Balancing quality, safety, and financial management

Financial performance of residential aged care providers has been on the decline over recent years due to:
— reduced revenue caused by the gap in indexation between wages and revenue
— a decline in occupancy rates
— growing third party expenditure.

In 2019-2020*, 54 percent of residential aged care providers operated at a loss.

This presents a significant opportunity for procurement teams to optimise the processes and technologies they use to manage external spend.

Third party goods and services such as marketing, information technology, and facilities management can account for between 15–25 percent of an organisation's total cost base but are often not given the same level of attention as other cost lines.

Effective management of third party spend can, on average, realise savings of between 5–10 percent and can have a direct impact on the bottom line.

The Royal Commission into Aged Care Quality and Safety has identified significant areas for transformation including the need for aged care providers to invest in front line delivery of care. Providers can redirect procurement savings to implement the recommendations and boost the quality and safety of services delivered.

* Ninth Report on the Funding and Financing of the Aged Care Industry – July 2021 page 66

Performing a spend analysis

To improve and maintain financial sustainability, aged care providers require robust management of their external spend.  However, many providers do not have an accurate view of their spend profiles across different functional groups within their organisation.

One challenge is the sheer volume of procurement data that exists across various enterprise-wide ERP systems, accounts payable processes, credit cards, purchase orders, and vendor master data.

Performing spend analysis – the process of collecting, cleansing and categorising historical spend data – is a critical step in identifying savings opportunities. The process can also help to inform sourcing strategies per category.

Identifying saving opportunities

Once providers have visibility over their spending, they can identify, evaluate and implement programs for saving. 

Running interdisciplinary cost-take-out workshops can help providers explore potential techniques including:

Strategic sourcing
Identify and contract with those best-in-class suppliers capable of consistently delivering best value and quality.

Strategic outsourcing
Outsource to third parties when in-house provision is not best in class, a mature supply markets exist, and the economics and risks are favourable.

Demand rationalisation
Ensure the type and quantity of third-party goods and services procured meet real, not perceived, business requirements.

Spend consolidation
Maximise buying power with suppliers through unified sourcing of total requirements.

Supply chain optimisation
Ensure a lean supply chain with an efficient flow of goods, services, and information to reduce inventory and waste.

Effective supplier management
Monitor and manage supplier delivery of contractual obligations and develop appropriate relationships with segmented suppliers aimed at maximising long term mutual performance.

Exploring indirect procurement categories

Indirect procurement categories such as marketing, office and janitorial supplies and facilities management are great candidates for savings. The spending is often fragmented among multiple locations, business units and categories, making it hard for procurement teams to identify and capture enterprise-wide savings opportunities.

This is especially relevant for residential aged care providers who are managing facilities across multiple locations and may also be managing retirement villages, home care outlets and corporate offices.

Exploring direct procurement categories

Significant savings can be achieved in the direct procurement categories such as medical equipment and clinical furniture.

With robust procurement strategies and careful delivery, aged care providers can often save up to 10 percent across categories as per below.

Direct procurement Savings
Facilities management 7%–12%
Head Office 7%–10%
Direct Spend 5%–8%
IT 7%–12%
Logistics 6%–8%


Implementing saving initiatives

Providers can prioritise the identified opportunities by anticipated benefit and ease of implementation, then work to deliver on the saving initiatives.

Developing a rigorous RFP process and negotiating with key suppliers are two fundamental techniques to improve costs and achieve savings.

Uplifting the procurement function

Managing procurement has become increasingly complex. While most organisations seek to improve their procurement function, many do not have a qualitative framework or mechanism to decide where to start.

Aged care organisations can optimise all elements of their procurement operating model and improve their maturity levels by addressing:

Consider the procurement competencies, skills, culture, and performance expectations for the people within the team, including incentives and talent management

Outline the procurement activities and inter-dependencies of the function across the whole enterprise.

Define ‘what’ work is being performed, ‘who’ should perform the work, and ‘where’ the work should be performed.

From medical consumables and clinical furniture to marketing and IT, use the procurement data and analytics to inform decision-making and support business performance.

Outline the structures, procurement policies, and controls to balance risk, to facilitate timely and effective decision making and ensure compliance.

Explore options in procurement technology to drive delivery model, business practices, performance ambition and information security.

How we can help

We are committed to supporting the aged care sector and the shared purpose of achieving better outcomes for the wellbeing of all Australians.

Understanding that procurement is crucial to financial improvement we can help you to:

  • develop a procurement framework
  • choose the right technology
  • make efficient use of data analytics
  • define an optimal service delivery model

Contact us below, or 
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Further reading

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