by Kevin Groarke, Timothy Mazzei-Williams, Charles Messamore and Scott Walters
Most people’s primary reason for visiting a hospital is to check the status of their own, or a loved one’s, health. Once they enter, their focus is to find where they need to go for a procedure or test, or where to visit a family member or friend who has been admitted.
The reason these visitors can remain laser focused on health and well-being is because a behind-the-scenes team is committed to the maintenance, repair and operations (MRO) care that keeps the hospital up and running. Typically, the hospital’s facilities department is tasked with maintaining the building to top operational specifications and code, and these departments often invest millions of dollars in MRO supply spend to keep their structures efficiently running and aesthetically pleasing.
That investment makes sense when you consider how fundamental MRO is to a hospital’s success. Consider all the things within a hospital that you don’t give much thought to until they’re missing or broken. Take, for example, the temperature of the campus — the maintenance, repair and operations of the HVAC systems can make a difference for patients when choosing a location or doctor. The same also can be said of other important behind-the-scenes operations that we don’t necessarily think about, such as building automation systems (BAS) elevators, escalators, boiler rooms, chillers, fire alarm systems, security, plumbing and security/access control systems.
The key to keeping these systems running effectively is establishing well-honed relationships with MRO suppliers and service providers that can provide the necessary components and service at the right price — and in doing so, there are many important factors to consider. Let’s dive into some of the best strategies to optimize MRO spend for your hospital or health system.
- Supply chain and facilities departments can drive value in the MRO space by collaborating to identify the different categories of MRO spend. These subcategories can include traditional, plumbing, electrical and HVAC associated spend, and it is best to bucket accordingly. The reason for bucketing the spend is to truly understand the more detailed spend categories so when you eventually use a request for proposal (RFP) or request for quote (RFQ), you can ensure you’re inviting the right suppliers by category to compete for the business.
- Once you have the spend bucketed, you’ll want to know how many suppliers you are purchasing from in each category. One way to gain both economic value and operational efficiencies is to consolidate the number of suppliers you purchase from. One health system we worked with in the southeast had $6.6 million of MRO spend between 15 suppliers. We identified the fragmented purchasing practice and worked with the health system to consolidate to four suppliers. This consolidation resulted in 7.5% savings totaling $500,000.
- Another area health systems should look at is consolidation of products. A lot of MRO spend is non-reoccurring (approximately 75% of MRO items purchased are not repeated from year to year), but it’s important to identify the items you buy more than five times a year and consolidate these products to a smaller amount, which will drive economic value through more predictive and aggregated buying. In addition, understanding items you purchase year over year will allow you to target for more aggressive pricing.
- Once you have identified the spend categories and consolidated your suppliers and reoccurring products, the next step is to develop key pricing agreements with the remaining suppliers. Most health systems do not have pricing contracts in place in the MRO space. This leaves health systems open to pricing increases, no terms and conditions, no discounts on shipping, and lost opportunities for additional economic value like rebate agreements. Reach out to your GPO and ask what national contracts they have in place with any MRO suppliers — then see if you can utilize the aggregated pricing and strong terms and conditions the GPO provides. Next, work to develop your own contracts with non-GPO suppliers to ensure fixed pricing for the term of the agreement, favorable shipping terms and enhanced economic value through rebates off purchase volume.
- When formulating a plan to review the MRO grouping, be cognizant that suppliers not only can provide products in a multitude of categories but also services that could potentially minimize effort while maximizing opportunity. Hypothetically, developing a strategy for MRO lifecycle management through the MRO supplier can create consistency and adherence to protocols while also reducing liability as the onus is now on the supplier.
- If a hospital does decide to apply the service component with the supplier, and if this hospital was a member of a Group Purchasing Organization (GPO), remember that most of these services are fee based and would be reported as sales, meaning admin fees would be paid back to the hospital. Concentrating on the service element also adds to the overall value that MRO Suppliers provide in this vast space, which in turn can be applied to the member — creating a win-win-win.
Using these various strategies to maximize MRO spend can help ensure that maintenance, repair and operations remains the invisible hero of your hospital, continuously providing a safe, welcoming environment for the life-bettering work that happens inside its walls.
About the authors:
Groarke, Timothy Mazzei-Williams, Charles Messamore and Scott Walters are experts in Vizient’s Facilities, Capital and Construction Solutions, which leverages sourcing and advisory capabilities to provide unparalleled breadth and depth of knowledge to Vizient members. The team delivers contract and cost-savings expertise; develops performance criteria to optimize lifecycle costs, aggregate anticipated spend and define standards for efficiency and cost control; helps members maximize facility and construction spend; and continually evolves strengths and abilities to deliver exceptional results.