Looking for a Healthier Hospital System Bottom Line? Start with Low Hanging Fruit Like Supplier Returns.
Rising costs. Workforce challenges. Regulatory requirements. All of these are placing pressure on hospitals systems, including supply chain and AP departments. And while you may not be able to change the economy or solve the staffing crisis, there are some simple things you can do to improve your bottom line. And that’s picking some of the low hanging fruit, starting with supplier returns.
Returning products is part of the ordinary course of business for hospital systems. However, supplier returns or returns not deducted consistently tops our list of client recoveries, representing an average of 32 percent of all recoveries for the past ten years. For a recent client, we actually uncovered more than 60 transactions – nearly 70 percent of their total recoveries. Although this number was exceptionally high, we’ve found that the reasons for the unreconciled credits are pretty much the same across the board for all hospital systems. There’s good news though.
There ARE ways to optimize the supplier returns/returns not deducted process to help keep track of valuable capital. Below are our top three solutions:
1. Establish clear lines of communication, alignment and oversight between AP, Supply Chain and other related departments.
Often supply chain management and supply chains are siloed from the rest of the organization, and returns are being processed by people in different departments using a variety of different methods. Everyone needs to be on the same page, making sure credits and credit memos are properly documented, issued and allocated. There should be a clear process for everyone involved, outlining accountability and responsibilities. The ERP database, or other inventory management software, should be used to track all returns, centralizing the process and ensuring all information can be easily viewed by anyone with access.
2. Make sure supplier return variables are consistent and include the following information:
- Original purchase order number
- Return goods authorization (RGA) number
- Price of item
- Quantity of item
- Shipment method
- Tracking number
3. Supplier returns should be periodically compared to supplier paid history to ensure proper credit was received.
We recommend monthly supplier statement reconciliation to identify unprocessed items and ensure credit memos have been applied. ERP reports should be run regularly to view open returns, and follow-up with the vendor if a credit memo is missing. By making regular reconciliation review part of your hospital system’s best practices, you can take advantage of that low hanging fruit to achieve greater accuracy in your records, prevent errors and improve the health of your bottom line.
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