Long-term care facilities are getting whammed by inflation. Everything they purchase, from food to nursing supplies, has gone up in recent months. Meanwhile, staffing costs have also jumped tremendously throughout the country.
Jay Moskowitz is the CEO of Visage Senior Living in Colorado. He says that what he must now pay certified nursing assistants has increased about 41% since October 2020. Furthermore, the cost for licensed practical nurses and registered nurses has gone up 50%.
Moskowitz’s question, and one shared by many others in the senior and long-term care industry, is, “Where do I get that money? The state’s not going to give it to me. They think that inflation and expenses will increase by a percentage, not by the rate of increase that we’re [now] having.”
Because no one will “give us the money,” we need to consider cost savings. One option many providers may not have considered is to conduct a systematic series of supply chain audits. These audits focus not only on what products are purchased but how products are purchased and from whom. The goals are to document current procurement processes and find ways to cut costs, and streamline the entire purchasing procedure.
Here’s an example. Let’s say a provider has twenty-six locations. Most of these locations are about the same size, with a similar number of residents and staff.
This company has grown primarily by acquiring locations operated by other providers. The company allowed each site to continue purchasing goods independently to keep things running smoothly. While orders over a certain amount, say $5,000, had to be ok’d by a central office, smaller purchase orders could be made in each location without approval. This system also helped expedite product delivery.
However, there’s a problem here. Each location was purchasing small numbers of the same or similar items, for instance, four or five cases of the same paper towels per month. Because these are small purchases, no discounts were possible; they paid top market rates.
If this senior care provider purchased one hundred or more cases of the same paper products per month for all the sites, they would be eligible for product discounts, rebates from the manufacturer, and “bulk purchase” discount savings. Furthermore, if they purchase products through a national network of distributors, they can be delivered throughout the country, as and when needed, just as before.
This would amount to significant cost savings for the provider.
What we just described is called a purchasing audit. We’re looking at who is purchasing what items for the many locations and if the entire process can be centralized, taken over by one principal purchasing office.
Here are some other audits to consider:
A product audit
A product audit involves analyzing all the products used in one or more locations to determine those proven to be the most effective and cost-effective. The goal is to help reduce costs by eliminating product redundancies. Conducting a product audit requires the participation of several stakeholders, including administrators and staff. It usually involves the following:
- Categorizing and identifying all products currently being used in the locations.
- Listing the cost of each of these items.
- Determining which products are the most effective.
- Noting the products preferred by those using them.
In a product audit, certain products in each category invariably surface to the top as being the most effective, cost-effective, and preferred by staff and users. And don’t be surprised if it is not the costliest product in that category.
A distributor audit
Most senior and long-term care facilities work with one or more distributors to purchase goods. A distributor audit tries to reduce the number of distributors and vendors the organization works with and looks for the most effective and knowledgeable distributor to meet their needs.
During the pandemic, when there were product shortages, many locations sought new distributors and vendors to meet product requirements their current distributor could not provide. This creates confusion, and confusion often turns into a costly problem.
Based on different studies, the costs for processing invoices can hover between $10 to $20 per invoice. The costs are the result of the following:
- Time to review each invoice (pre-and post-payment).
- Time to analyze invoices, looking for duplicates.
- Time to follow up on incorrect invoices or data entry errors.
- The cost of sorting, storing, or shipping paid invoices.
- Time to impute the invoice for payment.
- Penalties incurred for invoices not paid on time.
- Saving opportunities missed because an invoice was not paid during a discount period.
It is typically in an organization’s best interest, costs and otherwise, to work with just one distributor/vendor or as few as possible.
So, how do we conduct a distributor audit?
- Based on the product audit discussed earlier, list all the products used in your facility and the amounts needed annually. Monthly estimates will not work.
- Based on this list, prepare a request for proposal (RFP). The RFP now lists all of these products and how many will be purchased during the year.
- Invite distributors to bid on these RFPs. Often, senior or long-term care administrators already have the names of distributors they have worked with in the past or who have called on them. Start with these vendors and notify them of the RFP.
- Be sure to add a due date for the RFP. Meeting deadlines is something you want of your distributor. Administrators often ignore RFPs that are not delivered by the due date.
- Narrow down your candidates to three to five candidates providing the most cost-competitive bids.
Finally, and before making a final decision, ask each “finalist” to give presentations to key stakeholders. Look for the distributor you feel most comfortable with and who appears to be most knowledgeable.
The more informed the distributor, the more likely they will keep you up to date with the latest products and technologies available, which often produces more cost savings.
Michael Wilson is vice president of Marketing and Packaging for AFFLINK, a distributor-based global leader in marketing packaging, cleaning products and technologies that improve building efficiencies.
The opinions expressed in McKnight’s Long-Term Care News guest submissions are the author’s and are not necessarily those of McKnight’s Long-Term Care News or its editors.