Demming was the foremost leader in what today has become a supply chain revolution in how we, as supply chain managers and value analysis leaders, can and should be attacking our cost and quality challenges. It’s no longer about intuition, it’s about big data and how we can use analytics to lead the way to cost and quality improvements for our healthcare organizations.

For a decade or so, supply chain professionals have been using big data to identify their unfavorable price variances with their spend managers. While this has been the first step in capturing savings with analytics, it has run its course. In fact, our value analysis community is telling us that the annual savings achieved by their spend managers aren’t even covering the cost of their subscription services.

Where do we go from here? The future of supply chain expense management is: Value Analysis Analytics. “It’s the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decision and actions” as described by Thomas H. Davenport, the author of “Competing on Analytics.”

We have been using big data and value analysis analytics for over 16 years, with the result being that it has opened up a whole new world of savings for our clients. No longer are our clients focusing only on price and standardization, but they now can uncover their wasteful and inefficient consumption, misuse, misapplication, and value mismatches in their supply streams.

For example, we now can pinpoint for our clients down to the last decimal point how many isolation gowns (and what type of construction) your hospital should be using to have the lowest in-use cost. Or, what your lifecycle cost should be for I.V. catheters as was documented (page 16) in an article by James Russell, Value Analysis Facilitator, UCU Health System, in the spring issue of our Healthcare Value Analysis Magazine by employing this same methodology.

You too can have this action-oriented data to up your value analysis game if you change your perspective from price to value analysis analytics. All it takes to open this whole new world of savings is to start to use your big data for more than just optimizing your pricing.

Now that we have the computer power and the analytics to dig and drill down into our supply streams to identify and remove unwanted and unnecessary cost, why wouldn’t you want to jump on his new and emerging best practice? 

To avoid this unproductive experience in the future, here are four tips for starting and winning a savings conversation with your clinicians (or other staff members):

1. Do it with comparative benchmarks: Just because you think there is a savings opportunity which you have uncovered, it isn’t enough to convince your clinicians that they should change their products or behavior. You need comparative benchmarks to prove your case to them. For instance, one of our clients was able to prove to their radiology director that there was a 19% savings (or $43,988) in the contrast media utilization by showing him that the community standard was 100cc vs. 150cc prefilled syringes, which was his protocol for all of his patients. This change could never have been achieved without hard, undisputable data that was community based.

2. Observe clinicians in action: Don’t just compile the comparative data and then show it to your clinicians; do some research on why this utilization misalignment is occurring. In the case study I talked about previously, a value analysis project manager was assigned to investigate why their hospital was utilizing too much contrast media. What she discovered was that the radiology department’s trash cans were filled to the brim with half used contrast media prefilled syringes. This exposed and further supported the data that this department was wasting their contrast media, thus building a case for change.

3. Build a positive case for change: Now that you have the comparative data and the reason for the utilization misalignment, (as we did in the contrast media case study) you need to prepare a formal PowerPoint presentation to present to your clinicians showing your finds and recommendations. This exercise will enable you to think through your presentation and get it right the first time, since you only have one chance to get it right.      

4. If you’re wrong, apologize: If you have done your homework, (as described above) you should have a positive response from your clinicians when you present your case for change. However, sometimes you get it wrong, as we have done on occasion, because of an obscure detail or fact that you didn’t know about which threw you off course. When this happens, apologize for the oversight and then ask if you can begin again with the new information to get your savings proposal back on track.

As you can see, it takes some work to start and win a savings conversation with your clinicians (or other staff), yet it beats having your savings proposal rejected because you didn’t do your homework.

Believe it or not, making positive change happen at your healthcare organization isn’t as hard as you might think, if you employ comparative benchmarks to lead the way to discover your utilization misalignments.

It’s been our experience that even your harshest critics can be won over by a scientific approach to change management. However, no clinician will change for change sake; they need to be convinced that what they are doing is beyond the norm. Only then will your clinicians fall into line with their peers, because no one wants to be an outlier. Not even your harshest critic!

Further, these same Executive Thought Leaders stated that, “Even with the lowest possible price, if utilization is inappropriate the cost will remain too high. Supply chain leaders also noted that with commodities, there is a point at which the price is as low as it can possible be, and they must look at reduced utilization to capitalize on further savings.”

Well, it looks like the jury has given its verdict; utilization management is the future of supply expense management. However, to make this great leap forward from price to utilization, you will need new value analysis analytics tools to identify and then eliminate your wasteful and inefficient consumption, misuse, misapplication, and value mismatches.

This is because the transition from price to utilization can’t be achieved with your current spend manager’s tools, since they are focused on price, not utilization. You will need to develop or purchase new value analysis analytical tools that are built specifically to attack your utilization misalignments. By the way, if you have none of these tools, you are limiting your ability to harness the power of technology to uncover new and better savings that are now hidden from your view. 

As we like to say, you need to have more than one tool in your supply chain expense toolbox to enable you to have the right tool, for the right task, at the right time, to make your cost management job easier and more efficient!  It’s just like a carpenter; the more exacting the tool he has that is designed for a specific purpose, the faster, easier, and more professional the job gets done.  

As I said, the verdict is in; utilization management is the future of supply expense management. Your bosses, peers, and professional associations are jumping on this bandwagon. Isn’t it time you make the same leap forward to value analysis analytics to align with your healthcare organization’s transition from volume-based to value-based purchasing? It can make all the difference in your hospital, system, or IDN’s bottom line now and in the future. 

Why is this important? Trending, tracking and observing changes in your supply spend is important but we have found that it doesn’t provide you with enough ammunition to change the behavior of your clinicians. That should be the goal of every supply chain professional – improving behavior!

Only by sharing comparative value analysis analytics with your customers can you be assured that you will: (i) get their attention, (ii) find them receptive to your recommendations, and (iii) open to modify their practices to maximize your supply chain expense management performance.   

                         Figure 1: Comparative Value Analysis Analytics Study

In figure 1, I show an example of what a comparative value analysis analytics study looks like on examination gloves, which makes it crystal clear that this hospital has a utilization misalignment challenge with their exam gloves.

The next step is to ask “Why are we different than our peers?” Is it non-compliant to our glove policy? Is it our package/quantity size of gloves? Higher than normal use of hyper-allergic gloves? This method of inquiry starts the dialog with our customers as to the reason(s) why they are different, which will naturally and logically lead to changing the behavior of clinicians.

However, without comparative value analysis analytics this dialog won’t happen, change won’t happen, and you will never reach the maximum performance of your supply chain expense management. If you want to up your value analysis game by uncovering hidden utilization savings, don’t stop with just tracking, trending and observing changes in your supply spend – start benchmarking your 274 categories of purchase to elevate and maximize your savings results.

Then, and only then, will you have data rich enough to understand your customer’s behavior, habits and patterns that will lead you to new thinking about how to reduce your supply chain expenses. We aren’t talking about price benchmarks here, but value analysis analytics that will guarantee you success in the supply chain expense management game.

By actionable we mean that you can do something with the data that you are analyzing. If you see that your wound care costs have doubled while your census is down by 7%, it’s time to investigate what’s going on in this category of purchase. Or, if you see that your surgeons are consistently implanting the highest cost pacemakers in your formula, you can bet that they are overspending in this Physician Preference (PPI) group. 

More importantly, you need to benchmark your utilization practices against your peers.  Why?   This is the only way to know with certainty if your products, services or technology costs are best in class or are in need of major adjustments. This kind information can’t be attained through intuition, guessing or gut feel. You must authenticate this information with comparative peer data. There are no exceptions to this rule!

We now have extremely powerful technology to help us drive our supply chain expense management decisions. Yet, the quality (i.e., intuitive, perceptive, predictive and actionable) of our data needs to be greatly improved at most healthcare organizations before we, as an industry, can reach the next level of supply chain expense management performance.

It all starts by looking beyond the bits and bytes of your data and then asking the question, “What can my data tell me about my supply chain expenses that I don’t already know?” By answering this question, you will be well on your way to revamping your data sets to give you those actionable results that will lead you to new thinking, strategies and tactics on how to rein in your supply chain expenses. 

There couldn't be a better time to
up your value analysis game!

Value analysis has a 35-year history of saving money in healthcare, but it has gained even more importance, credibility and momentum now that The Patient Protection and Affordable Care Act has been signed into law.  This is because saving money (and making it stick) is now mission critical for any and all healthcare organizations' fiscal fitness and survival.