As your organization increases in size, scale and complexity, managing your procurement processes can start to feel like raking leaves in a thunderstorm. You have multiple offices, each moving in different directions, at varying paces, with their preferred products or suppliers, and inconsistent internal processes.
You must handle each of these scenarios differently to ensure you are successfully managing spend and driving efficiency across the entire enterprise. To succeed you need both greater visibility and control. You have to be able to see what is happening at each location and regulate behavior to be consistent.
At Method, we recognize the pivotal role procurement plays in securing the financial health of DSOs. Leveraging sophisticated tools, such as Method's specialized procurement and spend-management software, is crucial to achieving the level of cost control that will fuel continued growth.
We’ve put together 9 Key Performance Indicators (KPIs) that we recommend your procurement department rigorously track. Using Method’s advanced data and reporting tools, which include diagnostic and predictive analytics, you’ll have greater visibility into micro and macro spending behavior, be able to develop more accurate forecasts and easily identify inefficiencies and disconnected processes more accurately. With these powerful tools at your disposal, you can use these KPIs to take action to improve your organization's EBITDA by pinpointing and rectifying unnecessary expenses.
Efficiently aligning supply budgets with anticipated revenue is the cornerstone of effective dental procurement. Method's specialized software facilitates real-time tracking, allowing us to gauge whether each dental office adheres to, surpasses, or falls below the designated budget.
Having a supply budget is a start for those who are new to spend management. For those practices that have had consistent budgets for some time, having the ability to track additional dollars spent outside of the eProcurement platform. and documenting additional revenues, brings an additional level of accuracy to the mix.
Suppose a dental office sets a supply budget at 6% of its average monthly revenue of $100,000. If their average monthly revenue exceeds $100k they can spend more than $6k on supplies and still achieve their revenue-to-spend ratio goal. Method makes it easy to closely monitor this KPI so you can identify trends and make necessary adjustments to ensure optimal budget allocation despite revenue fluctuations.
Creating a formulary allows DSOs to achieve the primary goal of procurement which is to always buy the right items, at the right, time, in the right quantities at the best possible price.
Standardizing supply orders through a formulary ensures uniformity in product selection and pricing and should be used as much as possible. Any deviations from this protocol can increase the risk of paying higher costs, hampering the negotiation leverage that is gained through volume.
Use Method to better understand what your practices are purchasing at each location. Our platform allows you to use order histories to create "catalogs," creating efficiency in the ordering process and eliminating excessive searching for items. You can also use it to identify similar products that can be consolidated into a single preferred SKU and added to the formulary.
Method also allows you to set a default, so that formularies are viewed first by users. Depending on the preferences of each practice, we can "lock in formulary" (no office autonomy) or set formulary KPIs (% of spend) to reinforce formulary use. Review with some frequency to swap items to get the most out of pricing, manufacturer discounts, clinical decisions, etc.
Many practices offer what we’ve coined “soft compliance,” when enforcing the use of their formulary. This means there are some products (often non-clinical) where purchasing should be strongly suggested, if not mandatory, and other products (mostly clinical) where the provider is allowed some autonomy to order off formulary when they have a strong preference. Method's on/off formulary report provides valuable insights into these deviations, allowing us to promptly guide offices back to the approved formulary. Additionally, this report is a great indicator of what should be negotiated and added onto the formulary to capture the most leverage for a practice.
When leveraged with our Formulary Compliance tool, a practice can set KPIs for on-formulary spend to hold locations accountable, thus maximizing the amount of spend available to a practice for channeling into their negotiated items.
Method’s on/off formulary report makes it easy for you to identify when certain offices consistently purchase supplies outside the approved catalog. Now you can intervene promptly to ensure adherence to negotiated pricing and terms, fostering cost-effective procurement.
Structured procurement processes are essential to prevent pitfalls like small order fees, additional shipping costs, and additional costs of labor and burden in managing a larger volume of orders than strictly needed across all impacted staff (local offices, procurement, accounts payable, etc). Method’s order frequency report offers visibility into the order workflow, allowing you to streamline operations and guide offices toward synchronized and cost-effective procurement practices.
By analyzing order frequency, we ensure offices adhere to established guidelines for supply orders, preventing unnecessary expenses and promoting operational efficiency across the board.
Vendors often impose a fee on orders under a certain quantity. Consolidating orders into substantial bulk requests minimizes these small order fees and streamlines the procurement process. Method's small order count report, coupled with the order frequency report, gives you the insight you need to proactively engage with offices, emphasizing the benefits of strategic consolidation.
Utilize the small order count report to strategize and educate offices about the cost-saving benefits of consolidating orders, fostering efficiency, and reducing unnecessary fees
Efficient procurement hinges on timely supply deliveries. Monitoring transit times from order placement to receipt allows us to gauge procurement efficiency, hold suppliers accountable, and ensure uninterrupted operations.
Identify consistent delays from a specific distributor through Method's reporting tools. Collaborate with the distributor to improve shipping processes, preventing disruptions and maintaining a seamless supply chain.
For DSOs to fully maximize their rebate programs they must consolidate their ordering with suppliers, pushing as much volume as possible through a small, preferred set of manufacturers.
Use Method’s reporting to identify which suppliers you can most effectively centralize your purchasing with. Then, determine from which manufacturers you can source the largest number of items. Consolidating both suppliers and manufacturers will allow you to optimize the potential savings available through all rebate programs.
Costs can be hidden in specific areas. If your spend is exceeding projections, knowing exactly how much of your spend is going into different categories, and where it may differ from your projections, makes it easier to understand where you need to make adjustments to get back on track. Pairing categorical spend with our “alternative products” is an easy way to find similar products from other suppliers and/or manufacturers that do the job just as well.
Use Method’s Product and Price Analysis feature.
Buying “generic” is a great way to drive down costs and keep them low over time (sometimes to a 40% discount).
Method allows you to easily compare costs between multiple private label suppliers and to see how much of your inventory is being filled through private labels at each location. Method also makes it simple to switch out private label products in your formulary and make these changes by location, by practice or across the entire enterprise.
In summary, managing the procurement process at a growing DSO is challenging but, if done correctly, can contribute significantly to fueling the organization's success. A core part of your growth strategy is knowing what metrics to pay attention to and how to make the adjustments that will drive continuous improvement. By establishing baselines for these nine KPIs and monitoring them, you will have your finger on the financial pulse of the business. Using a powerful e-procurement solution like Method allows you to know how you are performing against both industry norms and your own internal goals and, more importantly, make data-driven decisions that will ensure you achieve your financial ambitions.
