Unlocking Savings: Insights from
the Retail Sector on Managing
Indirect Spending in Healthcare
Supply Chains

During National Healthcare Supply Chain Week last week, I had the privilege of witnessing an enlightening interview conducted by Dave Fergus, Chief Supply Chain Officer of OSF Health (Peoria, IL), with Tim Johnson (“TJ”), former CFO of Big Lots and Victoria’s Secret. The occasion was at the Health Management Academy’s Supply Chain Summit in Arlington, TX, TJ’s insights into managing indirect spending through a retail lens are not just relevant; they are imperative for today’s healthcare supply chain leaders.

The Importance of Understanding “Good”

TJ, a soft-spoken yet passionate advocate for effective procurement strategies, emphasized the need for healthcare CFOs and supply chain officers to “know what good looks like.” This phrase encapsulates the essence of his message (he repeated it several times for emphasis during the interview): without a clear understanding of cross-industry benchmarks, it’s easy to let indirect spending drift unnoticed. TJ shared that the problem with indirect spend management often lies in its invisibility; if it doesn’t contribute directly to revenue, it’s likely undermanaged and can be overlooked.

Leveraging Expertise: The Role of Partners

Drawing from his extensive experience in retail, TJ suggested that healthcare organizations should focus their efforts on the products and services that directly impact patient care and customer experience. For everything else, engaging with a specialized partner can yield better outcomes. He drew the parallel between his retail procurement teams concentrating on merchandise and healthcare teams dedicating their efforts to clinical products and services. By outsourcing indirect spending management to partners with deep expertise, healthcare organizations, like his retail businesses, can leverage their core competencies while still achieving cost savings.

TJ noted, “If I were in your chair, I would focus on those products that the customer sees,” leaving the complexities of indirect spending to those who are better equipped to handle them. This perspective is particularly crucial as the healthcare landscape continues to evolve in the aftermath of COVID-19, inflation, and shifting regulatory frameworks. In TJ’s view, companies across the landscape are increasingly responding to tumultuous external markets by honing their game on core functions and partnering with expert providers for functions outside the core.

Benchmarking and Best Practices

One of TJ’s key points was the criticality of benchmarking in procurement. As he stated, “You can’t determine whether you’re overpaying or underperforming without having credible benchmarks.” He shared his experience at Big Lots, where leveraging a Center of Excellence in indirect procurement allowed him to manage episodic spending effectively. This approach not only revealed opportunities for cost savings but also provided clarity on what good performance looks like—something that can be elusive in the absence of systematic evaluation.

The CFO’s Role in Indirect Procurement

TJ underscored the CFO’s oversight role in indirect procurement. Without this oversight, he warned that savings tend to drift, and costs can escalate. By collaborating closely with business leads in IT, marketing, and facilities, CFOs can ensure that indirect procurement is managed strategically and effectively. TJ’s experience revealed that even with the best of intentions, department heads often believe they excel at procurement when their focus should remain on their core functions. “I have never met a marketing person who didn’t believe they were good at purchasing,” TJ said with more than a bit of skepticism. Here again, he emphasized the use of benchmarking and outside expertise to help these business owners appreciate “what good looks like.” Often, these business owners have established long-standing, trusted relationships with third-party suppliers. Inserting a procurement partner into this equation can threaten these long-standing relationships. However, TJ shared that “70% of the time, the incumbent kept the business, albeit on terms more favorable to TJ’s company. In the remaining cases, the so-called “partner” couldn’t justify the premium being charged for their product or service.

Focusing on Strengths

One of the most compelling messages from TJ’s interview was a reinforcement of a lesson from Coach Ken Carter, famously portrayed by Samuel L. Jackson, in a 2005 biographical movie. Addressing the Health Management Academy audience the evening prior to TJ’s interview, Carter encouraged attendees to “Focus on your strengths, not your weaknesses.” This philosophy applies directly to the healthcare supply chain. TJ believes that retail organizations should concentrate on merchandising procurement—an area tied closely to their core business—while leaving indirect procurement to those with the expertise to drive it effectively. From his observations of the healthcare industry (he serves as a board member of a health provider and of a health services company), TJ believes this lesson translates well into healthcare.

A Call to Action

As healthcare supply chain leaders navigate the complexities of indirect spending, let us take a page from TJ’s playbook. By embracing strategic partnerships, utilizing benchmarking, and focusing on core competencies, we can transform indirect spending into a significant source of savings and efficiency.

In this era of heightened scrutiny on healthcare costs and outcomes, it’s time for CFOs and supply chain officers to act decisively. Let’s leverage the lessons from retail to create more sustainable and efficient healthcare supply chains. As we move forward, let’s not just manage our indirect spending—let’s master it.

Share this...

Facebook

Pinterest

Twitter

Linkedin