The care homes sector is worth around £15.9 billion a year, with around 410,000 residents. With over 11,000 care homes across the UK, managing the balance of quality care and cost control is a challenge. Fuelled by an ageing population, homes face rising demand and increasing costs. In addition, key issues include the growing prevalence of chronic diseases; development of costly clinical innovations; and increasing patient awareness, knowledge, and expectations.
Deloitte reports that ‘quality, outcomes, and value’ are the watchwords for healthcare in the 21st century. As care homes face declining margins and revenue pressures, it is essential to find new cost reduction measures. After tackling ‘quick-win’ savings many providers are finding it difficult to gain further cost and operational efficiencies. Supplier consolidation offers broad scope for change in this situation.
Why supplier consolidation?
Key measures, such as reducing administrative and supply costs, are necessary. But consolidation goes beyond traditional cost-cutting to provide a more transformative approach.
Vendor consolidation is a supply chain management strategy that has increased in popularity in recent years. It aims to reduce the number of suppliers in a category, or across multiple categories, focusing on a sole supplier in that market. Ultimately it seeks to improve efficiency and reduce supply chain costs, bringing hard and soft cost savings.
Care home providers need to reassess operating models to remain competitive. Consolidation allows organisations to achieve growth while maintaining value, quality and cost control.
1. Reduce hard costs
One of the main advantages of supplier consolidation is increased buying power. This works on two levels; your own purchase power with your main supplier, and your supplier’s purchasing power if they are a key player within their field.
With a reduced supplier base you may order in greater volumes, and achieve better pricing across multiple categories and services. This can add up to considerable savings for your organisation.
2. Improve efficiency
Consolidating also provides a range of soft cost reductions; a result of improved operational efficiency. In fact, reduced process cost could provide the largest opportunity for care home savings, enabling greater productivity.
With fewer suppliers to deal with and manage, there is less administrative time spent as the number of overall transactions reduces. Fewer separate orders also mean less deliveries and invoices to deal with. Crucially though it’s simpler to manage one key supplier in a strategic, productive manner, rather than many tactical suppliers.
We all know it is more costly to acquire a new customer than it is to retain a current customer. This applies to providers too; it costs more to source and develop a new supplier relationship than to maintain a current one. By choosing a multi-category provider you save time in the long run, as product lines and categories can be easily expanded throughout the relationship.
3. Build strategic partnerships
It’s difficult to find the time to manage multiple vendors effectively. With fewer suppliers, relationships naturally move from tactical purchasing to partnerships.
It’s easier to build relationships with core suppliers, to spend time and ensure that your supplier understands your business and objectives. As a key partner of the supplier, they will invest more time focusing on the quality, efficiency, and overall performance of your account.
As you won’t be juggling a large supplier base, your organisation will gain the benefits of the partnership; working toward a long-term, sustainable relationship. Deeper connection also leads to greater trust between parties.
4. Lower logistics costs
Logistics costs can account for a large proportion of office supplies expenditure. When you use multiple suppliers and receive multiple deliveries you pay toward freight costs each time. As you consolidate, these costs are inevitably reduced.
By grouping many categories of product into one order and one delivery, this cost can be cut substantially. For businesses with multiple locations, an improved logistics network can often make consolidation worth it.
5. Better Compliance
This is a compelling reason to consolidate in terms of quality and cost. Using one supplier can ensure that approved products meet the necessary quality specifications, especially in the case of health and hygiene products. In addition, fewer suppliers can help to reduce rogue spending and lost discounts.
» Ensure your supplier has capable process/systems in place and can report against agreed KPI’s
» Benefit from internal contract compliance, minimising missed discounts and inaccurate or duplicate invoices
» Comply with organisational regulatory requirements, including diversity, sourcing and CSR policies
6. Engage stakeholders
Of course, some stakeholders will always prefer to source items locally. Managing this to ensure stakeholder engagement and ease of use should be a key priority of a sole supplier:
» Ensure that a sole supplier provides an intuitive, easy to use system to source and order desired products – it should be easier to use the preferred supplier than to source separately
» Implement a straight-forward process for sourcing any one-off, non-standard requirements for approval
» Provide clear reporting on the effects of non-compliance, in the form of inefficiencies, added costs or missed discounts
Deliver better outcomes
Healthcare in the UK is being transformed by demographic and social changes, rising costs and new, digital technologies. To deliver and finance quality care is a complex balance, requiring new relationships between organisations and providers. However, consolidation undoubtedly delivers considerable cost-savings.
Working together, it is possible to achieve savings and benefits across an organisation. Identifying suppliers that provide excellent value, above and beyond product pricing, is the way to ensure that consolidation is a profitable long-term strategy.