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Updated by Charles Bystock on 08/07/2021
strategic sourcing

It took a global pandemic for many to realize we need a more strategic approach to supply chain management. The old ways of doing business do not work. Tight budgets and tumultuous raw materials markets make it tough for purchasing and supply chain professionals to implement smarter sourcing practices. How can your hospital add strategy to its sourcing efforts?

What is strategic sourcing?

Strategic sourcing is rooted in the idea of a continuously improving organization. Instead of sourcing to fill a need, strategic sourcing is defined by Healthcare Facilities Today as aligning the procurement effort with business goals, including:

  • Cost reduction
  • Inventory management
  • Reduced contracts administration
  • Streamlined payment, bottom line revenue, and cash on hand
  • Improved ordering and vendor management
  • Service standardization and control

The goal of strategic sourcing is ultimately one of spend management, but it can also benefit your organization’s efficiency and ability to scale services in times of need. While this concept is easy to grasp from a materials perspective, it can also include staffing and other operating functions (e.g., leveraging locum tenens resources during the COVID crisis).

But strategic sourcing isn’t strictly for materials and supply chains. IT is increasingly a pillar of healthcare management and delivery. Strategic sourcing should extend to include IT and the infrastructure and services that accompany it. For example, telehealth is a relatively recent service offering with tremendous potential for positively affecting care delivery now — and in the future. We are only beginning to apply big data and analytics to outcomes and process improvements. The resilience of IT investments could define your hospital’s successes and failures, particularly in terms of data security and overall digital performance.

The Journal of Healthcare Contracting says strategic sourcing, “is really all about looking at the big picture and then assessing all of your sourcing options to continuously improve and reevaluate your spend management as service quality.” What can hospitals do to achieve this goal?

strategic sourcing

Steps to achieve strategic sourcing

Hospitals have long banded together in group purchasing organizations (GPOs) to reduce costs by leveraging a “more is more” strategy for increased purchasing power. Modern Healthcare notes “a major lack of transparency in pricing across the marketplace.” This is true whether you’re purchasing materials like medical supplies or IT vendor services in the cloud. GPOs force suppliers to apply in-bulk discounts to purchasing groups. But GPOs only cover about 35% of a hospital’s non-labor-related expenses, and the contracts are often lengthy and complex, so they “unintentionally trap hospitals into unfavorable product pricing positions, with very limited resources to negotiate better pricing, thereby causing one to miss out on years of savings opportunities.”

Technology is particularly important to strategic sourcing that looks for year-to-year improvements in costs without being tied to a lengthy GPO contract. Monitoring this multifaceted effort requires big data to manage inventory, examine processes, and improve workflows. With the right technology in place, healthcare organizations can follow four key steps for successful strategic sourcing:

  • Gather data across departments to smash through silos and fuel improved decision making.
  • Achieve real-time inventory optimization.
  • Stretch strategic sourcing beyond capital and consumables to include IT vendor service contracts for better cost controls, particularly in the cloud.
  • Analyze purchasing patterns and controls with data visualization tools and an electronic dashboard.

What benefits does strategic sourcing offer your hospital?

Benefits of strategic sourcing

Digital transformation is intrinsically tied to sourcing transformation. Strategic sourcing improves the efficiency of complex supply chains. The benefits of strategic sourcing start with cost reduction, but that is only the first phase. Strategic sourcing, at a deeper level, improves workflows for ordering and vendor management. The goal is to form strategic partnerships to benefit your organization by saving money and working smarter across the entire organization. Ultimately, its effects extend to end users at the hospital, from patient experience and outcomes to improved nursing workflows and happier clinical teams.

Strategic sourcing helps your healthcare facility with continuous performance improvement processes for the benefit of your organization, its staff, and most importantly — your patients.  

The Windsor Group Sourcing Advisory team works with healthcare facilities across the nation to help them evolve, adapt, and improve with strategic sourcing. Visit to learn more.