A recent Market and Markets report projected that the global healthcare supply chain management solutions market is expected to grow at an annual rate of 8.3% from 2014 to 2019. These solutions include Inventory Management, Strategic Sourcing, Warehouse Management, Order Management, Supplier Management, RFID, and barcode. It’s no surprise that the supply chain solution market will continue to grow rapidly. With all of the cost-reduction pressure facing the hospital supply chain, improving supplier management and better managing supply costs is clearly in focus.

Hospital Supply Chain

Those of you who have been selling to hospitals for a while probably remember the days when hospital administrators would ask the vendors for spend data. Some hospital or IDN purchasing systems were so poor, the administrators had to rely on vendors for data on how much they spent for a supply item. Much of this has changed. There’s a growing trend of hospitals becoming smarter buyers. Supply chain solutions are helping providers to gaining visibility to spend, be more strategic in sourcing decisions, improve value analysis, and better manage suppliers and inventory.

There’s a wide array of firms that provide solutions. These range from cloud-based procurement platforms to e-sourcing tools to value analysis tools to price-benchmarking services. If you are curious, check out a few: Curvolabs, ProcuredHealth, Aptitude, Bravo, Coupa, BroadJump, ECRI, MDBuyline, and BuyerQuest. Of course, most GPOs and distributors have a variety of supply chain solutions as well. I’ve written in the past about these type of solutions being part of a broader cost-out, value-in supply management ecosystem that is helping hospitals reduce costs and strategically manage suppliers.

Medtech Threats and Opportunities

For Medtech companies, the growth in the supply chain solutions market could present many threats. These solutions help make it easier for buyers to attack low-hanging opportunities such as capitalizing on market price variances or re-bidding in a market that has declining prices. For example, imagine a world where the buyer not only knows what she buys and at what prices, but she can also effortlessly compare her current prices to accurate price benchmarks to identify savings opportunities. With e-sourcing tools, the buyer then can rapidly re-bid that item to capture savings.

These tools should also help buyers to be more efficient, which should free up time to allow them to take a more strategic approach to managing suppliers and spend. Research shows that when buyers become more strategic, their use of more complex and creative cost-savings levers and sourcing strategies increases. Medtech companies should get ready.

This growth in technology is not all bad news for Medtech. Off-contract purchasing or maverick spend (this is where someone buys from a non-preferred vendor) is a lost opportunity for buyers and usually a source of pain. Greater transparency in purchasing should help suppliers partner with buyers to better manage contract compliance. Most suppliers lose 1-3% of sales due to poor contract management and compliance. In a recent survey I conducted with Model N, just over 20% of Medtech executives said they were satisfied with their contract monitoring and compliance.

Can Medtech Keep Up?

With annual global Medtech spend expected to grow to $400B by 2020, it’s no surprise that the supply chain solution market will continue to grow rapidly and that Medtech will be a focus of savings opportunities. It will be interesting to see if Medtech companies’ can adapt their pricing and commercial models to keep pace with the changing market.

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