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ONTARIOBUYS: Performance Measurement Phase II - User Guide - Metric 1.1

Objective:

To improve the control of supply chain spending by increasing the number of items bought under a negotiated contract

Calculation:

Number of active items under contract
		x 100%
Total number of active items in master file

Target:

Stock: 100% under contract
Non-stock: ≥ 80% under contract

Background Details

Rationale:

It is important to have a significant proportion of expenditures under contract as this reduces risk to an organization, enables more efficient processes, and helps ensure the organization is getting the best value. In addition, purchasing goods and services on contracts provides information to organizations about what products are being used and how frequently they are being ordered. This, in turn, can be used to more effectively forecast spend, plan ahead and identify future opportunities for savings.

Benefits:

Financial Stewardship
Increasing the number of items under contract ensures that items are purchased at the best total value by reducing product and transaction costs.

Process Efficiency
Purchasing items under contract enables a more efficient procurement process with documented contract information to issue orders.

Risk Management
Contracting aids financial planning and reduces risk by establishing clear, agreed-upon terms for transactions with suppliers.

Underlying Leading Practices:

Demand Management
The ability to determine the organizational demand requirement helps the supply chain department
develop strategic contracts for the right products and services.

Identification of Product Standardization Opportunities
Rationalization of suppliers and products, while respecting clinical needs, enables an organization to increase the percentage of products under contract with fewer suppliers.

Contract Centre of Excellence
A common repository of contract knowledge facilitates the development of comprehensive contracts with suppliers with more favourable terms and pricing.

Comprehensive Understanding of Spend Data
Comprehensive analysis of spend data helps the organization identify items in the master file that would realize the largest benefits from contract development.

Target Considerations

Establishment
Targets for stock items will generally be higher than targets for non-stock items. Stock items are typically high-use commodities, which are easily contracted and standardized, and are often covered by group purchasing organizations. Items that are handled as non-stock are generally those that are specialized and/or with highly variable usage, making them difficult to put under contract.

Related Metrics and Standards

Related Metrics:	Related Standards:
1.2 Purchasing Response Time 2.1 Average Cost to Issue a Purchase Order 2.3 Operating Costs as a Percentage of Expenditures 3.3 Number of Purchase Orders Placed per Full-Time Equivalent in One Month 3.7 Percentage of Invoice Matches 4.3 Percentage of Items Activated in the Master File in One Month 4.4 Percentage of Items Inactivated in the Master File in One Month	1.1 Purchasing Policies and Procedures 1.3 Boilerplate Contracts and Key Legal Principles 3.1 Contracts Database 4.2 Item Master Management Policy and Processes

Implementation

Calculation Parameters

Calculation:

Number of active items under contract
		x 100%
Total number of active items in master file

Variable	Include	Exclude
Number of active items under contract (2 values: stock and non-stock)	Include items with activity in the last 12 months and a contract (pricing agreement, prime vendor agreement) in place, documented in the information system, with all of the following: Start and end dates Defined pricing Dual signature (customer and vendor) Report two separate measures for: Stock items Non-stock items	Do not include items with any of the following: No activity in the last 12 months No mutually signed contract in place No start or end date Non-priced items
Total number of active items in master file (2 values: stock and non-stock)	Include number of items in item master with activity in the last 12 months Report two separate measures for: Stock items Non-stock items	Do not include items in item master with no activity in the last 12 months OR for the following categories: Capital Services Pharmacy Food OR for: Punch-out orders

Data Accessibility Rating

CHALLENGING – Data are available but require analysis and custom reporting

Possible Data Sources

Electronic
Procurement and Inventory Modules:
Organizations are usually able to generate reports on use of stock items to determine the Total number of active items in master file (Stock). Some information systems are unable to track the use and generate reports on the Total number of active items in master file (Non-stock). If these functions are unavailable, hospitals should consider custom reporting.

Contract Management Modules:
Organizations with contract management modules should be able to generate purchase-agreement contract reports to determine the Number of active items under contract for both stock and non-stock items. Organizations that lack this capability could create a custom report at month-end. The report should flag for each item whether a price exists and whether it is valid (i.e., not expired).

Manual
If electronic reporting is unavailable, a manual check of all active items in the master file is not realistic. The organization could consider using a logging method throughout the month or selecting a representative time period (one day, one week, etc.) to report the number of line items purchased that were under contract compared to the total number of line items purchased. Organizations should select the option that balances the cost of collecting the data and the associated accuracy with the benefit of reporting the metric.

Implementation Challenges