Jonathan Kernya, director of customer operations for OptiFreight® Logistics, a Cardinal Health company, delved into why surgery centers need to address their freight costs, and how outsourcing their freight will improve their bottom line.
Question: Do many practices work to efficiently manage their freight management program, or fall prey to the notion freight management programs can run on their own?
Jonathan Kernya: What we find in the surgery center marketplace is that most practices aren't managing their freight — they aren't addressing it. That's common, and typically if they try to manage it themselves, they don't necessarily do it effectively.
The reason why, is the resources they do have to manage the process effectively and see a return doesn't line up. Outsourcing to a freight management company gets surgery centers a platform with better resources, expertise and the company has a relationship with the vendors. The company also has the experience to drive the greatest volume through the program, resulting in greater savings, which is typically a very good reason to outsource. Why do it yourselves when you can outsource to an expert?
Q: What particular challenges do ASCs face in freight management?
JK: Once you start a dialogue with a surgery center about freight management, they're not actually aware of the direct freight spent. The reason they don't track and allocate freight as a line item is because it's buried in an invoice. If they don't see it, they can't address it.
Surgery centers also don't admit they have a freight cost because they don't understand the two channels of product delivery — a distribution model and a direct model. What most centers don't realize is that the ratio of distribution to direct freight is 40 percent to 60 percent [respectively]. While centers think most of their delivery is through distribution, that's not the case statistically. Unless a center is addressing this, the vendor is controlling freight cost and using it as a profit center.
Q: How can ASCs especially benefit from implementing a freight management program, given that they may often have limited resources compared to hospitals and larger health systems?
JK: From the beginning of implementing a freight management program, it is designed to be easy on the surgery center. The program is meant to limit resources from their end to set the program up. The whole program is designed to not impact the center's current purchasing cycle; and most importantly, the freight management program has zero impact on patient care and clinical outcomes.
Q: How much can ASCs save on freight management programs? Are many aware of these cost savings?
JK: There are quite a few variables that determine how much a surgery center can actually save. Centers need to understand that freight is directly correlated to product. The more you're purchasing, the higher the freight cost a center incurs, which also means a center can lose more if they are not addressing their freight spend.
Because of the different specialties ASCs have and vendors that they use, it is difficult to say you can save a flat rate. It is more appropriate to say you can reduce the cost by a percentage of your savings. Our freight management program has delivered 30 to 50 percent savings on a center's current freight spending, which is about $17 per package.
Also, there's no cost to implement a program. What this ultimately comes down to is that centers can reduce their cost without spending any money. All we're asking for is a bit of engagement to set the program up. Because there's no cost, it becomes a no-brainer. We want to get the surgery center market to understand this is a no-lose situation.
Q: How can OptiFreight® Logistics help ASCs in their supply chain to maximize savings? What are key strategies to optimize your freight management program?
JK: As I mentioned, there are absolutely minimal resources to implement programs. Centers providing the bare minimum can save money. If you want to maximize savings, centers should engage with their freight management company. Engagement allows the company to ensure all data is current. So, if an ASC uses a new vendor, we can implement the data in real time.
One specific best practice that will drive great opportunity regardless of a center's provider is the idea of noting each and every purchase order with the appropriate third party routing instruction. You will drive anywhere from an additional 25 to 30 percent of volume to the program and with more volume, comes more savings.
Q: Are vendors and suppliers receptive to freight management programs? How does OptiFreight® Logistics work with vendors to ensure the program is mutually beneficial?
JK: When we first started about 15 years ago, it was a new concept. No one was driving vendors to use third-party account numbers. Today, we have 7,000 participating vendors and we built that network of vendors over the years. That list is ever growing, and we're constantly working on behalf of our clients to bring vendors into the program.
We bring value to vendors because we take over the logistics so they no longer have to worry about coordinating the shipments or other concerns or issues with the suppliers. Most importantly, vendors understand the climate in healthcare today and understand that as providers, we’re trying to reduce costs by any means possible. Their participation in a freight management program is very beneficial to help their client, the surgery center, reduce costs.
Q: With healthcare undergoing swift transformations, how will freight management help ASCs stay ahead of the curve?
JK: With cost transformations going on to reduce costs, OptiFreight® Logistics provides easy savings. There is no cost to the surgery centers as well as minimal effort and zero patient impact. As the cost transformation takes place, freight management can be an ideal way to reduce your supply chain cost overnight.
Healthcare delivery is also changing, and with these changes, we will see a change in the supply chain. By having a freight management program that is able to expertly manage your inbound and outbound freight in all capacities, even though the evolution of supply chain to meet the future needs of healthcare delivery, it will put you in a more advantageous position to focus delivery on the best possible healthcare and outcomes. We do this all day because we're a logistics company. We have a team of experts who can manage the ASCs' supply chain in the most cost-effective way possible.
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