Health System Supply Chain Benchmarking: Deeper Learnings and Our Plan for Levitating

By Eric O'Daffer | April 04, 2023 | 0 Comments

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Levitating. There. I said it. We are rising in air seemingly in defiance of gravity. We are targeting 50 participants in 2023 and expanding our health care supply chain benchmarks. Dua Lipa rejoice.

Benchmarking is hard work, but it does get easier and hence the levitating reference. Thanks to some pioneering health system supply chain bench markers we successfully “drove to 30 submissions” in 2022 and are statistically legal for sharing our findings in research. We had 34 health systems provide seven benchmarks selected for impact and the ability for most health systems to capture them. This is our third round of benchmarking, and we learn new things every time. The purpose of this blog is to share three deeper cut learnings and get your help in “Levitating to 50.”

The main lessons are the same. My colleague Salil Joshi and I had more than 150 calls to educate health systems on the benchmarks and do detailed quality control on the calculations. It is one thing to measure yourself against yourself accurately but another thing when someone gives you the calculation. We were in dozens of general ledgers with supply chain analysts and leaders working to be consistent across the submissions. Details matter and we learned a lot from organizations who “showed their work” and allowed us to get smarter about the complexity of measuring a health system supply chain end to end. Supply chain benchmarks without quality control and review just don’t work. Period.  Supply chain expenses get buried in the general ledger and many times “other” would show hundreds of millions of dollars in supply chain expense. The three main lessons are:

Fully Loaded Supply Chain Costs as a Percentage of the Cost of Patient Care are 36%

We have validated this again in 2022 consistent with our informal findings in 2021. But this time the numbers are statistically valid. Most C-suite executives estimate this number substantially, but if you take the fully loaded cost of all third-party expenses plus the cost to run the supply chain operation, the average health system is at 36.2%. We didn’t show a major difference in size of the health system on this benchmark, but academic versus non-academic deeper cut (see figure below) showed a substantial difference. Intuitively this feels right and for 2023, we plan to dig deeper into this number. It also provides a better point of reference for where this spend came from by category — medical surgical, pharmaceuticals, medical devices, lab supplies, purchased services including food and information technology and capital equipment. We think there is some variance there by health system and that more data there makes the calculation more consistent and has new learnings.

Supply Chain Operations Cost is Overestimated by the C-Suite and Correlated to Size

Our main learning is that the costs to run supply chain (supply chain operations costs as a percentage of the total cost of supply chain) are consistently around 2%. The figure below shows this clearly. Independent of size, the range is 1.78% to 2.1% on average sloping up as size increases. In raw dollars, this shows that larger health systems are investing more in supply chain expenses and not trying to leverage corporate resources for efficiency. Our view is that the 2% number in general means that 98% of supply chain expense is spent with third-party manufacturers and service providers. Supply Chain operations has 50:1 leverage on that majority of the spend and that CFOs seeking to spread cost cuts to supply chain operations are likely trading off efficiencies in service, big C cost with the third parties and even patient outcomes potentially. For 2023, we will expand this benchmark as well. Where organizations spend these operating dollars between sourcing, procurement, logistics/service, clinical alignment and systems/analytics has variation.

Documented Savings Hovering Around 2% Still*

Everyone measures savings in supply chain. We get it. With 98% of the total supply chain cost coming from manufacturers and service providers, measuring savings in sourcing and utilization are a critical part of the equation. But we see the equation and the historical sum as equally problematic.

Usually, health systems just share the dollars they save — the sum: $5 million, $10 million, $50 million, $100 million. Big numbers. But these big numbers are super dependent on the size of the system. For example, $10 million is a lot for a $500 million health system — not so much for a 125 hospital $30 billion system.  So, we take the savings divided by the total cost of supply chain to see the impact. Even when handicapped for size, 2% is consistently the quotient (see figure below).

These are incremental supply chain-generated savings year over year in our equation bought off by the financial group at a health system. Usually, sourcing savings, but also some utilization and programmatic savings included.  However, the equation almost never counts inflation or utilization increases into the mix.  It is effectively a sourcing project efficiency metric. Did a health system supply chain show positive savings in certain events? In 2022, inflationary pressures were mitigated to some extent through late Q2 where most of our data came from. Since 2023 won’t have that luxury, it will be interesting to see.  And while most of the health systems hovered around 2%, smaller organizations did perform a bit better. Some of this is related to maturity of the supply chain organizations at some and the ability to leverage committed group purchasing organization offerings for lower prices that are easier to document.

My Gartner symposium presentation goes into some more detail here and intersects some of this data with learnings from our Organization Design Research for Health System Supply Chains. Hope you found these three deeper dives into our benchmarks interesting. We will keep getting stronger with more participants and deeper benchmarks. Please consider “Levitating to 50 Benchmarks” with us this fall. There is no cost to participate. Email me at if interested.


Eric O’Daffer
VP Analyst
Gartner Supply Chain


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