Optimizing Your Operations: How a Wholesaler Could Save You Money

• By Steven E. Cole
• Jan 07, 2008

Editor’s Note: Throughout the year, HME Business will be studying ways that providers can work more efficiently and cut costs by evolving their internal operations and using a range of management tools and services now available — many developed specifically for HME suppliers. Our first operations column discusses the potential benefits of “consolidated buying” by working with a distributor.

As part of their efforts to streamline operations for the reduced reimbursement/competitive bid environment, many successful DME suppliers are reducing the number of vendors from which they buy. As part of your action plan for early 2008, you may want to investigate how consolidating the purchasing of a wide assortment of products through a wholesale distributor can help you serve more customers more profitably.

In the past, to obtain the items needed to serve their customers, many providers put substantial amounts of time and effort into purchasing from hundreds of vendors. Purchasing agent time worth $20 per hour was expended to pursue nickel price differences on items that cost $50 or $75 in total! Can you afford that today?

Once aware that the cost of the purchasing official’s time (and depending on your organization, it might be your time of which we are speaking) is more than the savings realized, many rapidly growing companies elect to partner with wholesale distribution companies specialized in home-care products. These DME suppliers bundle purchases they previously made from many different manufacturers into one highly efficient relationship with a wholesaler.

Can savings really result from consolidating purchasing? Yes, they can! The benefits show up in at least three departments or functions in your business: purchasing, receiving and accounts payable.

You get a big payback in purchasing. Many sources peg the true cost of each purchase order cut (including salary, benefit, phone and computer time, etc.) at $50 each. If you operate a single-location HME store that orders from just five “consolidate-able” vendors a day, your company could eliminate 25 purchase orders a week by “bundling” your orders instead of creating them separately.

That translates into 1,300 fewer purchase orders a year. Apply the “$50 per purchase order” cost, and your company can cut $65,000 in annual purchasing costs!

Have four stores? Can you immediately think of 10 vendors you would prefer not to have to call individually? Four stores each issuing 10 purchase orders per day means 200 purchase orders get issued a week! Multiply 200 purchase orders by $50 per purchase order, then multiply that cost by 52 to represent the weeks per year. The total is $520,000 in purchase order COST! Even if your own purchase orders cost less than $50 each, the dollars you are spending on this operational activity are still substantial.

In your receiving function, by having your Purchasing Agent use wholesalers, multiple shipments automatically consolidate onto one receiving document. Therefore, taking in product can consume a smaller part of the day, as you receive more goods with no additional staff. You boost your profits as the same number of people can handle more revenue.

You can also save in accounts payable. How much time is saved when your company writes one check to a wholesaler instead of five or 10 to different manufacturers?

The right wholesaler can save an HME provider many thousands of dollars and make your purchasing, receiving and even accounts payable activities much easier. But how do you know which distributor to do business with?

Align yourself with a wholesaler with years of history of reliably serving home health-care equipment providers. Make sure the wholesaler provides a good product and service “fit” — one that carries the products you frequently order, one with a comprehensive selection of product and one that can handle the product volume you require, so that your internal turnaround and delivery times to customers aren’t compromised.

If you are looking to lower costs, if you like the idea of cutting fewer purchase orders, receiving fewer shipments, entering few invoices for payment and writing fewer checks… consolidating purchasing can be a profit-enhancing strategy now and in the years ahead.

This article originally appeared in the January 2008 issue of HME Business.