“You really need to automate a lot of that analysis … because the supplier contracts are getting more complex. The vendor has one contract to watch but you could have 1,500 contracts to look at,” Pallin adds. “Having the right data is paramount.”
The ability to call on spend analytics to manage costs more efficiently has been steadily reflected in operating performance. Though in 2008 Mount Sinai lost $15.7 million (negative 3.2% operating margin), by 2009 it generated positive income from operations and solid operating cash flow. Those numbers continued to improve through 2010, and as of June 2010, it posted $4.2 million of operating income, equaling a 1.6% operating margin and 9.3% operating EBITDA margin.
Using spend analysis data in conjunction with benchmarking information has helped other organizations turn supply numbers from “good to know” information to transformative data. In Burlington, NC, Wendell Osborne, director of supply-chain management at Alamance Regional Medical Center, a not-for-profit community healthcare system, recognized that its manual spend analysis wasn’t producing useful data.
“We found we were starved for knowledge,” says Osborne of the 238-licensed-bed medical center. “We knew where our spend was, but we didn’t understand which cost to reduce—the benchmarking is so important.”
Analytics is just pulling information, but how you compile the information actually tells the story, he says. “Now if I’m looking at a category I’ll run a market-basket analysis of who and where I’m spending, then I compare it to other hospitals … We see what [supplies] doctors are using for which procedure and we can see how our spending habits compare. Then when you share this information with the departments and physicians, you can learn more about why that’s the case,” says Osborne.