Lowest Price isn't always the Best Price

Doing a comparison of prices is the easiest step in what should be a multi-faceted approach to securing the best price.  Too often to the detriment of the facility, this step is the only one undertaken and usually the lowest price is chosen without taking into account other very important factors and steps needed to secure the best deal.

Of course the number of steps that need to be taken to obtain the best price will vary based on the product, its complexity and relationship in use to other products.

Provided below are factors to take into account to achieve the best price, not necessarily the lowest price: 

  1. Does the product come in different sizes or quantities per case that will provide a lower cost per unit used?
  2. If the product is one that the quantity used is less than the package size, can the balance of the product be used or is it thrown out?
  3. Is there another product that can perform the same function at a lower cost per unit used?
  4. Is the product readily available through your normal distributors or will it require a special order?
  5. Is there a minimum quantity that you will be required to purchase which could add to your inventory costs?
  6. Is the product used in conjunction with other products, what is the impact?
  7. Will training of staff be required and if so, how much time will be taken away from their normal responsibilities?
  8. Can technology be used to reduce staff time and/or make the products use more efficient?
  9. Can converting to a new product free up staff time?
  10. Can you change your process to reduce or eliminate the need for this item?
  11. Talk with other facilities, your group purchasing organization and suppliers to determine if there are other options.
  12. What is the length of price protection?
  13. Will the product improve the health and well being of your residents?

 

If you would like to learn more about controlling costs, please visit our website at www.primeservicesinc.com, or if you would like to meet with your PRIME Service’s Representative to discuss opportunities to control costs at your operation, please call our office at 866-585-3344.

Your Prime Vendor Program

All suppliers want to be the primary vendor to your operation given that you of course meet minimum orders and pay your bills timely.

The two key reasons for utilizing a primary vendor are better overall pricing, as well as better service.  Of course a prime vendor program should provide additional benefits such as fewer deliveries, fewer invoices, fewer items backordered and much faster response time to any problems.

When evaluating a prime vendor program as opposed to splitting your orders between two or three suppliers, you of course need to take into consideration the above points.  These points need to be weighed between the use of a prime vendor program and multi-vendor approach.

A prime vendor relationship must be established for a definite length of time.  The suppliers that were not successful in becoming your primary vendor should be given the reason and when they will have another opportunity.  It is important to maintain a good relationship with suppliers that were not awarded your business as things change and you may need to call on them during the course of your agreement.  You want these suppliers to be responsive to you and this will only happen if they feel they have a fair opportunity to gain your business at the conclusion of the current agreement.

Too often a prime vendor relationship becomes an on-going relationship with no definite length of time agreement.  In almost all of these cases, the prime vendor loses sight of the value and importance of your relationship and starts to take it for granted.  Ultimately you may be treated as just a me-too customer and all the initial benefits are gone.  Yet many operations stay in this primary vendor relationship because they are afraid of change and know that even if the service and pricing is not as good as it used to be, it is still a known entity versus exploring other options.

In any relationship with suppliers, we must remember that there will be a time when changes will have to be made.  Allowing any supplier to become securely entrenched in your operation will increase costs and decrease service levels as they start to take your account for granted.

  • Prime vendor programs work when definite time frames are established.
  • Prime vendors should provide better costs and service.  This must be monitored.
  • Work with other facilities or your Group Purchasing Program to organize a prime vendor program that will provide more purchasing power.
  • Maintain a good relationship with the suppliers not awarded the prime vendor agreement.
  • Don’t become overly comfortable with just one supplier.

Managed Order Guide

A term that we seem to be hearing about more and more is “Managed Order Guide”.  A managed order guide helps direct the person placing orders to the specific product that has been approved for use at your operation. The purpose of the managed order guide is to maintain a consistency in terms of the product being ordered.  The product that has been approved for use within your organization should have been evaluated for quality as well as price considerations.  These product evaluations must be an on-going endeavor and not a one-time event.

The products that your organization has evaluated and decided on are products that meet the needs of your operation; therefore, product substitutions by your supplier need to be frowned upon.  The managed order guide, in addition to providing a brief description, should also provide the following:

  • Brand name
  • Pack and size
  • Price
  • Distributor and/or manufacturer number
  • Inventory level to maintain

An effective managed order guide will keep quality of product consistent, as well as lower total costs.  The guide lowers total cost because of the product evaluations that have and continue to be conducted, as well as discouraging off inventory ordering.  In the many situations we have studied, off inventory ordering is one of the largest contributors to increased costs and inconsistent product quality.  Also, keep in mind that a Material Safety Data Sheet may be needed for new products that are brought into stock.

A managed order guide can work equally well within a manual or automated ordering system.  The key to a successful managed order guide is the constant evaluation of products being ordered and the consistency in ordering the same approved products.

Finally, as the economy has not improved and people as well as companies have become more desperate, order scams have increased. A managed order guide along with the approved list of suppliers goes a long way in helping to insure that your operation is not victimized by a scam.

Keeping Per Resident Day Cost Down

Every two or three years most long-term healthcare facilities go out to bid for their food and associated supply needs; however, every year it seems the cost per resident day increases. The question that must be asked is, is the overall increase in costs per resident day justified? It is not enough to create a Request For Proposal (RFP), receive bids back from the distributors and choose what is considered to be the best proposal. An active involvement must take place on an on-going basis to evaluate and re-evaluate all factors that contribute to the expense of running the food service department.

It is easy to say that the food and supplies have been bid out. It takes a very dedicated effort to keep costs per resident day down. This effort needs to encompass activities such as:

  • On a quarterly or semi-annual basis, run a descending dollar report. Understand these expenses and how you may be able to reduce them. Typically about 20% of your physical items will be responsible for about 80% of your spend.
  • Question the size of products being purchased in terms of waste as well as determining if a smaller size may be a better value.
  • As new menus are implemented, have a supervisor in the dish room watching what food and supply items were not eaten or used. Evaluate whether these items should be on the menu or placed on the resident’s tray.
  • Monitor and understand your costs per resident day overall and by category. How do these per resident day costs compare with other facilities.
  • Technology can be a great tool to improve operations and reduce time spent on repetitive actions.

Cost Reduction Strategies

PRIME Services is a supply cost management company that has a consulting and purchasing services (CAPS) division created to bring even more cost reduction strategies to your attention.

The CAPS Division has been able to reduce overall costs by assisting clients in recognizing ways to improve operational efficiencies.

Below are just a few things that may help your operation:

  1. Verify that you are under the correct manufacturer pricing structure through your distributor.
  2. Because you belong to a group purchasing organization does not mean that you are receiving the contract prices.
  3. Review products used for appropriateness on a regular basis.
  4. Review distribution minimum order requirements, drop size incentives and fuel surcharges.
  5. Evaluate your supply chain, which includes: inventory, inventory turnover, inventory locations, delivery distribution, product order guides, product problems/complaints, inspection/verification of deliveries and compliance with standardization.
  6. Conduct product cuttings and evaluations.
  7. Review costs per resident day, are they appropriate?

For more information on how PRIME Services can help lower costs, improve operations and increase cash flow, call us at 800-666-3344 and ask for Valerie at Extension 115.

Improve Food Service Department Operations and Reduce Costs

Improve Food Service Department Operations and Reduce Costs:

 

In the majority of long-term care operations, food is the number one supply expense and therefore, all costs associated with it must be evaluated on a regular basis.  Below are 25 suggestions to help you keep your food service department costs in line and improve operations.

 

  • Use a purchase order system. 
  • Understand inventory turnover and at what level your categories of products should be at. See our news story on Inventory Turnover.
  • Understand how your distributor prices your account by "markup" or "margin", a big difference in terms of what you pay. Note most operations think they are on "markup" but are actually on "margin" and are therefore paying more.
  • Check and verify all deliveries.
  • Use a scale to weigh appropriate products.  Understand what you are weighing, for example, product or ice.
  • Check prices and verify that you are paying the correct prices. For more information please see our new story on Invoice Price Verification.
  • Use a Group Purchasing Program to help you lower costs.
  • Decide where brand names are needed and where house labeled products can be used.
  • On a regular basis, evaluate products by doing blind cuttings to verify that you are receiving the quality expected and that there is not a better product fit for your operation.
  • On at least a yearly basis evaluate potential distributors.
  • Make sure your distributor advises you of any specials available.
  • Don't be afraid to make changes.
  • Be aware that product theft will cost your operation.  Implement procedures and systems to reduce this risk.
  • Perform intake studies on a regular basis. Understanding what residents are not eating will help lower your food and supplement costs by providing meals that are consumed by the residents.
  • Monitor your meal cost per resident day see how it compares to similar operations.
  • Know your labor cost per resident day and how it compares to similar operations.
  • Employee turnover is a large expense to your operation. Understand how to reduce turnover.
  • Keep informed of training programs to improve knowledge and operations for better resident care.
  • Technology can be a great tool and time saver.
  • Place orders electronically and utilize the reports available to improve your operation.
  • If using a manual tray card system consider upgrading to an electronic version.
  • If the food service department is performing resident care functions manually, consider upgrading to an electronic tool to manage and streamline all the resident care functions in a program like Dietech.
  • Once you have automated your resident care functions use the available reports to help control your costs and implement procedures to improve resident care.
  • Poor production control leads to increased costs.
  • When creating your menu, understand products that can be substituted for one another and which ones are in season or more available as this will help to price out your menu at a lower cost.

 

We would like to hear from you if you have found other ways to reduce costs or improve operations.  Please send your success stories to info@primeservicesinc.com and if you would like us to mention your name, we will give you credit for your story on our website. 

PRIME Services

PRIME Services, from its original roots as a purchasing and consulting company in 1983, has grown into one of the largest group purchasing organizations for nursing homes and assisted living communities across the United States.

Today, PRIME Services has three divisions, all focused on removing costs from the supply chain while increasing operational efficiency. The three divisions are; Group Purchasing and Custom Contracting, Consulting and Purchasing Services (CAPS), and a Technology Division

Be sure to mention you're a PRIME Services member when calling in to ensure you receive additional discounts that are available exclusively to PRIME Services members.

 

Month List