to operate more efficiently, visit www.HIDA.org.