Supply Chain
May 31, 2024

Supply and Price Guarantees Foster Stability, Reliability, and Financial Predictability 

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Many hospitals are now in a period of reset.  As they reassess their approach to supply chain management, hospitals can benefit from a holistic approach to managing future disruptions, demand surges, and materials shortages. Supply and price guarantees are a key part of future-proofing their strategy. Here’s what to know.

Lessons from a Global Pandemic

Recent global events have exposed the underlying fragility of the supply chain. When the COVID-19 pandemic arrived, the sudden surge in demand exposed the underlying fragility of outdated supply chain infrastructures. A sudden spike in demand, along with panic buying, eliminated economies of scale. Bidding wars ensued.

The traditional distribution method left many hospitals in a precarious position. Just in Time (JIT) programs were commonplace, with many hospitals assuming the distributor was holding lots of stock. But when this turned out not to be the case, only the largest customers received stock—or those that were willing to pay massive increases.

While many hospitals have moved into a period of reset after the pandemic, supply chain issues remain. And while many may want to move past the struggles ushered in by the pandemic, future disruptions are inevitable. The time for healthcare organizations to do things differently and solidify their supply chain is now.

Current Supply Chain Challenges

At this point, some hospitals are dealing with a surplus of PPE due to inventory brought in during the pandemic. Therefore, the inclination of some materials management teams is to focus on procurement in other areas right now.  But overall, the supply chain remains tenuous.  Future PPE supply challenges are inevitable if systems go back to pre-pandemic era PPE procurement practices.

The supply chain landscape continues to shift. Shortages of raw materials—including resins, precious metals, and gasses—constrain manufacturing, while component shortages plague production. Some manufacturers struggle to find adequate staff. And then there are the delays caused by congested ports, economic unrest, and distribution bottlenecks.

These problems add up. A house of cards supply chain means price volatility for hospitals. Even worse, it can increase risk for patients. Without reliable access to basic medical supplies, treatments can be delayed and procedures may be canceled. Without adequate PPE, healthcare delivery slows down or stops.  

When PPE runs low and cannot be replenished, hospital staff must borrow (or beg!)  supplies from other facilities or pay a huge markup. Missing supplies take away attention from patient care and introduce uncertainties.

The Role and Benefits of Supply and Price Guarantees

If the past few years have taught us anything, it’s the importance of having a backup plan. Of course, there is no silver bullet solution when it comes to supply chain planning. But there are approaches that offer significant advantages: supply guarantee programs and price guarantee programs.

These programs offer stability, reliability, and financial predictability for hospitals and healthcare organizations.

Benefit #1: Stability

Today’s supply chain is anything but stable. No matter how much we plan, there will be inevitable disruption in the supply chain at some point. Supply guarantees offer the ability to absorb the chaos without disrupting hospital operations.

Supply guarantee programs ensure a continuous supply chain by providing a local, dedicated safety stock to draw from in times of need. They offer much-needed supply security in the current uncertain environment.

A guaranteed program also encourages a partnership mentality. This is especially important when things become challenging. After all, a strong relationship with your supplier means advantageous contract terms, ongoing communication, and helpful advice. The right partner will advocate for hospital clients and leverage their established relationships with government officials, port authorities, material suppliers, freight forwarders, etc.

How to set up a guaranteed supply program

Here’s how to create and maintain a system that works for your healthcare system:

  • Identify which products should be part of the guaranteed supply program—a reliable vendor partner can guide you on what products are most likely to see challenges when supply chain issues arise.
  • Decide how many months on hand are needed for your system to feel comfortable—select from 2, 4, or 6 months of usage.
  • Set a baseline target of usage to find the agreed stockpile inventory target.
  • Draw inventory in part or in full when demand spikes.

Benefit #2: Reliability

Stocking the same PPE products consistently supports good care. No hospital employee wants to discover that a substitute mask causes a skin reaction. And no one wants to struggle with a new-fangled gown design as they work on a patient in the emergency department. In a fast-paced hospital environment, reliability within the PPE supply chain supports consistent patient care.

Preventing stockouts and minimizing disruptions supports stability even in tumultuous times. VIVIT Supply sets up a supply guarantee with a hospital’s most commonly used products, so the risk of accumulating unnecessary inventory is minimized. The program also includes setting up and managing nearby warehousing, so hospitals can easily and quickly access emergency stock as needed.

Benefit #3: Financial Predictability

Supply guarantees are tied to cost predictability, and therefore contribute to financial stability. Part of this financial predictability for hospitals comes from knowing they have a certain amount of PPE on hand already committed via their supply guarantee. If demand surges, and prices surge with it, they have the runway of your guaranteed stockpile at the existing price— regardless of where market pricing has gone.

Hospitals are rightly nervous about signing lengthy contracts that lock them into pricing for years to come. Therefore, a supply guarantee needs to include flexible pricing responsive to market fluctuations.

Here’s how VIVIT Supply works with hospitals to establish fair and accurate pricing through their signature Price Guarantee Program:

  • Base pricing is agreed upon, which acts as the benchmark comparison for future changes.
  • Every three months, market data is compiled and prepared into a report highlighting pricing benchmarks and style trends.
  • During a quarterly business review, the base price is evaluated against current market pricing.
  • If market pricing drops below predetermined thresholds for your product types, the base price is changed moving forward.

A supply guarantee program can offer hospitals stability, reliability, and financial predictability. It can also foster secure, predictable partnerships, which in turn support predictability over the long term.

Of course, hospitals don't want to be stuck paying high prices in a market of declining average sell prices (ASPs). Therefore, pairing a supply guarantee program with a price guarantee program offers the best of both worlds—competitive pricing and partnership protection.

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Looking For That Added Layer of Protection?

Here’s our promise: If we can’t deliver any part of your stockpile when you ask for it, we’ll pay you the full value of the product that’s not available. Find out more about VIVIT Supply’s Guaranteed Supply Program and Price Guarantee Program.
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