• Self-Distribution Organizations: I have been watching this trend for some time (borrowed from Wal-Mart, McDonalds, Target, etc.) to cut out the middleman and buy direct from manufacturers and distribute your own supplies to your owners, divisions or affiliates. It’s all based on economy of scale; if you can generate enough volume, you can chip away at your logistics cost. If you aren’t already an owner, division or affiliate of one of these organizations, I would suggest that you either join one or develop a regional one with your peers since they do save dollars and make good sense.  

• Regional Group Purchasing Organizations: While the lifecycle savings of these organizations is questionable, in the short-term, they can save you 3% to 5% on selected commodities. Again, if you aren’t a member of a regional GPO it makes sense to do so – now!

• Shared Services Organizations: This isn’t a new idea, but can be very effective in lowering your healthcare organization’s operating cost. Some of the services that can be provided by these organizations are: laundry/linen, custom pack manufacturing, records management, pharmacological repackaging, surgical instrument repair, cook/chill food preparation, bio-medical engineering, etc. You can either start your own shared service organization with your peers or join one in your region that is already successful. 

• Supply Utilization Management: I can’t fail to mention that even these three organizations, mentioned above, are adding supply utilization management to their portfolio of services. This is because they know that their work isn’t done for their owners, divisions, affiliates, and members until they have driven every last dollar out of all their supply chain expenses. Is this a cost driver you are targeting, too?

In the final analysis, healthcare organizations need to generate even more savings than ever before to reduce their supply chain expenses. To try to do so as a standalone hospital, or even a small system, and not take advantage of the economy of scale brought about by self-distribution, regional GPOs, and shared services organizations is a mistake that should be avoided.

Note: There are a few healthcare supply chain service organizations that are organized to provide all of the above services I just talked about in tandem.  If you have one of these super shared services organizations in your region, we would suggest that you investigate the opportunity to join them. It is our opinion that this is the only way for supply chain professionals to truly bend the curve in their supply chain expenses. Half measures won’t get the job done! 

Every hospital, system, and IDN that we have talked to over the last three years has experienced this phenomenon. The progressive ones have embraced the concept of utilization management and are now experiencing new savings in the range of 7% to 15%, or $2 million dollars per 100 occupied beds.

They understand that this problem is insidious and that it can cost them, on average, 26% on one-third of the products, services, and technologies they are buying. For instance, one of our clients has reduced the usage of their isolation gowns by $112,326 annually by reining in the wasteful consumption on this product. If left unmanaged, this product alone would have done considerable damage to their healthcare organization’s bottom line.

We realize that many healthcare organizations have joined regional GPOs and are experiencing 3% to 5% in new savings on selected product lines. However, this cost reduction strategy isn’t enough to bend your hospital, system or IDN’s cost curve. It is also a short-term tactic that, in our opinion, has about a five year life. 

Trust us when we say that your price strategies are losing their momentum and you will need to find other sources of savings to fill the gaps left by this void. Yes, there are always a few more dollars to save on price, and it is mission critical for you to hold the line on inflation. Yet, these are all short-term strategies that will just keep your boat afloat, not raise it in high tide.

These are the cold hard facts about utilization management. You can either ignore them at your peril or embrace them as the new reality in supply chain management. When you consider that your healthcare organization needs to dig deeper and broader for new and better savings, to save as much as 11% to 20% over the next few years, just ask yourself if your current price strategies will meet this test. Our guess is that they won’t, unless you, too, embrace utilization management as your new path to supply chain expense management success. 

With this said, you should also be aware that your hospital, system or IDN is losing (not gaining) money if you are doing “nothing” to greatly improve or lower your healthcare organization’s cost-base. Based on psycho-economic studies, this too should be of concern to you. Here are three areas that we have observed where healthcare organizations are doing “nothing” that should give you pause:

• Savings that don’t stick: It’s our estimate that 19% to 47% of all savings initiatives lose money. This occurs because no one tracks, trends, and monitors their savings initiatives over the long-term. We call this a “saving it and forgetting it” attitude! This approach to cost management is losing healthcare organizations tens of millions each year. Is this the way you do business?

• Savings beyond price: There is a whole new world of savings beyond price (i.e., utilization management) just waiting to be tapped into, where healthcare organizations are losing 7% to 15% a year by doing “nothing” to attack this cost driver. On average, we are talking about losing $2,203 per occupied bed, or 2 million dollars annually. How can you afford to leave these savings untouched?

• Savings that we ignore: It is rare that we encounter a hospital, system or IDN that is attacking their purchase service cost, thereby losing 11% to 18% in new savings opportunities. As an example, one of our clients, who hates losing money, is on track to save $4,495,882 (or 24.6%) with our Utilizer® Dashboard on their purchase services. Are you, too, ignoring this goldmine? 

Now that you know that it is a psychological fact that nobody wants to lose money (and will even disregard an actual gain in the process to avoid it), how can you leave any money on the table by doing “nothing” to capture it?

By the way, this is a tactic that we encourage our clients to employ when eliciting the support from their senior management for any of their initiatives; show them the money they are losing by doing “nothing”. This course of action will usually tilt their decision in your favor, 97% of the time. 

You see, supply chain leaders have figured out that they can leverage their healthcare organization’s “big data” and turn it into actionable information with predictive modeling and other analytical activities.

This isn’t a new idea. Supply chain professionals from other industries have been following this path, which is less traveled by healthcare supply chain organizations, for years. It is now much easier to pursue this new pathway since internet-based cloud computing is considered a norm in every industry. These new analytical platforms are needed since transaction-based systems (e.g., ERP and MMIS systems) weren’t designed to do this analytical work for you. New tools are being developed every day for this purpose.

You must also have the right mindset for this work, since these new savings are no longer about price. This is one challenge we have when many of our perspective clients are viewing our Utilizer® Dashboard analytics for the first time.  They think we are talking about price savings, when we are really talking about their utilization savings for their hospital, system or IDN.

Finally, you need to have the inclination to search out these new and better savings opportunities.  If you believe that your price savings will last forever, then you are entirely missing our point in this article. Healthcare supply chain leaders are leveraging their “big data” because their price savings are disappearing.

Over the last three years, we haven’t heard anyone in our supply chain community tell us that their price savings are increasing.  It has either leveled off or reduced to a trickle. It’s similar to a gold mine; when one vein runs dry, miners move to another vein. They don’t keep mining where there is little or no return-on-their-investment. You, too, should learn this lesson!

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? 

Mike Landry, President of Barkawi Management Consultants, tells us that this “control tower” approach goes beyond incremental improvement to real transformation change. Its goal is to bring the cross-functional information to the right person at the right time.

We have employed this concept without knowing it for years and even given it the name of “supply chain radar”. We realized early on that if we could bring together a healthcare organization’s supply chain expenses in a uniform, cross-functional, and easily understood format, it could naturally propel physicians, clinicians, and managers to make the necessary changes in their supply chain practices to lower their cost.

The reason why this “control tower” idea works so well to reduce your supply chain expenses is that we have discovered that no physician, clinician or manager wants to be out of step with their peers. If you can show them that their price, standardization or utilization is beyond acceptable limits, with pristine data, they then will rein in their cost. There have been few exceptions to this rule!

Just the other day, a sales representative told us how he was able to convince an operating room director, with data and metrics, how her surgical pack over-standardization was costing her hospital tens of thousands of dollars annually.  She was a big skeptic, but in the light of day she couldn’t refute his numbers, logic, and cost/benefit analysis and changed her opinion.

The secret to the success of the “control tower” approach is that it gives you the ultimate visibility (like an air controller) over all of your supply chain expenses, and just like radar it enables you to quickly identify, verify, and rein in your expenses that are out of control.  

We are at a crossroads in supply chain management; we can either continue to use our intuition to bring about incremental savings, or we can embrace the “control tower” approach for real transformational change.

An even better question might be: How much time do you have left to ring the towel dry in supply expense savings in this era of healthcare reform? Just remember that the “control tower” approach can get you there much faster.  

1. It’s a strategy you can no longer afford to ignore: Price and standardization have been the primary supply chain cost containment strategies for decades. Now that these sources are waning, there is nowhere else to go for savings other than utilization management.

2. It’s a problem that’s more insidious than you might think:  We estimate that one in four products, services, and technologies that you are buying now has a utilization misalignment. Meaning, it is costing you on average 26% more to employ these commodities than it does for your peers. Left untouched, they will cause real damage to your healthcare organization’s bottom line.

3. It’s eating away at your healthcare organization’s bottom line: For every dollar you save in price you could be losing $2, $3, or even $4 in utilization misalignments. For example, you might get a great price on I.V. catheters, but if your clinicians are using 2.3 per patient to get the job done, it’s costing you more than it should be on just this one product.

4. It’s easy to think, “It is not my job to go after these new and better savings”: Price, standardization, value analysis, and utilization is what supply expense management is all about in this new era of healthcare reform. If you don’t take on this responsibility…who will?

The point of this list is to raise your awareness that attacking your supply utilization management isn’t just a nice thing to do, but it’s now mission critical to clear the decks of all supply chain expenses that are unwanted and unnecessary.

If you don’t take on this new responsibility, the damage to your healthcare organization’s bottom line could be in the millions of dollars each and every year. Worse yet, it will erode any price, standardization, and value analysis savings that you think you are achieving now. Don’t let this happen to you!

This is the only true measurement of your total cost of acquisition to disposal for anything you buy. That’s why we like to say that “Purchase Price is Only the Tip of the Iceberg”. It’s what’s beneath the surface of the iceberg that you need to be doubly concerned about, not the price at the pump.

The formula for lifecycle cost is LCC=Cost+Maintenance+Energy+Repairs-Salvage Value which I have detailed in figure 1: IV Pump with a 5 Year Life. You can imagine that if an I.V. pump cost your hospital $895 or more in acquisition cost, the cost of ownership (i.e., maintenance, operations, energy cost, etc.) over five years could be as high as 10 to 20 times your capital expense. That’s why your acquisition cost has no relationship to your total cost of ownership, but that’s the expense you need to hone in on each and every time you contemplate a purchase.

I see this playing out in my own firm’s purchases. Three years ago, I bought a Brother Fax/copier/scanner for $99.00. It’s a great machine, but it cost me $32.49 for an ink cartridges which lasts about six months. Let’s do the math: Six replacement ink cartridge over 3 years = $194.94.  So my cost of ownership (with no maintenance issues and minimal energy cost) to date is $293.94. I’m OK with this lifecycle cost since my fax/copying/scanning is very negligible. In my opinion, this was a good purchasing decision for my firm.

However, healthcare organizations are supply and technology intense, unlike my own firm’s expenses. Your hospital’s copier cost alone could amount to $250,000 annually, so you absolutely need to perform a lifecycle analysis even if you lease your copiers. I just found out the other day that my high speed copier company has built into my lease an annual increase of up to 5%, and they just upped my cost this year by 1.5%. This should have been factored into my lifecycle cost if I knew it was in my contract. This oversight won’t happen again, since I’m now on to their game.

I think you get the idea! If you think that you are obtaining the “best value” for your healthcare organization by bidding, utilizing GPO contracts or through negotiations – you’re wrong! “Best value” is a combination of getting the right functions, for the right purpose, along with the lowest lifecycle cost available to you. Then, you will have the lowest cost from acquisition to disposal on everything you buy. Isn’t that the goal all of us should have?

1. Document your stalled or rejected value analysis projects: We have found this problem to be so serious that we have built into our Utilizer® Dashboard a savings tracker that documents and quantifies all stalled or rejected value analysis projects. We then recommend that our clients share this information with their senior management and request that they provide assistance in moving these projects forward. 

2. Review all stalled or rejected value analysis projects with your value analysis steering committee monthly: More and more healthcare organizations are establishing value analysis steering committees, but aren’t using this leverage to push hard on their stalled or rejected projects. This was the case with one of our clients who had identified $827,288 in telecommunication savings, but their IT director, who was in charge of this expense category, refused to investigate this saving opportunity. The chairperson of the value analysis steering committee then challenged  the IT director’s vice president at a monthly steering committee meeting on his intransigence. Well, it only took thirty days for the IT director to make these savings happen. That’s how you get stalled or rejected projects moving again; by applying leverage where it is needed!

3. Post all stalled or rejected value analysis projects on a dashboard for your senior management, department heads, and managers to see: One of our clients has done this for years with the result that even their board chairman has reviewed their stalled or rejected projects and commented on them. It’s similar to a blog in that anyone can comment, make suggestions, or help get your projects moving again.

As you can see, all three of these surefire ways to get your stalled or rejected projects approved have one thing in common, “VISIBILITY”. If you don’t report or bring to the attention of your senior management, department heads, and managers, the number of your value analysis projects that are slipping, stalled, or have been rejected, through no fault of your value analysis team, then you will never get them to the finish line. Visibility, persistence, and fortitude are the answer to this challenge! 

This is the strength of your value analysis process; it enables you to redesign, reinvent, and streamline the products, services, and technologies you are buying, so there is LESS rather than MORE packaging, features, and functions. But this metamorphosis can’t happen unless you start with a blank piece of paper to functionally specify what your customers absolutely, positively require in the products, services, and technologies they are requesting.

For example, how many types of exam and surgical gloves do you really need? Do alcohol swabs (.002 cost per use) have an infection control effectiveness equal to or greater than other antimicrobial products ($1.95 cost per use)? What products can be reprocessed and which shouldn’t be reprocessed? Is point of service lab tests more or less effective than traditional lab tests, and at what cost?

You won’t be able to answer these questions unless your value analysis teams perform a functional analysis on these commodities, which entails writing a functional statement (primary, secondary, and aesthetic) of what your customers require in their products, services, and technologies. This is the only way to sort, prioritize, and ferret out waste and inefficiency in the products, services, and technologies you are buying.

I’m sure you get the idea that there are thousands of questions that need to be asked and answered by your value analysis team members as they investigate new and existing products, services, and technologies in healthcare. These questions need to go beyond the quality, safety, and appropriateness of these commodities.

Your value analysis teams must now vigorously challenge the necessity, usefulness, and functionality compared to the cost of every facet of a product, service or technology you buy, since your customers don’t need everything they think they want, need or desire. That’s why LESS can really be MORE!

Now, I would like to go one step further and talk about “Supply Chain Expense Segmentation” (figure 1) or the analysis of the characteristics of the products, services, and technologies we buy so we can become even more responsive to our customers’ needs, wants, and desires.

Further, this analysis will enable you to better anticipate disruptions in the supply chain, help you manage your limited resources, point out key performance drivers, and identify new savings targets of opportunity. For instance, you should list all of your commodity/multiple supplier purchases.

Then, contract for them with a prime vendor/GPO contract and forget about them. Identify products, services, and technologies that are shipped from another country or are a sole source and then search for a secondary or third source for these products. If you wait for a disruption to happen in your supply chain with these products, it will be too late to recover because your competitors will have already swept up the available supplies.

I hope you can see where I’m going with this “Supply Chain Expense Segmentation” analysis. Each category of your purchases can be analyzed and evaluated, and you can then take action on your findings. It’s a great tool to identify your risks, threats, and opportunities in your supply chain expense management. This is how you obtain even greater efficiency and performance with your supply chain expenses, even with your limited resources.

This transformation can’t happen unless everyone in your healthcare organization understands that reducing waste and inefficiency is everybody’s job. A recent study by the Commonwealth Fund estimated that 15 billion dollars (over 15 years) can be saved by healthcare organizations by aggressive recycling, reusing, or donating supplies and equipment, energy reduction, reducing use of plastics and packaging, and eliminating trash inadvertently mixed with medical waste.

The study points out that reusing and reprocessing of medical devices (where applicable) can save 5 billion dollars alone. Yet, based on our own studies, most hospital staff refuses to do so. Effective management of operating room surgery pack contents is another area that can save one billion dollars.

The study concludes that the overall savings for any hospital, if they adopt these waste reduction tactics, can be as high as $2.75 per adjusted patient day. The one common denominator in these recommendations is that supply chain management touches and/or can impact all of these savings opportunities. However, no change in behavior can be manifested until it is understood by your senior management and hospital staff that reducing waste and inefficiency is everybody’s job.

To this end, supply chain managers must take on the role of educators, motivators, and change agents. This journey begins and ends with your senior management! If they buy into this crusade, you will have half of the battle won.

Your next step is to educate (e.g., posters, newsletters, seminars, etc.) your hospital staff on the cost to your hospital of their waste and inefficiency. For instance, a value analysis manager told us recently that when she was a nurse manager she brought this topic up at every one of her staff meetings with great success.

As your hospital moves from a volume-based to a value-based reimbursement formula, any waste and inefficiency in your hospital operations will cause serious damage to your hospital’s bottom line. Why not lead the charge to proactively eliminate these unnecessary and unwanted costs before they become endemic? Remember, it’s everyone’s job to do so!

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. 

It’s better to know nothing about the product, service or technology you are studying; then can you bring your unbiased deductive powers into play. I can speak from experience, since I’m not a physician, clinician, or biomedical engineer, yet I have successfully performed thousands of value analysis studies that have saved tens of millions of dollars for our clients.

The trick to doing so is to have a value analysis system (ours is called the Value Analysis Funneling™ Process) that leads you to the right value-based decision each and every time. It all begins and ends with functional analysis! You see, you and I don’t need to know anything about the product, service or technology under investigation if we have these three questions answered (using an active verb and a noun) by the customers who use the commodity:

1.     What is the primary function or purpose of the product, …?

2.     What are the secondary functions or what else is it used for?

3.     What are the aesthetic functions or what most call features?

The whole purpose of this exercise, as stated by Larry Miles (the father of value analysis), is “when most people evaluate a product, service (or technology) they only look at the product, service (or technology’s) aesthetics and not its reason for being…FUNCTION”.  Therefore, “The more one understood the function of a product, service (or technology) the more opportunities arise for dramatically reducing the cost of the product, service (or technology) by substituting and/or in some cases eliminating an element of a product, service (or technology) with an equal or better product, service (or technology)”. 

However, you can’t do any of these things until you ask and have the answers to these three questions. For example, the primary function of a paper towel is to DRY HANDS; Secondary Functions: PICKUP SPILLS, CLEAN WINDOWS and CLEAN SURFACES; Aesthetic Functions: COLOR, SIZE, WEIGHT, TEXTURE and CONSTRUCTION. Now that you understand the functions, you can work on substituting or eliminating functions and then searching for lower-cost alternatives.

I like to think of a value analysis coordinator as a facilitator of this functional analysis process. Therefore, they don’t need to be an “expert” in the product, service or technology that they are investigating; they just need to be an “expert” in value analysis. It’s like being a psychiatrist; you don’t need to be ill yourself to help people to get better from their mental health challenges. 

If you want to become an “expert” in value analysis, may I suggest you consider investing in our “Ultimate Value Analysis System” that will teach you a system that is guaranteed to double or even triple your value analysis savings within 90 days.

The answer is value analysis! No…I’m not talking about what most supply chain professionals call value analysis in healthcare today, but the value methodology that has been practiced by the industry for over 72 years: The function-oriented problem solving discipline that wins arguments.

First of all, value analysis is all about words and FAST Diagrams that link words into sentences to develop the full story or winning arguments as Geza Kmetty, Vice President, SAVE International, likes to define it. For instance, we have been working with a client for some time now who had been purchasing a high-priced/feature-rich I.V. catheter which at first review was said to be absolutely required for their patient care. This was the argument that was holding back reducing the cost of this commodity.

What we recommended our client do was to perform their own functional analysis on this I.V. catheter to break this logjam, as shown in figure 1, to define in their own words what their I.V. catheters’ true functional requirements were all about. You will note that some functions are higher level (e.g., deliver fluids) functions than others and should be given more weight in your purchasing decision.

Other functions may have a lesser weight as you probe for evidence of their efficacy, number of times they are required, and their desirability.  In this situation in working with a special value analysis team, our client’s nursing department realized that maybe they didn’t need all of the bells and whistles their current I.V. Catheter offered and opted to change their I.V. Catheter vendor at a savings of over $90,000 annually, using their own functional specifications.

The moral to this story is that if you want to win more arguments, you will need to use words and FAST Diagrams to educate your customers on what they are buying. Most often, they will realize they don’t need everything they are buying now.

The reason for this circumstance is that this function, at most healthcare organizations, has been outsourced to your department heads and managers with disastrous results. We have seen department heads sign purchase service multi-year contracts that have cost their healthcare organization hundreds of thousands of dollars a year, due to benign neglect.  

Other department heads have missed deadlines on contract renewals that roll over for another five years without any renegotiations. There have also been instances when they have committed their hospital to a copier contract that had no cancellation clause.

To stop this train wreck, it is now time for supply chain professionals (as other industries have been doing for years) to step up to the challenge of administering these contracts from start to finish, since there is no other department or division in your hospital, system or IDN that is more qualified to do so. You have the training, discipline, ethics and know-how to rein in your healthcare organization’s multimillion dollar portfolio of purchase service contracts.

I know you will say that you don’t have the time or staff to do so now, but that doesn’t mean you should continue to let these millions of dollars in purchase service contracts be outsourced, with dire consequences, to your department heads and managers. It’s time to put a stop to this abuse!

To get started on this journey, I would suggest that you add up your purchase service annual cost. You will be amazed at how much it is costing you. Then, reduce this number by 11% to 18%! That’s the savings opportunity we are talking about in the first year of implementation of your purchase service contract reduction program. Why leave this money on the table – untouched – when it can be in your healthcare organization’s bank account?

If you would like to know more about this important topic, simply e-mail me at bobpres@strategicva.com and I will send you an electronic copy of my new book “How To Rein In Your Multimillion Dollar Purchase Service Expenses Before They Damage Your Bottom Line”. It is packed full of strategies, tactics and techniques honed over three decades of being in the healthcare cost management trenches. Some say it’s just like a seminar without the travel!

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.

We learned this fact many years ago when we started to help our clients form, organize and train their new or refined value analysis teams. We, like you, were selecting value analysis leaders and members by their title (director of operating room, infection control manager, emergency room managers, etc.) or their influence in the organization (director of nursing, laboratory manager, controller, etc.) only to find that 97% of the time these people were a poor fit for value analysis work.  In essence, we were making our selection by chance or happenstance, hoping that these individuals would be ideal candidates for this highly specialized work.

Fast forward a few years, and we realized, through observation of the most successful value analysis leaders and members, that there were nine attributes that team leaders (motivated, organized, team builder, results oriented, etc.) and team members (organized, analytical thinker, reliable/dependable, enthusiastic, etc.) were absolutely required to have to become outstanding value analysis team leaders and members.

No more guessing! We now had the success formula for selecting value analysis leaders and members, which we have replicated hundreds of times and has proven to be reliable, dependable and almost foolproof. Think about it for a moment, would you select the best employee for a special project based on their title or because of their unique characteristics, attributes and traits to get the work done right the first time? Don’t you think that your value analysis team leaders and members should be selected in the same scientific and thoughtful way – not by chance?

To get you started on the path to a more scientific value analysis team leader and member selection process, I would like to offer you a complimentary copy of our “Guide to Selecting Value Analysis Team Leaders and Members”. Just e-mail us at bobpres@strategicva.com and we will send this important guidebook to you via e-mail within 24 hours.

In this article, Segovis tells us about how Ellis never had enough IV pumps (can you relate this to your healthcare organization?) to meet their patient requirements, so they formed a LEAN team to find out what the real issue was with their IV pumps. The result was that the LEAN team found that their workflow and pump management were the underlying reasons for their nursing staff’s perception that they didn’t have enough pumps.

The answer to this challenge for Ellis was to implement new procedures for managing their IV pumps and to employ a real-time computerized tracking system to locate IV pumps anywhere within their facility. If a nurse needs a pump all she/he needs to do is log into the system to find out where the equipment is located. The bonus of this study was that when the system was fully implemented Ellis realized that they only needed 340 vs. 500 IV pumps, which they now had in official inventory.

As you can see from this case study, value analysis is not just about price and standardization, but encompasses everything that moves and is alive in your healthcare organization. As Segovis mentions in his article, “You can change your technology – but unless you change your process and procedures, the organizational investment won’t automatically result in improvements.”

The definition of “best value” is right price, right product, in the right configuration, delivered and disposed of in the most cost effective and efficient manner. Let’s breakdown these elements that contribute to “best value” to see what they are worth:

• Price (38%): This is the easiest element to identify and control, since your GPO or local contracts make this information readily available.
• Product (37%): If your product, service, or technology is over-specified (higher performance requirements than required) it can increase your cost by a factor of three or more. For example, if you are purchasing a brand name product when a generic is available, you could increase the cost of the product by 50%.    
• Configuration (12%): Feature rich products, services, and technologies fit into this category. If you are standardizing on product features that are only going to be used 20% of the time, you are inflating your cost by 80% for the majority of your customers. I.V. sets are the perfect example of this occurring at most hospitals today.
• Delivery (10%): Automated replenishment systems are among the lowest cost options available to control this cost. Manual systems are the highest cost in this category.
• Disposal (3%): If you aren’t reprocessing, where appropriate, you are inflating your disposal cost unnecessarily. This also applies if you are not sensitive to the over-packaging of some products you are buying.    

Although the percentages cited above are estimates and not gospel, nonetheless they are meant to show the relationships between each of these groupings, and then the opportunities for cost reduction in each of these classifications. They should give you a new starting and end point in your value analysis studies.

This brings me to the main point of this article; if you are just attacking the price at the pump, then you are missing huge savings opportunities in your products, configurations, deliveries, and disposal cost.

While price is important, it pales in comparison to your total cost of acquisitions to disposition of everything you are buying.That’s why price is only 38% of the value equation and the balance of your product, service, and technology cost is 62%. What cost drivers will obtain the best return-on-your-investment if you put them under your value analysis microscope? I’m sure you now know the answer to this question.

Transformational supply chain leaders are increasingly discovering that the best way to lead (40% in a recent AHRMM survey) is to develop their own strategic supply chain plans. This enables these leaders to set the direction of their supply chain department vs. being told what to do by their C-level executives. This is what transformational leaders do: take the initiative, set their own standards and lead by example.

I know this declaration to be true, since one of my jobs as a corporate supply chain system executive was to devise an annual strategic supply chain plan for all my corporation’s owned and managed hospitals. This plan was the driving force for all of the programs, projects and tasks that my division undertook during any given year.

This is also how my C-level executives measured my supply chain department’s performance each and every year. It set the tone, I set the metrics, and I set the pace of what was to be accomplished each year. No one told me what to do or how to do it, since I was expected by my senior management to be the leader of the supply chain management at my healthcare organization. This is the situation you too should strive for at your own hospital, system or IDN: Total control of your supply chain environment!

For example, one of my strategic supply chain goals one year was to take over the laboratory buying from our central laboratory director who had controlled his own purchases for 15 years. This objective not only required me to plan, justify and strategize for this takeover but also to obtain permission from our full-time chairman of the board who established our central laboratory many years ago. The naysayers said it couldn’t done, but through artful strategic supply chain planning I was able to receive permission from my chairman to take over all laboratory purchases for my corporation.

In this era of reform, no longer can supply chain professionals operate their multi-million dollar enterprises on the back of an envelope. Especially today, when there are so many competing priorities for your healthcare organization’s limited time, money and resources.

That’s why transformational supply chain leaders submit their own strategic supply chain plan (I gave a formal live presentation, too) for their C-suite’s approval each and every year.  It’s the only way to have impact, relevancy and input into your healthcare organization’s own strategic planning process. Otherwise, you will be left out in the cold wondering why no one supports supply chain management at your hospital, system or IDN.

Well, now you know that it’s your job as a transformational leader to make sure you obtain the support, technology and resources you need and require to optimize your supply chain department. A strategic supply chain plan is the best vehicle I know of to make this transformation happen. It really is a shortcut to your supply chain success!

To clarify this long-standing issue, here are three important roles that supply chain managers can and should fill on their value analysis teams:

1. Facilitator: Guides their value analysis team as they navigate through their meeting and value analysis process. Listens, observes, and intercedes to ask clarifying questions. Helps to provide direction on managing the team, but doesn’t evaluate or contribute ideas. Simply stated, this role focuses the energy of the team on the common goal of improving quality and safety, and reducing their healthcare organization’s supply chain expenses. 

2. Resource: Generally speaking, this individual is a subject matter expert who has in-depth knowledge of the products, services, and technologies being discussed or studied. For example, an operating room buyer is the perfect candidate for this role on their surgical services value analysis team.

3. Recorder:  All value analysis teams should have a recorder to document the main points of discussion. This role can be easily delegated to a new supply chain employee to give them an orientation into your hospital’s value analysis process.

You will note that I don’t recommend that a supply chain manager’s role be anything other than a facilitator, resource or recorder on their value analysis teams.The reason for this is that value analysis is a customer driven process, not a supply chain process. Value analysis works best when supply chain managers labor on the periphery of their value analysis process, and then let their clinical and non-clinical team members manage your hospitals, systems or IDN’s value analysis process.

One secret to your value analysis success is for supply chain managers to have a light hand on the throttle, yet ensure that the ship is going in the right direction at the right speed and not hitting any turbulence along the way. These three supply chain manager roles will go a long way toward meeting this goal.

It’s just one more pressure on price (inflation being the number one contributor to price increases) that you will be challenged with in 2013. Why?  With few exceptions, medical device manufacturers are public trading companies that must make a profit each and every quarter to maintain their viability in the healthcare marketplace. Already, venture capitalists and investors are moving their dollars elsewhere in anticipation of the effects of the Patient Protection and Affordability Act.

So, do you think these medical device manufacturers will be giving your healthcare organization even deeper discounts in the future?  I don’t think so! They are in a survival mode (e.g., layoffs, retrenching, and selling more out of country) to keep their profits from shrinking even further; big discounts, more rebates, and insider deals are a thing of the past.

Where do we go from here? As we have been preaching for 16 years, the in-use cost (material, labor and resources) employed to deliver, maintain and utilize the products, services and technology that your hospital, system or IDN is buying is where your huge savings reside, not in price at the pump. You need to redirect your savings initiatives to these in-use costs. This is what progressive supply chain professionals are doing…now! They aren’t waiting for their price savings to collapse, erode or be ground down completely.

Even your bosses (CEOs, CFOs, COOs, etc.) get this in-use cost concept.  A recent study by Healthleaders Media stated that 68% or two-thirds of the respondents to their Cost Containment Survey “were achieving cost efficiencies using continuous improvement techniques, a discipline that fosters process optimization”, as opposed to continuing to just reduce their staffing, which they have found to be counterproductive.

Don’t get me wrong here; price is still a cost driver that must be controlled at all cost.  However, your return-on-investment in time, energy, and resources to do so will be minimal to marginal in the future. On the other hand, your ROI on utilization management initiatives can be as high as 27:1. This should give you pause when you acknowledge that your ROIs on your price initiatives can be as low as 1:1 or 2:1.

The world of healthcare supply chain management is changing rapidly. No longer is price and utilization management just something you might consider in the future. Utilization management is the future of supply chain expense management, especially now that your manufacturers have no more price concessions to give your hospital, system or IDNs, and inflation is raising its ugly head again!

1. Recycling:  Hospitals use tons of paper, plastic, glass, and metals annually in their day to day operations. By recycling vs. discarding this unwanted refuse, your facility can save tens of thousands of dollars yearly. Years past, I was deeply involved in recycling all of these materials as one of my supply chain functions. It saved my hospital thousands of dollars annually, so don’t think it is someone else’s job.
2. Single-Use-Devices:  The hesitation to reprocess pulse oximeters, compression sleeves, catheters, etc., is usually a decision driven by your medical staff. However, since there isn’t a medically legal reason not to do so, I would obtain a list from your reprocessor on the hospitals in your locale that are doing so. This can bolster your argument that this is a best practice at hundreds of hospitals and even teaching hospitals nationally. Don’t let these savings slip away from you due to misunderstandings by your medical staff about the efficacy of this practice. 
3. Value Mismatches:  This is where lower cost products, services, or technologies aren’t being employed by your hospital. Instead, a higher cost (usually feature rich) commodity is being purchased when a lower cost functional equivalent is available. In simpler terms, hospitals aren’t buying enough “generics” vs. brand name products. By doing so, your hospital can shave as much as 50% off your routine purchases. Isn’t it time you investigate these alternatives?
4. Electricity:  Electric costs run about 1 to 3 percent of your  hospital’s operating budget, but have been a frequently overlooked source of savings. A small investment in lighting upgrades, occupancy sensors and computerized controls could result in tens of thousands of dollars in cost reductions. This seems to be a no-brainer to me.
5. Water: Millions of gallons of water flow through your facility yearly for hand washing, bathing, flushing, etc. This needs to be minimized, starting with low flow faucets and toilets. If your facility can’t make these changes overnight, they surely can make these upgrades as your sinks and toilets are replaced over time.

Recycling, utilization, energy, and water conservations are now becoming a supply chain imperative. For instance, two of our supply chain clients are now negotiating natural gas contracts with third parties to reduce their hospitals’ energy cost. This brings home the fact that conservation of your hospital’s resources is not just some other department’s job; it is everybody’s job in your healthcare organization because if you waste less, you save more.

1. Expand your savings scope – Most supply chain professionals have ignored their purchase services as savings targets because they believe it isn’t their area of responsibility. However, if you don’t take responsibility for these cost drivers, who will?  Conversely, supply chain managers who have moved into this category of purchase have savings, on average, of 11% to 18%.  For instance, one of our clients has saved in excess of half a million dollars on their food service contract. Another has saved $123,998 on their telecommunication spend. Can you see that this is a vast wasteland of savings for your healthcare organization? Don’t ignore these purchase service savings opportunities any longer, if you are to meet or exceed your savings targets for this fiscal year.
2. Benchmark your pricing – We see that it isn’t a universal practice to benchmark a healthcare organization’s supply expense pricing at least quarterly. When we perform this PriceCheck service for our clients, we uncover at least 1%, 2% or 3% in new price savings for them. So if you aren’t benchmarking your pricing, I can guarantee you that you are missing hundreds of thousands of dollars in new price savings you don’t know about. Don’t let these savings slip through your fingers. Trust, but verify that you are receiving the best pricing available for your healthcare organization. It could make the difference in you getting your bonus this fiscal year!  
3. Tap into your utilization savings – More and more healthcare organizations are getting it; utilization savings are real, vast and obtainable. One of our clients is now on target to save $85,000 on their oxisensors because they had been underutilizing their recycling program.  Another has saved $90,292 on their floor gloves because of a huge value mismatch in its formulary. This is where your gold mine is hidden in your supply streams. Don’t take my word for it; just ask your nurses and doctors if money can be saved through better utilization of the products, services and technology you are buying. I’m sure their answers will surprise you!

Well, there you have it, three surefire ways to ensure that you won’t be risking your bonus this fiscal year. Nonetheless, you can’t just depend on your GPO price savings to do the job for you. You must expand your scope, benchmark your pricing, and then tap into your utilization savings, if you are going meet or exceed your savings goals each and every year.It’s just common sense when you think about it!

1) Don’t fuss with the small stuff: We have observed supply chain professionals spending an inordinate amount of time to save a few thousand dollars on suture trays, while ignoring hundreds of thousands of dollars in savings (e.g., stents, oxisensors, or endomechanicals) in their supply spend. When asked why they are doing this, they tell us that these “small ball” savings are in their comfort zone; easy to achieve, less risky, and they are good at it!

While these “small ball” savings add up over time, they will never take the place of hundred-thousand-dollar hits that will truly have a positive effect on your healthcare organization’s bottom line. So don’t fuss with the small stuff when you have millions of dollars of savings just waiting to be realized at your healthcare organization.  

2) Don’t reinvent the wheel: Often times we see healthcare value analysis practitioners searching for weeks to uncover breakthrough savings on commodity groups that have an annual spend of under $25,000. Even if these individuals can save 10% on these commodities, it’s not worth their time and effort to save $2,500.       

The best way to address these low-volume products, services, and technologies is not to reinvent the wheel, but to obtain the best GPO pricing available on the suitable product, service or technology, and then forget about them. Your time is too valuable to get caught up in the time-consuming process of being best in class for commodities that have no affect whatsoever on your healthcare organization’s bottom line. 

3)  Don’t fall in love with trivia: It could take you months to locate that special oblong, sideways, thumbed, screwed stopcock that was requested by your anesthesia department, or you could turn this job over to one of your suppliers who will locate it within a few days. This was my tactic for years and it helped me to get rid of all those oddball requests that were eating into my limited time.

This should be your tactic too! Don’t get bogged down researching special requests, or as I like to call it “trivia”, when there are dozens of high value savings targets that you should be working on. Running down these oddities might be fun to do, but it will limit the time available to you for more important work.

It’s easy for us to get trapped in the “small ball” game, or things that we feel comfortable with, bring us gratification, and show some results. We must avoid this temptation at all cost, if we are to play in the supply chain big leagues where no one wins the World Series by playing “small ball”. We must always have our eye on the big picture!

For instance, how would you know if you were reprocessing the optimal number of pulse oxisensors if you didn’t have a power tool* to automatically calculate and then benchmark your reprocessing patterns and practices? How would you know that your emergency room wasn’t reprocessing their oxisensors at all or worst yet, were using high cost pediatric oxisensors on all their patients?  That’s what the next generation supply chain power tool can do for you.

I was just talking to a supply chain professional the other day who shares my point of view that having the right supply chain power tools can make your supply chain job a whole lot easier. He told me that he had been trying to use his surgical services information system (SSIS) to identify variations in his physician’s practices but couldn’t obtain accurate information to compare his physician’s protocols. He was hoping that our dashboard could sort out many of the questions he had about how his physician practices, since his legacy system couldn’t get the job done.     

The point of this story is that high price legacy information systems are too cumbersome and unwieldy to quickly hone in on the things that are most important to supply chain professionals. That’s why you need more than one power tool in your supply chain toolbox to assist you in answering your questions. Remember: Bigger isn’t always better!

It’s the same with our software business; our programmers employ many “off-the-shelf” power tools to get their programing jobs done. Yes, they could spend days or even weeks writing programs to do the same work, but why waste their time and money when someone else has already solved a particular problem that was bothersome?

Supply chain professionals should have this same attitude. If your legacy information systems aren’t getting the job done for you on price, standardization and utilization, then you owe it to yourself and your healthcare organization to seek out the appropriate power tools that will give you the answers you have been searching for to reduce your supply chain expenses.  It only makes good sense to do so!

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(*) If you are interested in seeing how this reprocessing power tool works, just send me an e-mail at bobpres@strategicva.com and I will promptly schedule a demo for you. You will be amazed at how easily it can save you thousands, maybe even hundreds of thousands of dollars a year.   

Yes, a title does make a difference in how you are perceived by your senior management, peers and suppliers. For instance, a recent study by CAPs Research shows that 70 percent of industrial supply chain managers carry the title of vice president, while only 16% have the title of director.

Of note, 43 percent of these CSCOs hold undergraduate degrees, 53% master’s degrees and 3 percent doctorates. The most popular degree is accounting for 44 percent of the respondents. The study mentions that, “The popularity of the MBA degree reinforces the broad nature of (CSCO) decisions and the necessity of understanding strategic and other considerations for total company performance.”

Since healthcare generally follows most industrial trends, these statistics should be a real eye opener for you. They also provide you with valuable insight into the evolving titles of CSCOs in other industries. I personally have observed more healthcare CSCOs carrying the title of vice president, but not enough to be statistically relevant.

Since healthcare CSCO’s are responsible for their hospital, system or IDN’s second largest expenses (non-labor) it only makes sense that you have the appropriate title that is commensurate with your responsibilities. Make sure you fight for the suitable title at your next job interview/negotiations or bring up the subject at your next meeting with your boss.

You will be surprised how easy it is to get a new title if you don’t tie it directly to a salary increase or a promotion. Giving away titles is cheap and easy for your senior management, even though their importance is tantamount to an increase in your prestige, power and respect.

This advice is vital for all supply chain professionals, even if you aren’t a CSCO. Make sure your title is representative of your importance to your healthcare organization. Don’t accept the title of facilitator or coordinator if you are really directing the activities of your function (e.g. value analysis, sourcing or inventory).

Make sure your title corresponds with your responsibilities especially if your job involves setting deadlines and targets for your business unit. All you need to do is ask for a change of title and the chances of getting it are almost assured. I have done this dozens of times, so I speak from experience.  Titles change; maybe it’s time for yours to change too!

1) Do you have a hospital department or manager as your value analysis team leader?

It is becoming a best practice to have department heads or managers lead value analysis teams. Why? They don’t have the stigma (price vs. quality thinking) of a supply chain officer presiding over a value analysis team and they can relate much better to their members’ challenges (time, money and resources) at a higher level.

2) Do you have an administrative champion assigned to your value analysis team(s)?

It has been proven that having an administrative champion (Vice President or above) assigned to your value analysis team(s) to guide, council and oversee your VA teams’ activities, is one of the most powerful techniques for keeping your VA teams on the straight and narrow path to success. This missing ingredient is one of the reasons most value analysis teams don’t meet their full potential.

3) Do you have value analysis sub-teams working on your VA projects?

Too often, value analysis team members take on projects without creating a sub-team of customers, stakeholders and experts to guide them through their value analysis projects.  Without this formal sub-team structure in place, value analysis projects tend to be subjective vs. objective and quickly lose their credibility. 

4) Do you have a 90-day time line for the completion of all of your VA projects?

We often talk about putting time limits on your value analysis projects, or they will have a tendency to go on forever. We have found that a 90-day time line is sufficient time to complete 97% of your value analysis projects. The other 3% will need one additional 90-day cycle to finish off their projects. Why would you want to have your value analysis projects continue any longer than these time lines?

If your value analysis team(s) is to reach its full potential, it will need organization, structure, and rules to keep them on track, on budget and on time. These four questions that test the effectiveness of your hospital’s value analysis team(s) performance are a good starting point to evaluate the state of your own value analysis team(s) maturity, growth and organization style. How does it stack up?

Well, that time has arrived if you are honest with yourself, since we have been squeezing our suppliers to their limits and almost all of the ripe fruit has been picked from our vineyards. If you still aren’t convinced of this fact, here are three universal truths about price savings that you need to be aware of:

1) Nothing is forever…unless you are oblivious to the obvious

Your GPOs are running out of new commodity contracts to offer to their members. More importantly, they are also running out of new contract savings. Most GPOs are anticipating an inflation rate of 2.9% for 2013. From my perspective, GPOs are just churning old contract dollars and then signing renewals that have a higher price tag than their replacement contract. While I can sympathize with your GPOs dilemma (price savings slowly disappearing), how can you, now that you know the salient facts, depend solely on price savings from your GPOs to keep your savings machine humming?

2) You can only squeeze so much juice out of an orange

There are literally hundreds of regional GPOs and purchasing alliances popping up around the country that are sponsored, managed or promoted by national GPOs to wring the last purchasing dollars out of a healthcare organization’s supply chain spend. Their committed volume philosophy works in practice, since suppliers will sharpen their pencils if they know with certainty they will be awarded hundreds of thousands of dollars in new business for one, two or three years if their price is right. The flip side of the coin is that universally, these consortiums start off with new savings for their members on their new committed volume contracts, but within a year or two they find that their savings opportunities shrink to next to nothing.

3) It’s just like paint, once the can is empty…it’s empty

I often see GPOs offering special savings programs in selected supply categories (e.g., patient bed side kits, can liners, chart paper, etc.) that project one-time savings in the range of 5%, 8%, 10% or even 24% for participating members. While there is nothing wrong with special savings offers, it clearly demonstrates my point that price savings are slowly disappearing, and now GPOs are nibbling around the edges to squeeze out new savings for their members.

There is an answer to this dilemma! Price savings are only the tip of the iceberg, representing 1%, 2% or 3% — at best — in new savings opportunities for your healthcare organization annually. While on the other hand, utilization savings or 79% of all new savings available to your healthcare organization is just below the water line. 

These new and better savings represent 7% to 15% in supply and purchasing service savings that are just waiting to be harvested. Don’t wait until your savings dry up all together before turning to the third most powerful source of supply chain savings – utilization – before it hurts your healthcare organization’s bottom line.

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(*) This article is an excerpt from my e-booklet “The 7 Most Dangerous Myths About Price Savings”. If you would like a copy for your supply chain library, e-mail me at bobpres@strategicva.com and I will quickly e-mail a copy to you.

The reason for this phenomenon is that too often supply chain professionals aren’t effectively communicating the value of their supply value analysis program to their executive management team and peers.  Here are four ways to do so that will get these individuals’ attention:  

1. Newsletter:  The best way we know to communicate the important activities and successes of your supply value analysis program is with a monthly newsletter. It doesn’t need to be fancy, but it does need to show how your value analysis team(s) has improved the finances, quality and safety of your healthcare organization.
2. Storyboard:  Many of our clients have placed their value analysis success stories on storyboards in their doctors’ lounge, near their cafeteria entrance and in their hospital’s lobbies. This tactic gets their message out that value analysis is all about solving problems to make their staffs’ job easier and more productive.
3. Monthly Report:  If you aren’t detailing the savings and successes of your supply value analysis program in your monthly management report to your direct report, you are missing an opportunity to shine a light on these activities. Raw savings numbers aren’t enough; you must highlight your success stories just like you would if you are writing a novel.
4. Seminar:  On an annual basis, you need to conduct a hospital-wide seminar (invite all management, physicians and staff) to review your past year’s successes, answer questions and then give a preview of the coming year’s projects. Make sure you also ask for ideas for improving your supply value analysis program.

There you have it, four ideas to effectively communicate the value of your value analysis program. If you select any one of them to implement, I can assure you that you will experience a whole lot more recognition for your supply value analysis program than you are receiving now. It all comes down to finding multiple ways to get your message out. You need to communicate the fact that value analysis is not only valuable but also essential for your healthcare organization if it is to survive in this new era of reform. 

In fact, there are many noted economists who believe that inflation could heat up at an even greater pace with the Federal Reserve’s plans to stimulate the economy with billions of dollars of mortgage bonds buybacks.        

What this means to supply chain managers is that if you aren’t beating the rate of inflation each and every year with your savings initiatives, you aren’t saving any money for your hospital. The easiest way to determine this factor is to divide your total non-salary spend (i.e., annual savings percentage = supplies + purchase services/annual spend) by your annual savings.

When we perform this same calculation on the data that we see, we find that most hospitals, systems and IDNs are in the range of 1%, 2% or 3%. This isn’t enough for these healthcare organizations to beat the commodities’ inflation rates each year. This savings rate is especially concerning, since your hospital’s labor cost inflation rate is hovering at about 1.9% annually.  You do the math (2.9% + 1.9% = 4.8%) and you can see that inflation is a big challenge for your hospital in any given year.

Oh, I forgot to mention that your hospital’s reimbursement rates from all parties aren’t coming close to your hospital’s inflation rate (4.8%) each year. That’s why price savings alone won’t get you over this hump. You will need to find new sources of savings, such as, utilization management, which can yield an additional 7% to 15% for your healthcare organization. To ignore this new savings source can do irreparable damage to your hospital’s bottom line.

The reason I’m writing about this topic this week, as we close out 2012, is that we often don’t look at the impact that inflation has on our healthcare organization’s survival. For this reason, we recommend to our clients that their savings goal every year should be to meet or exceed the annual national market price inflation rate (e.g. 2.9% for 2013).

Remember, the first step in solving a problem is to define it; inflation is our enemy and we must always be on the attack. Keep this in mind when you are asked to budget your savings for 2013 and beyond. 

1. Projects Completed:  This is a number that often differs from your agenda of items being reviewed, since they drop off your project schedule for various reasons (e.g., inertial, neglect, rejection or omission), which needs to be tracked to ensure the integrity of your VA process.
2. Time to Compete: This is critical to the speed, agility and timeliness of your VA program. If it is taking your team members more than 90 days to complete their projects, this could be a symptom that they have lost their motivation or have too many other duties that are conflicting with your VA program. 
3. Rejected Projects: This is a key indicator of the effectiveness of your VA program. If you have more rejections than approvals it is time to reevaluate what is causing these denials. 
4. Projected vs. Actual Savings: It’s one thing to project savings, it’s another to have actually saved them. That’s why there must be follow up by your project managers to verify the savings and document that the savings has in fact been achieved. You will find that there will be a big difference between these two numbers. 

If you are looking to move your value analysis teams to the next level of performance, then you will need to measure, manage and control your outcomes differently. These four new measurements will go a long way to achieving that goal.  Remember: What is measured happens!

1. Is the function or service mission critical? Would the failure of a function, service, or system put you out of business for a day, week or month? If you decide that the risk of this failure is too high, you would then need to insource this function, service or system. For instance, the failure of your sterilization service for even one day would put your operating room and clinics out of business. However, if your concierge car park service didn’t show up even for a week your business would go on as usual. Can you see by asking this question how it can make your outsourcing or insourcing decision very easy?
2. Are the savings worth the effort to change? If your savings are projected to be 2%, 3% or even 5%, maybe the cost of change isn’t worth it. Every change has its hidden cost in time, labor and resource to effect the change which I estimate to be 9% to 12% depending on the level of difficulty to make the change.
3. Can you improve your costs to match an outsource  provider? I find that in many situations a healthcare organization can match or improve an outsource provider’s cost if they reengineer what they are doing. In many cases, an outsource provider can easily save you money because your operations are wasteful and inefficient. Sometimes however, all it takes is hiring a new manager to reinvent what you have been doing to match their cost. 
4. Will the service quality be better than your current scorecard? I have actually contracted with outsource companies, over the years, that had a worse service quality scorecard than my prior in-house department or service. Don’t take the contractor’s word that they can do a better job than you can. Verify and scrutinize every claim that they make to ensure that their service quality will actually be better than your own track record!

By consistently asking these four strategic questions, as you are deciding to outsource or insource a function, service or system, you can be assured that you are making the right decision for your healthcare organization. It isn’t as hard as you might think!

An easy way to remember the LifeCycle formula is “The sum of the purchase price plus the subsequent costs of ownership over the life of the product, service or technology.”  The actual mathematical formal is LCC=C+M+E+R-S.   If you were performing a LifeCyle Analysis of an I.V. Pump with a five-year life here’s what it would look like in general terms:

It then would be your job to fill in the cost of the LCC=C+M+E+R-S formula for your I.V. pump exercise. Typically, a LifeCycle analysis is performed prior to purchasing new pumps and during the first year of their operation to determine your actual ROI on your purchase.

I personally used this exercise to determine the “best value” on all of my big ticket capital equipment by comparing each vendor total cost offering to another. This was because as a general rule the cheapest commodity (or best purchase price) too often isn’t the most cost effective option over the life of the purchase.

I bring this topic up in our blog this week, since I’m not sure that the total cost of ownership (or LifeCycle cost) analysis is being employed routinely by supply chain professionals to identify their lower cost alternatives in the products, services and technologies they are buying.

So if you are looking for a better way to drive down your total cost of ownership in all categories of purchase, which is what supply chain management is all about, I can’t think of a better tool to have in your toolbox than LifeCycle analysis.  Keep this in mind the next time you are looking to maximize your cost management efforts by as much as three-fold. 

Here is a six-point checklist that you can apply as a test to determine where your hospital’s value analysis team or teams fall on this continuum:

• Trailblazers: Always ready to take on new challenges or to go where no value analysis team has gone before. Ready, willing and able to tackle tough categories like lab reference testing, telecommunication or food service contracts.
• Self-Starters: Don’t need to be told how to approach a value analysis study.  They have already developed, as a team, a repeatable VA process to follow up on each and every value analysis investigation that they are assigned.
• Committed: They are committed to the philosophy of value analysis as a tool for the survival of their healthcare organizations. As such, they attend every VA meeting, welcome change, give the time necessary to their VA projects and don’t shortcut the process.
• Enthusiastic:  Enjoy their VA meetings, promote the benefits of VA throughout their healthcare organizations and encourage their colleagues to change their habits and behaviors for the betterment of their hospital.
• Fearless:  Not afraid to give their opinion on any VA topic, or to challenge department heads’ and managers’ thinking about the waste and inefficiencies in their supply streams. Ready to stand their ground, when required, to obtain the savings or quality gains that have been identified in their value analysis process.
• Cooperative: Always ready to help a team member, colleague or customer work through their value analysis challenges to reach the finish line.  Does more than required with an accommodating attitude.

I would recommend that you employ a scale of 1 to 10 (10 being the highest rating) to rate your own value analysis team or teams’ effectiveness against these characteristics. If you fall below a rating of eight in any category it is time to question if you have the right team members on your value analysis team with the suitable characteristics.

Based on our experience, your VA team’s effectiveness will only be as good as your team members’ individualities or positive qualities. If you leave your VA team member selection to chance, you will quickly discover that you will never have the right mix of constructive characteristics to make your value analysis team or teams as effective as they can or should be. 

The take away here is don’t select your team members in haste, without specific selection criteria or haphazardly. Otherwise, you will pay the price of mediocrity down the road. Don’t fall into this trap!

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. 

First off, “quality” is definable and measurable on any hospital product, service or technology you are buying. It is a myth to believe that this intangible called “quality” can’t be qualified and quantified. This feat is accomplished by defining the functions (primary, secondary and aesthetic) that your healthcare organizations customers absolutely require to providing reliable performance in the products, services and technologies they are requesting.

Performance is the key word in this definition, since this is where you qualified and quantified the “quality” aspects of your customer’s specifications. For instance, if your surgeons need tactile sensitivity (aesthetic function) in their surgeon’s gloves to perform their surgery you can actually qualify and quantify (e.g., 0.18mm thinness) as to how much sensitivity they need based on trials with your surgeons. 

Since the accepted definition of “quality” is conformance to requirements, all you need to do to ensure quality outcomes with your surgeon’s gloves is maintain their thickness at 0.18mm. Any greater thinness in your gloves will be a waste of money. That’s where the hidden savings is in your supply streams – over specification! 

Now, I know that I have given you a highly technical explanation on how to define “quality” in the products, services and technologies that you are buying. Some will even consider this description to be overkill and a waste of time.

Let me counsel you that this attitude would be an oversimplification of this age-old problem, since your clinicians will continue to win the “quality” wars at healthcare organizations if you don’t qualify and quantify their exact requirements.

It’s the only way I know of, based on measurement, for supply chain professionals to push back on your clinicians’ obvious misrepresentation of what “quality” is all about which is conformance to requirements.  Don’t let them have the upper hand in this battle!

This is an obvious next step in any benchmarking “gap analysis”, but how many hospitals, systems, or IDNs are actually taking the time, and effort to travel to their peer’s location to understand what makes their peers performance better than them?

This is a crucial step in your benchmarking process since what your peers tell you they are doing in their e-mails, phone calls or surveys is only part of the story. Nothing substitutes for seeing a best practice yourself, since there are nuances to every best practice that can’t be described in texts, phone conversations or surveys.

For instance, I wasn’t sure that automated supply dispensing cabinets were a cost effective best practice until I saw it myself, asked questions about how the system operated and then read a confidential cost analysis that showed that my client had saved 3.2 FTEs after fully installing their supply cabinets. You can’t get this type of sensitive information on the phone.

That’s why healthcare supply chain consultants are known as “walking benchmarks” because they have the opportunity to visit hundreds of hospitals, systems and IDNs in their career and then compare and contrast supply chain best practices. We know this to be true, since this is how we obtain our best practice ideas that we share with our clients.

However, you too can replicate a consultant’s knowledge by performing “site visits” to your best-in-class peers to uncover why they have reached superior performance in the areas you are investigating.

Yes, it will cost you some time, money and effort to do so. Yet, the reward for your labors will quickly translate into savings and/or process improvements that will be worth your due diligence.

I once sat through a value analysis team meeting where their team members were evaluating Posted Notes®, instead of researching why their hospital’s office supply expense per employee was double that of their peers. Or, I’ve seen VA teams spend their whole VA meeting discussing the suitability of new $3.48 I.V. set when they should have been performing a functional analysis on the $129,342 in the family of products that made up this hospital’s category of purchase.

Too often it seems that we get caught up in the weeds of supply expense cost management and then lose our focus on the big picture. We focus our expense reduction efforts on one product, service or technology and then ignore the tens of thousands of dollars of purchases in this same category of purchase, which we call “family of products, services or technology”.

What we teach in our advanced value analysis training programs is that when you decide to evaluate a product, service or technology (for any reason) you need to also evaluate its “family of products, services or technology”.  Why? This is where your big savings reside, not in one standalone product, service or technology. 

At best, the savings on Posted Notes® is 4% or about $250.00 annually for most hospitals. The equivalent time, effort and resources could have been better utilized to save 30% on your family of office supplies or $27,000 annually. You can apply this same philosophy (e.g., focus on the big picture and save big) to any of your categories of purchase (e.g., reagents, pacemakers, electrodes, decubitus care, etc.) to optimize your savings.

So, if you want to systematize your savings efforts vs. randomizing them, focus on your family of products, services and technologies and then you will be rewarded with hundreds of thousands of dollars of savings as opposed the meager savings you are generating now by evaluating one product, service or technology at a time.

Of note, some of the hundreds of seminars and workshops being offered by ISM that could and should relate to the healthcare marketplace are: purchase service contracts, legal aspects of supply chain management, price analysis, the customer focused supply chain, demand management, performance management, talent management, sourcing and supplier relationships, project management and outsourcing decision. 

The reason I’m bring up this topic is that most of the healthcare supply chain breakthrough ideas (spend management, just-in-time, analytics, RFID, etc.) have come from other industries. That’s why you should benchmark what other industries are doing.  It will keep you on top of your supply chain game!

One technique that I employ to benchmark other industries is to join their associations. For instance, I’m an associate member of ISM and SAVE International. At one time in my career, I was an active member of the Purchasing Association of Delaware where I was Vice President, and where I rubbed elbows and picked the brains of some of the leading industrial supply chain managers (e.g., DuPont, Hercules, and Vulcan) in the country.

I also read four industrial magazines a month, scan a handful of industry books annually and subscribe to the Wall Street Journal and Business Week. This gives me a window into what’s happening in other industries that I can apply to the healthcare marketplace. 

I hope you get my point here!  If you want to be the best of the best in healthcare supply chain management, then you need to immerse yourself in other industries’ best practices. This is because healthcare doesn’t have a corner on the most current supply chain management ideas.

Let me repeat, most innovative supply chain ideas come from other industries, not healthcare. So keep your eye on what other industries are doing and you will always be on top of your supply chain game. 

Just as important, your suppliers’ cost for transportation, energy, plastics, cotton, etc. (or 80% of what you buy for your hospital) is at an all-time high, so who do you think your suppliers are going to pass this cost along to?  Yes, you got that right – YOU!

This stark reality just set in to a major teaching hospital client of ours who is scrambling to find more savings in their orthopedic and spinal implants, but even after benchmarking his cost and bidding his implants by employing our value analysis analytics he only shaved a few percent off his implant prices. By the way, this client belongs to two GPOs and still can’t obtain better prices even with his own custom contracts.

Then the next day I talked to another client of ours who is the Vice President of Purchasing for a six-hospital system who is racking his brain to get better prices for his hospitals. A challenge he never had before.  He always could find a new and better price on any commodity he was purchasing.  You might say that he has “Hit the wall on savings.”

What does this mean to you?  If you think that your price savings are limitless, infinite and inexhaustible then you are in denial of the facts that I just shared with you. Yet, there is good news in this state of affairs if you look beyond price and then take a quantum leap forward to utilization management where the savings are never ending and right in front of your eyes, ready to be harvested.

I invite you to read the rest of this story in our new special report   “Strategic Supply Utilization Management: Unlocking the Secrets to Extraordinary and Sustainable Savings Success”. I promise you that it will open a whole new world of savings for you beyond price and standardization. Why wait until your well runs dry, act now to fill up your reservoir with new and even better savings opportunities for your healthcare organization.

One thing I learned early on in my consulting career was to challenge TRADITION.  If a department head said they had a procedure in place because of a state or federal regulation, I asked to see the directive. Nine out of ten times when I read the ruling it didn’t mandate that the department head follow the rule exactly the way they interpreted it.

I just observed this same thing happening recently, when the Joint Commission made a public statement that they didn’t mandate that all hospitals have comprehensive vendor credentialing for all their suppliers. All the Joint Commission was concerned about was sales reps working in hospital operating rooms with your surgeons who weren’t qualified to do so. These is how TRADITIONS get embedded in any healthcare organization, but are these TRADITIONS still required, necessary or mandated in the 21^st century?

This is why supply chain professionals can’t assume, accept or take for granted anything as fact until they have observed it with their own eyes and then validated the practice. This is how I came to question why a hospital we were working with was sending their attending physicians X-rays of their patients as a courtesy.   No one could tell me why they did it except to say, “We have always done it that way”.  Or, why another hospital client was giving away $37,000 worth of infant car seats annually to their discharged maternity patients. None of this made sense to me or to their hospital management when I brought it to their attention.

So as you can see, challenging TRADITION should be written into every supply chain professional’s job description, because it is one of best ways to uncover waste and inefficiency in your supply streams. To accept anything your healthcare organization is doing because “We have always done it that way” without challenging its legitimacy is a recipe for flagrant and blatant waste of time, money and resources.

Your goal in value analysis should be to discover breakthrough solutions to your challenges, not recycling other healthcare organizations’ one-size-fits-all answers to the problems you are facing.

This tendency to duplicate other hospitals, systems and IDN’s best practices is particularly acute with physician preference items where the industry best practice is to sign contracts with “capitated” pricing on your cardiovascular implants. While this best practice will drop your pricing significantly at first, it also gives rise for your surgeons to implant more pacemakers and defibrillators at the high end of your price list which will quickly negate any savings you have achieved through capitation.  Does this seem like a breakthrough savings idea to you?

If we understand that value analysis isn’t about price, but it is all about functional analysis, you then can move away from quick fix industrial best practices to obtain more information to make better cost effective decisions as well as generate new ideas to enable you to change old habits and passé attitudes of customers. Isn’t that what we are all looking for with our value analysis processes?

We have found that by following a value analysis process of discovery (i.e., starting with a blank piece of paper) with your customers you can change your customer’s behavior without them feeling like you are criticizing them. This just happened recently when we showed one of our customers, with our value analysis analytics, that they were buying one of the highest cost feature-rich I.V. products available to them. Once our customer saw this irrefutable fact, they immediately changed their behavior and searched out a lower cost alternative to what they were buying. This is how you have breakthrough results; not by searching for more industry best practices!

That’s why value analysis best practices are stupid!  It requires you to apply a one-size-fits-all approach to your supply cost expense management, when no healthcare organization is the same. Only your hospital, system or IDN can determine what fits your organization best.  This “best fit” begins with your value analysis “discovery” process that is essential for you to uncover the right solutions to your supply expense cost management challenges. Quick fix industry best practices will only lead you away from what’s best for your healthcare organization.  Don’t go down most traveled road if you are looking for breakthrough savings and quality outcomes even, if it seems the shortest route to savings. It is really an illusion!

While this might seem like common sense to most of us, then why is it so hard for supply chain leaders to ask for help especially since no one can be an expert in everything they do?  Some might say it’s our independent streak that causes us as leaders not to ask for help or fear of rejection, or worse yet, fear of reveal our shortcomings. I know most of us have these negative feelings when we ask for help, but do you see how counterproductive this behavior can be?

I personally have made it a habit to ask for advice, guidance and support from my bosses, peers and employees in my supply chain career since I found it took a lot of stress and worry out of my decision making. For instance, I once asked the President of a hospital where I worked how would I know if one of my managers is telling the truth about his job performance.  My boss told me that you “Look at the fruit that the tree bares: Good fruit – good manager; bad fruit – bad manager.”

This was some of the best advice I ever received on managing, but I wouldn’t have gotten it unless I asked for his help. Even in my personal life, I’m always asking my friends what is the best way to do some home project I’m working on, since I’m not a “handyman”. Guess what, they just love to tell me the best way to do things because everyone loves to give advice and be respected for their opinion.

The key to asking for advice, guidance and counsel is remembering that everyone you know or work with is willing, able and pleased to help you make better decisions, avoid pitfalls and grow your career.  All you need to do is to ask them for help and they will readily give it.

Finally, be sure to thank them for helping you. To get it right, Khel recommends his “Three Thanks Rule” that expresses your gratitude three times: “When the transaction is struck, when the aid has been given and when you next see that person who helped you.” Now, doesn’t this discussion make you feel better about asking for help?

1. Don’t look for 100% consensus: It’s almost impossible to   obtain 100% consensus from your clinicians on anything.  Instead, establish a new rule that 70 to 80 percent approval  on any matter being discussed is good enough to move forward with a PPI initiative.  Also, if a VA team member isn’t present when a decision is made they then must defer their votes to the majority. No longer can we delay, for any reason, these important mission critical decisions or we will lose our momentum.  

2. Don’t make recommendations on PPI items: By this I mean, provide data to your physicians in a format they have agreed to then let them decide what the next steps will be in their evaluations. For example, if you are looking at pacemakers, ask your physicians how they would like the data to be presented: by manufacturer, by physician, with or without benchmarks, etc. This way you put your physicians in the driver’s seat where they can make decisions as physician leaders. This is how physicians are trained to make decisions, so why not make it easier for them to make decisions in your favor.

3. Only engage physicians who want to work with you: Every physician isn’t going to buy in to your PPI initiatives, so save yourself time, effort and frustration by accepting this fact as a reality. Only work with the physicians who will champion your PPI efforts (especially younger doctors) and who will give you the time, dedication and commitment you will need to make change happen.  

About 40% of a healthcare organization’s supply budget in some way reflects the cost of your PPI items.  That’s why it is vital for hospitals, systems and IDNs to keep pushing forward to drive down these costs. Hopefully, these three powerful techniques will give you some new ideas to keep up the good fight that every healthcare organization is facing because cost is our enemy and therefore we must always be on the attack.

To this end, supply chain professionals need to have a sustainable pipeline of savings opportunities flowing at all times that will provide relief to our healthcare organization’s bottom line. Most hospital, systems and IDN’s bottom lines, as you know, have taken a major hit in these challenging economic times.

With this in mind, we thought you would be interested in knowing the following three big strategies to create a sustainable savings pipeline for your healthcare organization:

1. Buy or Build Systems that Deliver Savings Opportunities Without Fail – Let’s face it, you need to have a full pipeline, now and in the future, to deliver savings opportunities to your VA Teams in order for them to achieve continuous savings. 

For instance, if your VA Team is studying a product with a $1,500 annual spend when they should be searching for $150,000 in savings opportunities then I would say they are on the wrong track. That’s why you need a system to uncover your next level of savings. The best system we know of to do so is an activity-based costing system that can be visualized with a dashboard system. 

Further, you need your system to deliver savings opportunities on-demand.  As a CFO client said to me recently, as we reviewed his supply utilization dashboard, “I like having this system in place because it always tells me things that I was not even thinking about.”   He says that he often gets busy and is pulled in many different directions but he likes that his system is there 100% of the time and then ready to deliver valuable supply expense savings opportunities on-demand.

2. Avoid One-Dimensional Thinking – What happens in the supply chain world is that we, as supply chain managers, tend to focus too much of our time on one or two areas of supply chain management and not enough on others.  This is because we are proficient and comfortable in one or two of these supply chain areas (e.g. price, standardization, contracts, utilization or inventory management) and we tend to ignore savings opportunities in other major supply expense areas.  

This reminds me of a large IDN that we were giving a presentation to who had a special relationship with their medical/surgical distributor.  The distributor was providing this IDN with an inventory management system that they just loved.  In our presentation on utilization management, the prospect related everything we were showing them back to this inventory management system and missed the point of our demonstration. 

We could clearly see that this IDN was proficient in inventory management, but they still were not addressing all of their pricing, standardization and utilization management strategies effectively.  Their overconfidence in one area of their operations was causing them to leave “Big Dollars” on the table since they couldn’t see past their inventory proficiencies.   The lesson here is that we need to broaden our scope when it comes to supply chain savings and include all of the areas that would provide savings opportunities.

3. Enlist Your Staff in Frontline Savings Ideas – Just the other day I stopped by my local hospital’s cafeteria while visiting a family member when I spied a special bulletin board that showed the results of a year-long “Supply Savings Employee Suggestion Program.”   It listed all the savings opportunities achieved by the employees, who recommended the savings, and also the incentive bonus they received for their ideas.  

To my surprise, there were over 50 savings ideas on the bulletin board. This was a big win for this healthcare organization!  The bulletin board showed the three top recommendations that saved this hospital $135K, $78K and $54K in annual savings and these employees received $1,000 bonuses for their suggestions. 

My point here is, don’t ignore the value of an employee suggestion program, but make sure you plan and deploy it properly with your senior management team’s support. As you can see, it can deliver savings that you may never have thought was there in the first place.  It’s like found money in your sofa or old pants pockets!

Simply put, it’s time that we focus our supply chain efforts on the development, enhancement or refinement of our supply chain expense management systems to ensure that we are capturing all the supply expense savings opportunities that are available to your hospital, system or IDN.  You should be aware that without a rock solid system in place to provide you with a sustainable savings pipeline your saving machine will come to a screeching halt!  Could you afford for this to happen?

For instance, every client that employs our Utilizer® Dashboard automatically tracks the following savings metrics in their savings tracker module: Projected Savings, Approved Savings, Implemented Savings, Cost Avoidance and Rejected Savings. What these clients have found is that the next best metric to their implemented savings measurement is their “rejected savings” column.

Why? Because once this metric goes beyond $100,000 in rejections it gets your senior management’s attention. I remember one value analysis steering committee meeting that the chairperson questioned why their system’s IT manager had rejected $127,322 in projected telecommunications savings.  Since the IT manager didn’t have a good enough reason for this rejection, the project was reassigned by the chairperson to a value analysis team to revisit this savings opportunity. Guess what, the second time around this savings opportunity was implemented, even though it was rejected out of hand the first time around. 

This breakthrough savings wouldn’t have happened, if this client didn’t first record their savings rejections and then share this same metric with their senior management. It’s a relatively simple technique that can help you break up your savings logjams that will save you tens of thousands of dollars each and every year. Don’t underestimate the persuasive power of this best practice to up your savings game!

What we mean by this statement is that your new role as a supply chain professional is to optimize your hospital, system or IDN’s overall supply chain performance, in which price, time, and place are just three of four basic elements. You now need to also focus your attention on the forth element: the total cost of acquisition to disposition.

This is because most healthcare organizations have mastered the price, time and place components of supply performance management, yet have left the door open to excesses in their supply streams when it comes to optimizing their total cost of acquisition to disposition. This is where your biggest savings and quality gains reside today!

A good example of this would be how healthcare organizations are ignoring their in-use cost on the contrast media consumption, since they feel confident that they have a competitive price, have standardized on one product and are receiving double-digit rebates. However, most hospitals don’t realize that they could be wasting 9%, 13% or even 19% more in contrast media because of other inappropriate and wasteful practices.

As you can see, even if you are at the top tier of your GPO’s contrast media contract you can’t afford to be losing thousands of dollars a year in this category of purchase through wasteful and inefficient practices. With these ineffective practices you are negating your price, standardization and rebate’s cost advantage.

That’s why supply chain performance metrics and monitoring are mission critical, since every dollar you save in price could be lost almost instantaneously through wasteful and inefficient consumption, misuse, misapplication, misappropriation or value mismatches in your supply streams.  

So, if you want to hold on to the savings and quality gains you have already achieved, don’t ignore the fourth basic element in your “Supply Savings Triangle” that now has even more relevance and importance in the new healthcare economy than ever before. 

With this idea in mind, I thought it would be helpful to our readers to have a “Supply utilization management checklist” to navigate through the complexity of the supply utilization management methodology to get it right the first time.  Here is short check list to get you started on this journey to new and better savings:

• What supplies/services are increasing at a double-digit rate?   
• When was the last time you shadowed your customers to determine their exact functional requirements for a product?
• Are you tracking and trending the in use total cost of your   products, services and technologies quarterly/annually?
• Are you benchmarking your utilization with peer hospitals?
• Are you controlling variations in product usage versus demand
• Is your value analysis team(s) focused on utilization or just price?
• Are you mapping your value streams to detect waste and   inefficiencies in your supply expenses?       

As I mentioned, this short checklist is meant to jump start your utilization management investigations to uncover those wasteful practices that are costing your healthcare organization 7% to 15% in new savings. It’s my hope that you will add to this list as you, too, identify those things that contribute to utilization misalignments at your hospital, system or IDN.  That’s how you simplify the complexity of your utilization methodology: Checklists. This simple tool will then give you surprising power to master this new supply chain discipline.

The reason for this phenomenon is that healthcare processes and practices haven’t changed much over the last two decades. Although the technology that is employed by hospitals today has automated many of the manual tasks and chores clinical and support staff performs, hospitals are still doing the same thing in the same ways as that they have done for years. That’s why this productivity statistic is so glaring!

There are two answers to this challenge for supply chain professionals that we would like to share with you now. The first is to know your high performers and then do everything you can to retain them. And then recruit like individuals to fill your supply chain staffing requirements. This might seem like common sense but the record shows that supply chain departments, for the most part, don’t go that extra mile to find the best of the best candidates for the positions they are filling.  This takes time and effort to get this right!

We remember one supply chain manager that upon being hired assessed his staff and found it wanting. He immediately set out to replace all of his staff through attrition to maximize his supply chain performance.  By the time we made acquaintance with this individual he had successfully replaced about half his staff over a three-year period and thereby increase his productivity by 10-fold.  This is the attitude you, too, need in order to boost your productivity and performance.

The second answer is to radically redesign your supply chain operations, and not to just nibble around the edges. The best example of this redesign effort we have observed is the trend of hospitals and systems forming supply chain regional service centers to perform all of their warehousing, manufacturering, purchasing and logistics operations under one roof.   This then enables these healthcare organizations to drive down their supply chain cost to the bare minimum because of the economy of scale of these super-sized operations. You should consider joining or creating one of these service centers in your region to boost your supply chain performance if you aren’t a member already.

So the ugly truth is out, healthcare organizations are the least productive of almost any industry. Therefore, it is time we rethink everything we are doing in our supply chain (e.g., staffing, productivity, human performance and processes) to lead the way in restructuring our supply chain operations to be more effective and efficient. It’s the only way we know of to boost your productivity and human potential to get ready for healthcare reform that is on the way.

Specifically, team members concerns are how can they influence others in the healthcare organization to change their practices when they lack authority to do so? After all, most of the people they are trying to influence are either their peers or upper management.

We consider this challenge so important a topic that we have a section in our LEAN Value Analysis Training Program that covers this topic in detail, since we know that it can be a real impediment to making change happen at your hospital. 

Here’s five tactics for your team members that will win respect, and cultivate influence and cooperation from your peers and upper management and that are essential for hospital value analysis team members to master:

·         Establish credibility by being prepared

o   If you have done your homework (interviews, shadow your customers and functional analysis) then you will have a leg up on your peers or upper management who really haven’t thought about how their practices are costing your hospital money, time or waste.

·         Use your power base to persuade others

o   Get your value analysis administrative champion engaged in helping you to persuade your department heads and managers that a change is needed. There is no rule that says you need to    go it alone.

·         Sell benefits vs. features to implement lasting change

o   Too often we tend to sell features (e.g. better, faster or cheaper)  then benefits (e.g., make your job easier, give you more time for other tasks or reduce your infection rate), which is really what your customers really care about.  Don’t skimp on benefits!

·         Project self-confidence without being pushy

o   If you visit with a customer and your demeanor is meek, humble and fidgety, they aren’t going to have much confidence in what you are proposing. However, if you are confident, self-assured     and poised when selling your proposition you have a better chance of succeeding in your mission — without being pushy. 

·         Negotiate from a position of strength

o   If your research has been faultless, your timing is right and you offer alternatives in your saving proposal, you have a good chance of negotiating a solution that meets your needs and your customer’s needs wants and desires too.

It is said that value analysis team members aren’t given power, but have the right to obtain it by leveraging the power and influence that they already have at their disposal. 

So the next time one of your value analysis team members says they don’t have the authority to make change, just remind them of the five essentials for gaining power, influence and cooperation.

And then monitor that they are employing one or more of these tactics to get results without authority from their peers and upper management.  You will be amazed at how they will get better results than ever before

It has been said that “great customer service begins with being employee focused first and customer focused second.  If you treat your employees well, they will treat their customers well.”  Unfortunately, too often healthcare organizations expend their energy on great customer service, but ignore their employees who serve their customers.

With this in mind, here are five great customer service tips that you need to keep in mind that were developed by Jon Gordon, an author and speaker:

·         If you want your team to serve, serve them.

·         If you want your people to care, care about them.

·         If you want your team to love their work, love them.

·         If you want your employees to be their best, give them your best.

·         If you take care of your people, they will take care of your customers.

We all want to be seen as great supply chain leaders, but a servant leader is a new kind of leader that not only takes care of their employees, but in doing so takes care of their customers. Over the next few years’ customer service will be the hallmark of great healthcare organizations, and healthcare supply chain managers can easily align with this philosophy by becoming a servant leader who sees their job as focusing on their employees first, and then their customers second. It is a winning formula for success in the new healthcare economy. 

So, why hasn’t this frame of mind taken hold in your C-Suite and department heads now that your hospital’s revenues are being squeezed from all quarters?  The simple answer is that they are “disconnected from reality” because most healthcare organizations haven’t had to act like a state regulated utility until the last few years.

Yes, that’s what healthcare is becoming a regulated marketplace where the regulators call the shots, not your healthcare organizations.

Unfortunately, your C-Suite and department heads haven’t gotten the e-mail yet to wake them up to this new reality in healthcare.

I remember having the same challenge when I worked as a consultant with bankrupt hospitals.  These hospital’s C-Suite and department heads couldn’t understand why they couldn’t continue business as usual under bankruptcy. I had to keep asking the question “who was going to pay for this widget, service or technology” since we only had enough money for the essentials: food, drugs and general supplies.

We see this same attitude today with hospital’s C-Suites and department heads: They think it is business as usual when in fact, all hospitals are seeing their revenues shrink, even university teaching hospitals. We believe the only way supply chain managers can change this mentality is to investigate the reimbursement they are receiving from their third parties, and then present these facts to your C-Suite or department heads.  

This was just the case last year when we worked with a rehab hospital whose supply chain staff was spending 15 to 20 hours a week on patient charge administration (labeling of products and reconciliation of charges), when upon investigation it was discovered that their hospital was receiving per diem rates from their third parties. Therefore, the time spent by their supply chain staff on this activity wasn’t reimbursable!  Naturally, the hospital discontinued this activity.

Do you see the logic here!  If you can show your C-Suite and department heads that your hospital isn’t being reimbursed in full for what you are buying or doing, this is can become a powerful motivator for your C-Suite or department heads to change their behavior.  In time, I predict this will be a best practice at all hospitals, but in the interim use your reimbursement as leverage to change your C-Suite and department heads hearts and minds. It is mission critical that you do so!

Just last week I was discussing with a hospital supply chain director how he could use a supply dashboard to triangulate his savings metrics (cost per patient day, supply cost/operating cost and supply cost/net revenues) to determine with certainty the supply savings that were available to his hospital.  If this director had to do these calculations manually, it would take a village to keep them up to date in real-time.

That’s the beauty of a hospital supply dashboard. All of your calculations, performance indicators, and metrics are automatically done for you.  Such as:

More importantly, nothing is hidden from your view.  If your physician preference items cost are spiking you will know it with two clicks of your mouse.  If you want to track budgeted vs. actual savings on a commodity to safeguard that the savings really hits your bottom line, that’s an easy chore for a supply dashboard to monitor. Or, you want to know where all of your utilization savings reside, one simple to understand module will tell you the tail of the tape. You name it, or require it and it can be monitored, tracked and fine-tuned!

So, if you are worrying, fretting or disquieted by not knowing if all of your supply chain operations are under control or need tweaking, a supply dashboard is the answer to this challenge. Some might say that it is not just a nice thing to have, but a “must have” in the complex world of supply chain management we find ourselves in today. 

This is what happens when you drill a well and then expect it to pump black gold for 50 years or more.  Sooner or later your well will run dry and you need to drill new holes to find more black gold. Or better yet, discover even better sources of riches to stay ahead of fluctuations in the marketplace.  This mindset is also the secret to staying ahead the hospital savings game!

This has been the strategy of multi-billionaire T. Boone Pickens, who for decades has changed his focus, redirected his resources and realigned his tactics when his wells had reached their peak. Pickens made his fortune as an oil wildcatter forming a company in 1954, called Mesa Petroleum, to drill for oil. When he believed that oil had reached its peak in 2001, he invested in windmill farms, on which unfortunately he lost millions since the demand and the infrastructure to deliver his windmill energy never materialized.  Undeterred, Pickens now is investing in natural gas fields in British Colombia and along the Mexico border. As Pickens sees it, natural gas is the best option to fill our domestic energy needs and also to line his pockets with gold.

This is why Pickens is a multi-billionaire; he never waits until his wells run dry, wind farms market to collapse, or other investments to decline before he is off and running to the next big thing in the energy marketplace to replace his dwindling resources and keep him on top of the hill.   

Do you see how this concept relates to saving money: You can never stay with just one strategy; tactic or savings source if you are to stay ahead in the saving’s game. Just like Pickens you need to keep moving your money and resources to the next big thing to stay ahead of the curve. From my prospective one such new source is utilization management.

If you aren’t tapping into this new and better way to save money for your healthcare organization then you risk all of your current sources of savings drying up over the next few years. Why not take a page out of Pickens’ playbook and move to the next big thing supply utilization management which will give you unexploited savings for many many years to come. 

Unfortunately, there is a tendency in value analysis circles today to say “YES” too often to get along by going along because of the pressure they feel to acquiesce rather than taking a stand. We see this with our Utilizer® Dashboard service; hospitals, systems and IDN increasing their SKU’s each quarter by as much as 25% by buying new products, services and technology. We can’t think of any other industry that adds that many products, services and technologies, in just one quarter, to their supply chain formulary.

What we need to ask ourselves is who is really driving these requests?  Is it our department heads and managers who have unmet requirements or is it our sales reps who need new sales every quarter? 

In fact, one of the phenomena we are witnessing is that sales reps are moving their customers up their product line to more expensive products, when their basic offering is adequate to meet the hospital’s functional requirements.  

Just recently, we observed that one sales rep fixed a quality problem on one of their electrodes by moving our client to one of their higher priced electrodes. This isn’t an anomaly, but a trend we are seeing as manufacturers are looking for new ways to obtain even higher margins on GPO contracts.

Our basic rule that we recommend to our clients for approving new purchase requests is that if a product, service or technology can’t  be proven, with irrefutable evidence, to increase your savings or quality (it can be measured) by as much as 5%, 8% or 10% then you shouldn’t even  be considering it for purchase. Or, if you have a new or emerging technology request that you have never used before, are you going to be reimbursed for it? Why else would you purchase it!

The whole purpose of this article is to get you thinking about how often your value analysis teams are saying “NO” to new products, service and technology requests.  If your team’s batting average is 500 or more, then you are saying “YES” too often and you need to rein in your approvals. 

Better yet, freeze all of your purchases and then only approve emergency purchases — going forward. This will quickly stem the tide of the avalanche of requests you have been receiving to a trickle. This may seem harsh, but tough times require bold and hard-hitting measures for your healthcare organization to survive and thrive in the new healthcare economy! 

I predict this will be the “new normal” (more NO’s than YES’s to purchase requests) in healthcare supply chain management circles in just a few years. If you have a counter point, we would like to hear it?

Case in point!  We see hospitals reporting savings on stents, pacemakers and other medical devices to the tune of hundreds of thousands of dollars, but when they track their actual savings on their supply dashboard they soon realize that only 23%, 26%, or 37% of the project savings actually hit their hospital’s bottom line.

How could this happen?  Well, typically assumptions were made on their previous year’s purchases that may or may not materialize.  We have seen hospitals make huge strides by capitating their pacemakers and orthopedics implants believing that this would drive down their costs by double-digits. However, an interesting trend we are seeing in hospitals who are tracking these savings with their supply dashboard was that their surgeons saw this change in pricing as a license to start inserting the highest price pacemakers and/or hip and knee implants in their hospital’s formulary. Naturally, this skewed their savings projections that had been estimated at the beginning and end of their initiative.

Or, a hospital’s implementation (e.g. communications, training and follow up) of a lower cost alternative product, service or technology is so disjointed that their cost actually goes up, not down. This doesn’t even take into account the always present “unintended consequences” of any change that you make in your supply streams. One of our clients found when they uncovered that their emergency department was using neonatal Oxisensors instead of adult.  This unknowingly occurred when they changed manufacturers and increased their ED’s budget unnecessarily by $19,454 annually. And this hospital only spent $49K annually on Oxisensors to begin with!

By the way, we also see many reported savings that are understated.  Meaning, your supply chain department has saved more than you projected and didn’t receive credit for this windfall since you aren’t tracking the savings you have reported. Don’t let this happen to you!

So as you can see, savings aren’t savings until they hit your bottom line, you are deceiving yourself to believe otherwise.  There can be a myriad of reasons why savings that you have projected just don’t happen as planned. That’s why it is undeniably important for your supply chain department’s credibility, integrity and trustworthiness for you to report your savings on a monthly, quarterly and annual basis and then make adjustments (up or down) for each period as your savings actual shows up on your supply dashboard.

Ignore this advice at your own peril, since your senior management will sooner or later figure out that the savings you have been reporting to them for years isn’t really hitting their bottom line.  You don’t want to have this conversation with them, because you will lose your standing and trust with them – forevermore!

If you want to have employees that are dedicated, punctual, enthusiastic, hardworking and accurate in their work then you, too, need to display these attributes and characteristics in your day-to-day interaction with them.  What they see in your behavior, will be easier for them to emulate since you taught them what the proper conduct looks like. 

We all have had a lot of bosses in our work lives and I’m sure you can remember how they influenced your own behavior. If they were punctual for meetings, then you were punctual. If they were sticklers with grammar, then you did everything not to make grammatical mistakes when sending them a memo. And so on and so forth…

One boss of mine, a hospital administrator at a Children’s Hospital, was a retired English Colonel who had been stationed in India and he always lead by example. He was prim, proper, and extremely courteous and had a very heavy English accent. One time we both went to one of our nursing floors to measure for new shelving. When we got to the location he asked me for my tape measure, which I never carried with me.  He then said in a disdainful voice “a supply chain manager without a tape measure, well I never heard of such a thing”.  Well, you can imagine how embarrassed I was and from that day forward I never left home without my tape measure. I will never forget that lesson!

Albert Einstein, once said that “Example is another way to teach, it is the only way to teach”, since it shows the way things are done. It gives you a clear understanding of what is being asked of you since you see it exhibited in others’ behaviors.  Therefore, don’t miss every opportunity to teach your employees by example, and then they will know what you expected of them and what it looks like when they actually meet your expectation.  It’s the only way to teach and have it stick!

It’s actually a very simple communication tool, which is often neglected or given short shrift in the hustle and bustle of everyday supply chain management. 

I won’t keep you in suspense any longer it is an agenda, but with a few twists that will keep your value analysis teams on time, on budget and on target for many years to come. Agendas are generally thought of as a list or outline of things to be considered or done in a meeting, but they can be much more than this if you decide that they are designed to be “action-oriented” vs. passive.

By this I mean that every agenda item you place on your agenda must require an action (i.e., approved, rejected or investigate) not just discussion. This way you can institutionalize this best practice of making decisions quickly as opposed to discussing topics ad infinitum.

This rule goes for follow up agenda items too! You should have a comment section on your agenda showing the action you expect on the follow up item, such as, Julie to observe IV starts and then report back at the July 12^th Value Analysis team meeting on the effectiveness of the securement device now in use. Never, ever, leave anything to chance, interpretation or uncertainty on your agendas and you won’t be disappointed with the results.

As an aside, we see too many hospitals using their Value Analysis meeting agendas to communicate new supply chain policies, procedures or dictums, which isn’t what a hospital value analysis team is all about.  Value Analysis is all about saving money and improving quality – that’s all! If you need to communicate to your customers about hospital supply chain issues, then you need to find another vehicle (e.g., newsletters, e-mails, memos, etc.) to do so.

You will also need to set time limits on the discussion on each agenda item to keep your value analysis meeting moving. We all have been in VA meetings where the team leader only gets through one, two or three agenda items (out of 12) because the conversation has been dominated by one or two individuals who eat up value time with their opinions. This is impossible to do if you have a time limit on each agenda item.  For instance, the first agenda item could have an eight minute time limit, the second five minutes, third 12 minutes, based on their importance and relevance of topic. Then your total agenda items should add up to a one-hour time limit for the meeting overall.

Lastly, don’t allow any Value Analysis Team Member bring up a topic that is not on the agenda.  It will throw your team off their VA game and lead them in another direction that hasn’t been vetted, scrutinized or approved to be on the agenda. More importantly, it will chew up valuable time you have set aside for other burning issues on today’s agendas.

So as you can see, an agenda can be “action-oriented” and that will bring you closer to your Value Analysis Committee/Team Meeting goals or a passive, unstructured and unmanaged document that will just frustrate all of your attendees and drag out your Value Analysis Committee/Team Meetings endlessly. So take a tip from me; agendas can work overtime for you, but only if they are “action-oriented”.

Yet, what we have observed is that most value analysis teams don’t do very well is “team maintenance” or the care and feeding of their people, processes and performance. This is taking the time to periodically look at the big picture to ensure that your value analysis team is meeting their stated vision, mission, goals and objectives to make sure that their team members are fully engaged in their VA process. And to be hyper observant and aware how your VA team members feel, act and do. 

I remember a few years back when we was coaching a cardiology value analysis team that I noticed that this VA team couldn’t make decisions, even on the simplest product choice. After some investigation we discovered that the team members were afraid to criticize their peers or make decisions on products that would change their department’s formulary thereby offending someone. Once we and the team’s administrative champion were aware of this dysfunctional behavior we reshuffled this team’s membership to cancel out this unwanted conduct.

In a nutshell, team maintenance comes down to this “if no attention is paid to how team members are feeling, (acting and doing) many will eventually lose interest and either slow down or leave (your VA team)”, which is the observation of John Syer and Christopher Connolly, the authors of “How Teams Work: The Dynamics of Effective Team Development”. 

To keep this behavior (and other forms of it) that I just described from happening with your VA team, team leaders should be unceasingly be asking your team members these team maintenance questions:

·         What’s your opinion on this topic?

·         How do you feel right now?

·         What is it that you actually noticed?

·         What precisely did you notice about the meeting?

·         How did you feel about the meeting?

·         What if anything, would you like to change?

Just as important, team leaders need to be there, even when it hurts. By this I mean that if a team member isn’t doing his or her work then you need to face this fact, not run from it. Team discipline requires that, you as a leader, either fix this problem or it will only get worse.

The unsalable fact is that value analysis teams don’t get better or progress to the next level of performance by accident! They are nurtured, motivated and guided to do so by their team leaders. In fact, I have never seen an outstanding value analysis team that didn’t have an exceptional team leader. The two go together hand in hand!

The idea is that “Many of us expect – consciously or subconsciously – to be able to go through a day and accomplish what we have planned. As a result, when some unexpected challenge comes up, we’re frustrated. We see people essentially as interruptions. We view change as the enemy. Our peace and happiness are a function of whether or not we’re about to make it through that day and check off everything on this list.”

The reality of life and business is that things do change – sometimes unexpectedly. When you see them as a new adventure or a new challenge instead of a roadblock, hazard or interruption they will not create frustrations for you.   

For instance, supply chain professionals propose dozens of savings ideas to resistant department heads and managers during any given year that aren’t accepted.  This can really be frustrating, if your expectation was that they should enthusiastically support and agree to your proposals.  The reality is that we should expect resistance to our savings proposals and then look for a third-alternative (or another way to look at the problem) solution to meet our customers’ exact requirements to move our savings proposal to the finish line.

Unmet expectations create frustration, but when you realize that our expectations are within our control if we base them on the realities of the situation, we will be much happier and productive individuals. The best way to do so is to examine our expectations when we feel frustrated to determine if they were reality-based, achievable and accurate.  This way we will see the opportunity in our frustration, as opposed to only the problem which will only lead to more frustration. 

When I was a corporate supply chain manager of a large IDN I can remember receiving calls from my division CEOs either to congratulate me on lowering their supply expenses or to ask me why a particular cost account had increased unexpectedly. I knew I had to always be on the offensive to make sure that I was keeping my CEOs supply expenses budgets in balance or they would call me on it!

Since my natural inclination was to keep lowering my IDN’s supply expenses these calls didn’t make me confident or faze me, but instead motivated me to do an even better job in the future. As such, we were one of the first IDNs in the nation to have our own GPO, system-wide value analysis program and we started to focus on utilization. I like to call this approach attacking the “Supply Expense Triangle” (i.e., price, standardization and utilization) all at one time!

Mind you, this was when nobody was thinking about utilization management, but we were, since we understood that it didn’t matter if we had the best prices or had 97% standardization, if the products, services and technology we were buying were misused, misapplied, misappropriated or were a value mismatch we weren’t doing everything we possibly could to keep our supply cost in balance.

Fast forward to the 21^st century, and this concept of focusing all of your efforts on the “Supply Expense Triangle” has become even more important than ever before.  In fact, it is mission critical for healthcare organizations to have a full-court press on all their supply chain expenses, not just price and standardization.

That’s why I believe that the best defense is a good offense! This way you will never become complacent, comfortable or satisfied with yesterday’s successes. But instead, you will forge ahead with new and even better supply chain expense initiatives, and I hope, with a renewed emphasis on utilization management where your big double-digit savings are just waiting to be harvested.  Then you will have a real upper hand on all of your supply chain expenses, not just price and standardization. 

Jobs went on further to say that’s why Apple went to great lengths to hire the best people in the world and boy does it pay off. I don’t think I need to explain to you the big payoff for Apple of only hiring the best of the best, since you probably own one or two of their high tech products and just love them. That’s why they are king of the hill when it comes to electronics!

I know when I read what Jobs said about hiring only the best of the best, it hit me like a thunder bolt that he was 100% right with his assumptions. That this wasn’t theory he was talking about, but a fact of life that if you hire the best vs. an average supply chain employee you would solve most of your supply chain management challenges.

So why don’t we hire the best of the best employees?  I know from our own personal experience that it is usually because we have accepted “average” as our hiring standard instead of investing more time and money to track down the best of the best candidates available at the time.  Usually, this means finding someone that isn’t looking for a job at the time we are into our job search, but would be a perfect fit for our firm.

We have helped many search firms, over the years, search out the best of the best candidates for their clients, since they asked us who would be the best candidate for the job they need to fill. That’s how successful professional search firms track down the best of the best candidates for their clients. They ask others what they think! Why should we in the supply chain business do differently in our job searches?

To this end, I would suggest that the next time you need to fill a position that you do the same thing as a professional search firm would do in their searches vs. depending solely on your HR department to come up with the best candidates for you.

Here’s how! You and your employees should call their colleagues at other hospitals or even other businesses to ask who they believe would be the best of the best individuals for your job opening. Then call these individuals to see if they would be interested in interviewing for your open position.  Yes, it might take a little more time and money to do so, but as Jobs has said “Boy does it payoff” in the long run! 

By definition supply utilization management is “the management and control of products, services and technology’s consumption, application and use to ensure that they are being employed in the most efficient and cost effective manner”  In short, it’s all about your in-use cost!

For example, if your usage of isolation gowns is double that of your peers (adjusted for your census and weighted for intensity*), then you have a utilization misalignment in your supply streams that needs to be addressed. The reason for this utilization misalignment could be the price you are paying for your gown, product selection (i.e., over-specification) of your gown or misuse and misapplication of your gown. 

Why this should be important to you is that utilization misalignments drain your hospital’s budget of much needed cash.  If you are using too much of any commodity, for any reason, it can quickly deplete any savings you are achieving on price or standardization in other areas of your supply chain operations. It is insidious and counterproductive to leave these utilization misalignments continue to leave huge leaks in your supply streams.

Conversely, utilization management typically isn’t about price at the pump, but how much mileage (or consumption) you are getting per gallon of gasoline (or per use). If you are using 10x as much of any given product, service or technology than your peers, that commodity is actually costing 10x more than it should be.  No matter how good your price is on a commodity, it won’t compensate for the waste and inefficiency in your supply streams that are causing you to lose money. 

The basic idea behind utilization management is that while price is important, your in-use cost is the only true measurement of your supply chain expense management success.  If you have utilization misalignments in your supply streams, which all hospitals do, then your total cost of acquisition to disposition will be higher than your peers.

Once you understand this concept and internalize it, you will not only seek out the best price available for the products, services and technology that you are buying, but will jump to investigate why your total cost for a given commodity is costing your hospital more than your peer group.  Then and only then, can you have total control over your supply chain expenses, which begins and ends with utilization management.

(*) Our clients have found that the easiest way to identify their utilization misalignments is with our Utilizer® Dashboard. If you would like a no cost – no obligation “test drive” just sign up for one at www.utilizerdashboard.com.  

I have generally followed this tenet in my business and personal life, since I hate to deal with the same problem over and over again. It’s just irritating and counterproductive for me to do so. To illustrate, one nagging problem that I had to deal with when I was a supply chain manager was that my SPD department was always being accused of shorting our operating room on instruments in the procedure packs. My SPD department and the operating room staff were constantly arguing over this issue which created a lot of hard feelings. There had to be a solution to this problem!

After reviewing this troublesome problem with our SPD staff we decided to put a packing slip in our procedure packs, signed off by the technician that pulled the pack, so there could be no confusion on what instruments were being delivered to our operating room. If we missed an instrument the operating room reported this fact to us. We also then counted all instruments coming back from the operating room against our packing slips to identify missing instruments. We then reported missing instruments to the operating room, so they could search for them. Now we had a communication vehicle to solve this problem once and for all instead of letting it fester and then become a crisis.

This is just one example of how solving a problem vs. putting a
Band-Aid on it can permanently remove glitches in our supply chain systems.  Yes, it does take a little longer to work on a solution to a problem than a quick fix, but the benefit is that you will never need to deal with this same problem again.  Isn’t it worth the time to do so? 

Holmes was perceptive, analytical and persistent! He never gave up on a case; even if it took him years to solve the mystery or crime. His most powerful tool was questions and then some more questions until he got to the real truth. He would spend hours at the scene of a crime and at his forensic lab analyzing fibers, clothing and even cigar ashes to come up with clues that would lead him to the criminal who perpetrated the crime. He left nothing to chance or happenstance; his consulting practice was always 100% evidenced-based.

These attributes are not only the stock and trade of a great detective like Holmes, but are a prerequisite for a value analysis practitioner. These value analysis super sleuths employ their analytical and questioning skills to uncover why a product, service or technology has been classified as a utilization misalignment.

They question clinicians, managers or department heads on how they are utilizing the product, service or technology. They visit the scene of the transgression and then observe how the product, service or technology is being used by caregivers and/or hospital staff to determine why their cost or quality is out of line with their peers.

They search and adhere to evidence-based practices before adding any new product, service or technology to their hospital’s formulary. No department head or manager would dare request a new commodity without first providing data to support their case that it will reduce cost or improve quality by a substantial amount. No free cards here!

In principle and practice, a value analysis practitioner is a consulting detective, just like Holmes for their hospital, system or IDN. They therefore ensure that all products, services and technology purchases are appropriate for their intended use and are utilized efficiently and effectively after they are bought. That’s what being a great value analysis strategist is all about! 

Too often supply chain executives shy away from these conflicts and misalignments, but handling constituent politics is the key to your success in the new healthcare economy.  As we move from the notion that it’s OK for some clinicians, surgeons, and department heads that are politically connected to buy almost anything they want, to an era when all constituents must be accountable for what they buy, these silos must be broken down.

If your senior management won’t support you in these “breaking down silos” efforts, then you must take on this challenge yourself or risk becoming irrelevant.  One way I have found to be very effective in doing this was to build personal relationships with these politically connected constituents by getting on committees (e.g, infection control, surgical, capital, etc.) that they chaired or on which they were members.  This way I could interact with them as a peer and then relate to them as individuals. These interactions enabled me to get them to answer my phone calls or schedule appointments to discuss burning issues.

The second way I was able to breakdown silos was to appoint these individuals to value analysis teams, where they had to value justify their purchases to their peers. I remember one IT director who tried to stand his ground on a questionable software purchase, and who had to give in to the majority rule when he couldn’t figure out a reason why he shouldn’t bid this purchase.  There is nothing like peer pressure to breakdown silos.

Lastly, another way I found that works to smooth the road is to appoint these individuals as team leaders on value analysis teams. One time we did this with a director of surgery who wasn’t keen on our PPI initiative, and who turned out to be one of the biggest supporters of our value analysis program.  Why?  Because he called the shots and was in control of his destiny!

What I just talked about is a reality at every healthcare organization in the country.  Every hospital, system and IDN has their silos that are holding back progress because these constituencies believe they have all of the answers. Our job as supply chain executives is to breakdown and chip away at these silos until they are permanently removed.

If your senior management won’t help remove these obstacles to your success, don’t believe for a moment that this same management still won’t hold you accountable for the cost and quality issues that are being blocked by these politically connected individuals.  Be proactive vs. reactive to avoid this unpleasant “Catch 22” scenario that could be coming your way!   

The following is a five-step approach that we employ to help to make our client’s value analysis studies simple, yet highly effective:

1. What am I trying to accomplish: How will you know where you are going with your value analysis studies if you don’t identify your goals and objectives — up front?  One of the biggest mistakes value analysis practitioners make is not asking themselves:

1. How much savings am I looking to achieve?
2. What is the scope of the study?  (e.g., department-wide, organization-Wide, system-wide, etc.?)
3. What are my quality goals, if any?

Just asking these simple questions will make what you are trying to accomplish much clearer to you, and your boss. More importantly, it will make it crystal clear to the clinicians or department heads, who will be working with you on your study, what the goals and objectives are.  Lastly, you will also know, with certainty, when your study is completed, because you would have met your goals and objectives.

2. Triage/Assess your study: Every time I work on a  value analysis study myself or with a client, using the data that I have in hand at the moment, I try to triage/assess exactly what my strategy or approach will be for this value analysis study, such as:

1. Is this price/contract related?
2. Is it a utilization misalignment
3. Is it a value mismatch?
4. Is the product or service feature rich?
5. Is there waste or inefficiency in its value streams?

Having an idea of what type of opportunity you are looking for will save time and help you shape the type of data that you will need to collect and then analyze. 

3. Identify all the key players as soon as possible: It’s critical that you know the constituencies (or players) you are dealing with right up front, rather than to miss a key customer or stakeholder down the road.  Additionally, I always like to search out my internal expert, who knows the most about this product or service, to educate me on how this product or service is used at their organization.

4. Collect specific data: Based on your initial assessment you should know what type of specific data you will need to collect (e.g., price, utilization, inventory issues, etc.) for your value analysis study.  However, you don’t want to collect too much data that is irrelevant or it will only slow down your study.  It will also, over time, burn out the sources for your data (internal or external) who won’t be able to keep up with your requests.

5. Keep it simple: The most accomplished value analysis practitioners can handle dozens of value analysis studies at one time because they “keep it simple” by sticking to their goals and objectives. They understand that they may be leaving a few dollars on the table untouched, but they also know that they are saving hundreds of thousands of dollars annually by keeping their value analysis studies simple, manageable and timely.

So there you have it, a five-step approach to simplifying, speeding up, and streamlining your value analysis studies. You might even call it a checklist to ensure that you aren’t taking the long road to success, but are instead taking a shortcut.  Why make your value analysis job any harder than it needs to be: Keep it simple, with even better outcomes!

For the other 20% of price increases including your GPO contracts, your value analysis team should initiate a cost containment project to seek out an alternate product, service or source, even if it is a sole source vendor. This is because your third-party reimbursement for your hospital isn’t even keeping pace with the inflation rate for any given year. If you want to have a healthy bottom line, your hospital, system or IDN can’t survive if you accept price increases, even as small as one-percent, from your suppliers.

This is the philosophy of COSTCO, who is probably the best in the nation at holding the price line on their products.  Just a year ago, the price of bananas went sky high, so COSTCO found a new source that brought their price into line. They didn’t accept that there was no alternative and you shouldn’t either! 

For sole-source products, your value analysis teams must look at the utilization of these products or services.  Since, from our experience, 9 out of 10 times you can reduce your utilization cost (by thousands of dollars a year) by better managing your in-use cost. This would allow you to accept a reasonable price increase from your supplier, but not increase your total cost.  

We believe the time has passed for healthcare organizations to accept any price increase, no matter how small from their suppliers, without resistance. In most situations, these costs can be avoided by tweaking the products, services and sources you are buying from now.  This is because accepting a price increase isn’t an option in the new healthcare economy we are now facing! 

The only question then is what performance indicators should be included – and which should be excluded in your dashboard? The answer to that question is not too many to make your management job too complicated, but just enough to be meaningful and actionable.

By actionable I mean that if you can’t take action on the data that is being displayed then it is worthless and needs to be eliminated. A good example would be to number the purchase orders processed monthly/annually.  Unless this number is tied to buyers (purchase order processed/per buyer) then it isn’t relevant or actionable. Get my point?

On the other hand, tracking your inventory performance is mission critical.  Just the other day we noticed that two of our client’s inventories (operating room and pharmacy) were holding twice as much inventory as their peers. This fact was reported to our client’s materials manager for action. Another area of importance to track is your value analysis team’s attendance, since this is a key indicator (among others) of your value analysis teams’ vitality and cohesiveness.

The beauty of a dashboard is that it doesn’t take a lot of time to manage, if you automate all of your metrics to be displayed automatically.  All you need to do then is check it once a day or even once a week to make sure that you are still in control of your supply chain activities.  It sure beats worrying about where your next operational challenge is coming from; the information is all right there at your fingertips for you to make decisions to avert a catastrophe. 

This is because healthcare organizations “face a balancing act as they try to carry enough inventory to meet their customer’s demand while minimizing the inventory and storage cost”, as commented on in a recent article in Supply Chain Brain Magazine. Specifically, we find three inventory indicators as critical to our analysis: (i) inventory value as a percentage of net revenues, (ii) inventory turns, and (iii) cost per activity.

Using this formula, a typical 150-bed hospital’s operating room inventory would have three indicators: 1.3% inventory value to net revenues; seven inventory turns annually; and inventory value per procedure of $292.05. Based on our benchmarks this hospital theoretically could reduce its operating room inventory by $39,899 annually.

Now, why do we go through all this work to decide on an appropriate inventory value for a hospital? Well, it comes down to this; the more information we have to base our decision on, the more consistent and dependable our decisions become. We can almost eliminate guessing from the calculation!

Since deciding on how much inventory can be saved for a hospital is the first step in any well-designed inventory reduction strategy we think it makes sense for supply chain managers to go through these extra steps to triangulate their inventory indicators to get it right the first time. Otherwise, you could expend a lot of time and energy only to discover that your inventories are in balance after all! 

Over the last 20 years, for supply chain professionals to be successful, they must have hundreds of metrics at their fingertips to measure their department’s efficiency and effectiveness, since there is little margin for error in this fast paced business we find ourselves in. Meaning, we can’t depend on old and worn-out systems of the past to keep us informed in real time what is happening in our supply chain world.

The term for this information/knowledge gathering process is called SUPPLY BUSINESS INTELLIGNCE (SBI) or the identifying, extracting and analyzing of supply chain data to help us make better decisions. Its goal is to provide us with historical, current and predictive views of our supply chain operations for the purpose of reporting, analytics, data mining, and benchmarking.

SBI has, at its foundation, the use of technology to focus on what their competitors are doing to improve their supply chain operations. For instance, we recently were talking to one of our clients about why their SBI Dashboard was showing that their bathing system cost was twice as high per patient day as their peers.  After some investigation our client discovered that their nurses were mixing disposable and reusable linens (i.e. towels) to bath their patients that wasn’t a best practice at their competitors. This intelligence led our client to retrain their nursing in the proper protocol for bathing their patients to get their cost back into line.

How would you know this was occurring if this was your hospital?  The answer is without SBI, this utilization misalignment would have gone unnoticed for years. That’s why it is a supply chain imperative for hospitals, systems and IDNs to have visibility (historical, current and predictive views) together with insight (competitive intelligence) into their supply chain operations.  To do less than what is suggested herein is to put your supply chain operations at risk of falling behind on timely and critical supply business intelligence (internal and external) on how to maximize and optimized your supply chain business.  

I have provided this long quote from Skrob versus paraphrasing it since I believe it hits the nail on the head regarding creating supply chain programs, services and systems that are built to last. I myself, too often, follow the “Ready, Fire, Aim” formula only to be disappointed with the results. So it’s easy for me to relate to what Skrob is talking about.

Conversely, when I take the time to sit down and plan a new program, service of software product with my team from start to finish, as I did with our recent launch of our “Upping your Value Analysis Game” video training program, I don’t need to go back and “Aim” later. It’s done, finished, and complete and I can move onto other projects.

Why I brought up this topic this week is that I heard from two supply chain managers last week that were unhappy that two of their supply chain systems had broken down (e.g., clinical trials and linen management) causing them grief, because they were never systematized in the first place. 

This is what happens when you “Ready, Fire, Aim” when building a new program, service or system. Now these supply chain managers need to take time out of their busy day to go back and fix (or “Aim” again) their systems when it would have been much easier and less time consuming to get it right the first time. 

Need I say more!  “Ready, Fire, Aim” never works over the long-term if you want to have your programs, services and systems that are built to last. Spending time and making the effort to creating new supply chain structures is the only reasonable approach when creating new programs, services and systems that will pass the test of time. More importantly, it will keep you from continually fixing, tinkering and rebuilding things that should have had a solid foundation in the first place.  Don’t become Mr., Miss. or Mrs. fix it! 

Well, without keeping you in suspense any longer “The X-Factor” that we have identified is that one individual in a hospital, system or IDN who takes pride and ownership over their value analysis program and keeps the momentum going with their value analysis teams in good times and bad.

In some healthcare organizations this individual is the director of materials management or value analysis, in other organizations it is the chief executive officer, chief financial offer, chief operating officer or vice president of support services.  These champions can be found in almost any level of your healthcare organization, but they all have one thing in common; they understand the importance of value analysis and never let it become stale, overwhelmed, intimidated or irrelevant in their healthcare organization.  They keep striving for excellence!

Just the other day one of these value analysis champions told my vice president of operations that he was going to reintroduce a topic on his value analysis agenda that was previously rejected because he never gives up, never gives in and never is discouraged by disappointments in the past. He is always moving forward to save more money for his hospital’s value analysis program even when the odds are stacked against him.

This is the attitude of an individual (The X-Factor) who is the glue that holds a value analysis program together: Tough, but fair, dogged, but flexible and protective, but not defensive of his or her value analysis team(s)’ challenges. These are the attributes of leadership that must be integrated into every successful value analysis team(s) that is going to survive and thrive in the 21^st Century.  There is no substitute for leadership!

That’s what “The X-Factor” is all about — LEADERSHIP! If you don’t have it from one or more individuals in your healthcare organization to sustain and maintain your value analysis® team(s) at peak performance, then your value analysis program is predestined to remain in its present state of mediocrity as your performance standard.  Don’t let this happen to you!

We can say this with confidence, since this is how we do business every day.  We deal with billions of bits of data coming into our office from clients that expect us to deliver their Dashboard value analysis analytics within 15-days of receiving all of their data. This chore couldn’t be accomplished without us being organized to save.

This philosophy of “You must be organized to save, if you want to save big” came about after observing how hundreds of hospitals, systems and IDNs saved money. The biggest flaw that we have seen is that these healthcare organizations aren’t systematically attacking their biggest savings opportunities utilizing the power of technology to do so.

Just the other day a Dashboard client of ours remarked that he couldn’t believe that a competing hospital, that he visited recently, had six employees doing the same value analysis analytical work that he does with our system with no full-time equivalents. He thought it was a big waste of time and people power for this hospital to try to do semi-manually what could be done systematically and automatically if they had the right power tools to become even more efficient and effective.

The point here is that there is an easy way and hard way to making organizing to save a habit. The easy way is to automate all of your savings with power tools that systematically ferret out and then help you to accelerate the implementation and tracking of those savings.  The hard way is to continue to employ semi-manual tools that just keep you from becoming more efficient in organizing your supply chain expense management chores. It’s your choice, the easy or the hard way!

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. 

What is most misunderstood by practitioners of this art form is that benchmarking isn’t about numbers, metrics (key performance indicators) and reference points, but instead is about identifying “gaps” in your current performance and then searching for best practices to improve your future performance levels.

It’s also critically important to understand what is behind the numbers. A few years ago one of our client’s forms cost per patient day was about .35 cents vs. our traditional benchmark of .60 cents. When we investigated how this could be happening, our client told us that his healthcare system went paperless about a year ago.

Bingo…we just uncovered a new best practice to improve the cost management performance for all of our clients. This wasn’t an accident that we uncovered this new benchmark, since our firm had institutionalized benchmarking many years ago to improve our clients cost management performance. We are always looking for “gaps” in our clients’ cost management performance and then searching out new and better best practices to elevate their performance over time.

Our point here is that hospital supply benchmarking is a never-ending search for best practices. It’s not a one-time event or whenever the mood strikes you.

You need to have a system in place to continuously benchmark everything that is important in your supply chain operations performance (i.e., people, projects and performance) especially when it comes to expense and cost management. Since things change and people chain at a rapid pace, your supply expense cost structure can change almost overnight. How would you know that it changed if you didn’t have a process in place (like supply chain radar) to identify your performance “gaps”?

It should be common sense, that institutionalizing benchmarking to improve your hospital supply cost management performance is “mission critical” in these uncertain and volatile economic times. Without constant benchmarking, you will be flying blind without a navigator to keep your supply chain operations on a steady, level and direct course to success.   

More importantly, these seat-of-the-pants solutions aren’t solving the root causes of these problems, but only putting a Band Aid on them that quickly falls off. It’s like a doctor making a snap judgment based on a patient’s symptoms, without doing any diagnostic test to confirm the real cause of their complaints.   

For instance, we see value analysis team members without first understanding the root cause of this anomaly decide that the reason their floor glove cost per patient day (CMI adjusted) is higher than their peers, is price. So they never shadow their customers, interview customers, or conduct a functional analysis because they think they have diagnosed this problem correctly which is finding a new supplier with a better price.

In most situations the real cause as to why a hospital’s floor gloves are out of alignment is that: (i) hospital doesn’t have a policy and procedure on who can wear what glove, (ii) higher cost gloves are provided to all employees to use when a lower cost alternatives could be substituted, and (iii), hospitals standardize on one hyper allergic glove when it isn’t required for all employees.

The simple truth is that we, as an industry, are treating symptoms of a problem more often than the actual cause of the behavior with so-so results. To correct this behavior, diagnose before you prescribe a solution. This will enable you to root out the causes of your cost and quality issues and then stamp out all waste and inefficiencies in your supply streams. 

For instance, if we told you that your hospital’s floor glove usage had increased over the last four quarters, you would probably yawn at this information. However, if we showed you a chart that reveals graphically how your floor glove usage had escalated from $1.59 per adjusted patient day to $2.62 (a 65% jump) over four quarters, we can assure you that we would get your attention. This is because using stats, figures or value analysis analytics satisfies the human need for clarity, precision and concreteness.  

Now, if you can combine stats, figures or analytics with benchmarks you now have an all-out winning formula.  Back to my example, a typical benchmark for floor glove usage would be about .95 cents per adjusted patient day. In our example above, this would mean that this hypothetical hospital is really 176% higher in their glove usage than their peers. Now, this is a statistics that will get anyone’s attention wouldn’t you agree?

To summarize our point here, the main reason for you to employ stats, figures or value analysis analytics is to help you to start a dialog (e.g., who, what, when, where and why their practices are different) with your department heads and managers on their utilization misalignments. Its purpose is not to win the war of words and information, but to have them investigate these anomalies in their supply streams. 

What better way than to get your department heads and managers engaged with the stats, figures and value analysis analytics, rather than have them fight you needlessly and endlessly on principle, opinion or their beliefs, when the numbers can lead the way to success. 

I recently talked to one of our clients who has institutionalized this refrain into their supply chain operations over the last five years.  Year-to-date this supply chain department has saved $1.8 million by taking over their hospital’s pharmacy drug contracting, moved to high yield HP and Xerox toner cartridges and switched to lower cost fax/scanner equipment to name just a few of this supply chain department’s achievements this year alone.  

A few years ago this same supply chain department took over the responsibility for their hospital’s entire high ticket non-official inventory locations (i.e., operating room, laboratory, cardiology, etc.) which dramatically reduced their hospital’s inventory values, reduced their stock outs and then streamlined their customer’s ordering processes.

This same supply chain organization went paperless about five years ago with a web-based e-Portal for ordering of inventory and non-inventory items for their customers. Wait to you hear this, this same requisition system also automatically charges their inventory requisition disbursements to their hospital’s accounting system seamlessly.  They also have a help desk for their customers to resolve any materials management issue and all of their department’s policies and procedures are on line for all to see, thereby, making everyone’s job easier.

What do all of these accomplishments all have in common?  This supply chain department stepped out of their comfort zone by admitting that change was necessary and then moved into uncharted waters to dramatically improve their hospital’s cost structure and expand their customer’s service quality experience.

You can do the same at your healthcare organization, but first you must admit that change is needed, identify what changes need to be made (what is working and what isn’t working) and then forge ahead to make change happen –- even if it isn’t easy. 

The other big “aha” that is hitting home is that hospitals aren’t going to obtain these deep cuts with price cutting or staff reductions alone.  They will need to target their utilization misalignments in their clinical and supply chain operations where seven percent to 15% in new savings is obtainable.

It is the conventional wisdom that we as an industry, have about 24 months to make these changes happen before the full impact of the Patient Protection and Affordable Care Act takes effect. This transformation can only occur if hospitals are more data driven. This will enable them to ferret out these wasteful, inefficient and non-conforming products, services, technologies and processes.

Why? They can’t be seen with the naked eye! Only by applying the concept of value analysis analytics can a healthcare organization determine where they have unexplained wide-ranging variations in their practices. For example, why has your ligature cost per procedure (case mix adjusted) jumped 57% in one year? Or, why have your compression sleeves increased by 9% per procedure (case mix adjusted) over the last four quarters?  These are the metrics that you need to trend, track and analyze to be successful in the New Healthcare Economy we are facing. Not price or standardization alone!

Lastly, a recent study by AHA showed that there is “significantly lower support for supply chain (in the C-suite) in the form of advocating investments (in technology and resources) and promoting use of the supply chain among C-level executives than among supply chain leaders.” 

This finding tells me that supply chain professionals need to do a better job of selling their supply chain initiatives to their CEOs, COOs and CFOs if we are to be a central player in healthcare reform, since they aren’t hearing your message that the supply chain can have a big, indispensable and dramatic effect on their bottom line results!

Now go get this message out loud and clear for all to hear: The supply chain can make a significant impact on your healthcare organizations survival over the next decade. It no longer is just a service department – it can and is a money-saving machine that needs to be well oiled (time, money and resources) to perform at peak performance. 

How does this relate to value analysis in healthcare?

One of the tenants of our value analysis project management training is we want you to avoid assigning a value analysis project lead to the person who has ownership over the product, service or technology to be studied or works with the product every single day.  Why wouldn’t we give the lead in the value analysis project to such a person given their expertise in the product, service or technology under investigation? Isn’t it logical to do so?

Logically yes, but in practice it doesn’t work, since they won’t see “The Keys” right in front of them, which are the waste, inefficiency, utilization misalignments or value mismatches that need to be clearly seen and observed to make savings and quality improvements happen.   This occurs because they are too close to the product, service or technology to truly look and evaluate these products, service or technology objectively.

Here is even one more reason! We were having this “Keys” conversation with a Vice President of Patient Services at a client hospital the other day and she pointed out another reason why it may not be prudent to assign the product, service or technology expert as a value analysis project manager.  This VP observed that these internal “Experts” have long-standing relationships that evolve around the product, service or technology they are buying and therefore would be protective and limited in the scope of their value analysis studies in order to defend the positive relationships that they have today with their co-workers.  For example, if you assign your instrument expert who works day in and day out with your surgeons to lead an instrument value analysis study I guarantee there will be limits and boundaries on where he/she will go in their value analysis study in order to maintain, protect and defend these relationships.

The important point to remember here is we are not saying that the product, service or technology expert or key stakeholder should not be involved in the value analysis study at all.  We are saying that they should not lead the value analysis product, service or technology team.  These experts and stakeholders can be enlisted in other ways that will allow them to maintain their relationships, speak for their clinical or operations disciplines and be a true expert to your value analysis studies.

Don’t get us wrong, you do need “Experts” on your value analysis study sub-teams, but not leading them, or you run the risk of not hearing the voice of your customers, validation of your studies and assistance in implementing your recommendations. 

In fact, I’m seeing more and more suppliers actually integrating this practice into their marketing plans. The most recent example is Edwards Life Sciences (ELS). ELS is now marketing its new Sapien heart valve (called a transcatheter heart value) that allows surgeons to perform heart valve replacement without open heart surgery.  This is a major advance in cardiac surgery that has a market of 250,000 Americans that have heart valve disease.

The uniqueness of ELS’s offering is that ELS is paying their sales force of about 60 based on successful procedures that cost $30,000 for the heart valve alone, rather than sheer volume. The importance of this change is ELS’s sales representative’s pay structure ensures that they will be a true partner with your hospital, since they and you have skin in the game.

This is the secret of any successful pay-for-performance arrangement: both parties must have considerable “skin in the game”.  As I see it, as your hospital implements all of the Patient Protection and Affordability Act’s mandates over the next few years, especially Accountable Care Organizations, this prearrangement with your suppliers will be the only way to protect your hospital’s bottom line. Otherwise, your suppliers win and you lose in the New Healthcare Economy that is upon us!  

Another element of supply chain expense management that we talked about this week was that we are identifying less than 1%, 2% or 3% in new price savings for our clients, so price really isn’t a big issue for our clients any longer. This wasn’t really a surprise to us, but we took some time studying this issue since we wanted to quantify it for our Podcast.

Now here is the point of our discussion so far.  The supply chain expense savings that are available to you today and in the future isn’t in your pricing, but in your utilization or in-use cost. The question we have for you then, with these statistics in mind, is who is minding your supply chain store once you have bought and delivered a commodity to your customers? The answer we find in most situations is — no one.

No one is watching how your department heads, managers and clinicians are applying or misapplying the supplies and devices you have bought once they are in use.  No one is observing that you have value mismatches (i.e., lower cost products, services or technologies available, but your hospital’s staff is not employing them) in your supply/technology formulary. No one is detecting the wasteful and inefficient practices that have crept into your hospital’s protocols.

Get the picture?  Your job as a supply chain professional isn’t just to get the best price for the commodities you purchase, but to be ever vigilant on how these same products, services and technologies are utilized throughout your hospital.  This is where the big savings (about 26% on average) opportunities are lurking in the offices, surgical suite, clinics, patient rooms and corridors of your hospital.  Isn’t it time that you lockdown and eradicate these unwanted, unneeded and unnecessary supply chain expenses before they harm your hospital’s bottom line, if they haven’t already? 

In fact, value analysis is a never-ending job, since over time things change, circumstances change, technology changes and people change, so there is always more to save, manage, control and value justify. We call this never-ending best practice "cyclical vigilance" or there is always an opportunity to lower your cost, trim the fat or reinvent what you have been doing on a recurring basis within the same commodity groups. 

A good example of "cyclical vigilance" is cardiac stents.  When bare-metal stents first came on the market our job as value analysis practitioners was to manage price. A few years later, drug-eluding stents appeared and it was our job to manage variation in practices. And now absorbable stents are in development which will require value analysis practitioners to value justify their introduction into the marketplace.  Do you see now how our job is never-ending?

For less exotic products, services and technologies it is also important for value analysis practitioners to schedule annual reviews of their top 100 products by dollar volume, since our studies show that at least 17% of these commodities will have new savings opportunities each and every year.  For instance, our Utilizer® Dashboard just kicked out an alert for one of our clients showing that their floor glove usage jumped nine-percent, per adjusted patient day, in just one year. Wouldn't you agree that this utilization misalignment needs to be investigated?

The truth is…that there will never be a day when value analysis practitioners can just sit back, relax and kick back believing that their job is done. There is always more to be saved, managed, controlled and value justified. This is what makes healthcare value analysis so dynamic, exciting and challenging, since it is never-ending yet, rewarding for those who consider themselves value analysis professionals.   

While this is a commendable undertaking from our point of view, we have a word of caution for those taking this little traveled path to supply chain success: Purchase service contracts aren't the same as buying commodities! They require new skills, tactics and expertise to get it right the first time.

We would all like to think we can cost effectively buy anything and everything through our GPOs, but the truth of the matter is that some contracts are better suited to be customized, bid and then negotiated locally vs. nationally.  This is due to the uniqueness of your healthcare organization's service requirements. The operative word here is CUSTOMIZED!

Case in point! One of our client's telecommunications services' cost was $156,932 over our regional benchmarks, which motivated our client to search out new and better ways to provide this mission critical service. After some research our client realized that the answer to this costly challenge wasn't to piggy back one of their GPO's contracts to lower their telecommunication up front cost, but to instead conduct a thorough investigation of their requirements and then to customize a telecommunications service contract to their exact requirements.

Their investigation revealed that they had twice as many phone lines than were needed, and then their old Centrex system required upgrading to provide enhancements and refinements in their telecommunication's technology in order to be more cost effective.

The bottom Line was that this client saved $136,800 annually once they signed a new purchase service contract that customized their new service requirements.  Conversely, if our client didn't customize their service requirement prior to bidding and negotiating a new service contract they would have received excellent pricing for their perceived needs, but would have been way off the mark on their utilization or in-use cost.

Our point here is that the price at the pump that you contract for your purchase services is very important, but what is even more important is the utilization cost of each and every purchase service contract that you are buying. So, your job isn't getting the best price for your service contracts, but instead to customize your contracts so they translate into your exact (no more, or no less than you absolutely need) requirements. This way you will always come out ahead!    

Recognition is all about appreciation and praise for the work we do and the achievements we have made in our careers and beyond.  It’s more important than money to most individuals. It is what we all look for in our jobs and life! In fact, recognition is usually the number one thing mentioned in studies, when employees are asked what is most important to them in their jobs. 

If you want to learn from the best with pride, it was just brought to our attention that Disney management places a huge priority on recognition programs. They even have recognition programs for cast members of the Haunted Mansion and for their monorail maintenance team. Each of these events includes recognition for time served, outstanding achievements and new ideas. “Above all”, reports Robert Shrob, President, Information Marketing, Association, “Recognition is the currency that Disney uses to motivate its employees to deliver outstanding experience to their guests”.

Shrob goes on to say, “ When (Disney) employees understand how important this day-today work is, they’ll have a lot more pride in it and will do a better job with it.” Recognition can be in the form of a ribbon, pins, certificates or just a thank you card for a job well done. 

It’s not important what you give to your employees, team members or suppliers in a tangible sense, what is important is that you recognize your high achievers for the value you place in them, their work and achievements.

One last thing, too often it is thought that you must give monetary rewards to recognize achievements for them to be meaningful, which couldn’t be farther from the truth. All of the industrial studies we have seen show that it is the intangibles (praise, metals, ribbons, thank you cards, etc.) are what really have an impact on your employee’s performance, since money is quickly forgotten, but a physical object is saved, cherished and remembered forevermore.
 

From our point of view, a successful value analysis project isn’t complete until all elements of the value analysis project’s control plan are locked down and operating effectively. This means that a value analysis project manager must:

1. Document that all operating procedures have been updated.
2. Develop and implement a clear plan for communicating changes  to all stakeholders and customers.
3. Coordinate and validate that all training for stakeholders and  customers related to the change(s) in protocols have occurred.
4. Follow up in 90-days to ensure that the changes are in place and  are working as planned and designed.

We are recommending this value analysis control plan process, since we frequently see value analysis projects go awry after only a few short weeks of being implemented, because all of the necessary control elements weren’t in place. I’m talking about price changes that never happen, customers and stakeholders that are not aware of the changes or customers that are misusing or misapplying the technology that was supposed to make their jobs easier that is a short list of what can go wrong with a project.

Like anything in life, if you want positive change to happen, then you need to plan, document, and inspect to ensure that it really happens. If you leave change to chance, it will almost certainly not turnout as you planned and envisioned. It just doesn’t work that way!

Indifference typically happens because value analysis team members have other jobs which they consider more important, so their value analysis assignments take a back seat to everything else they are doing. That’s why attendance is so low at most value analysis team meetings, projects run on forever and most projects are only half-done at best. It isn’t a pretty picture.

On the other hand, what we have discovered is that if you make value analysis a game…that’s fun…you can get the undivided attention of your value analysis team members and get them eager to do more in less time.

How can you make this happen?  By giving points and keeping score by team and by member, on all of your value analysis team (e.g. financial, operational, quality and customer) activities as shown in the following table.

The objective of the “Value Analysis Game” is to create competition between your value analysis teams and their members. Once they see their team and personal scores for any given month, quarter and year I can assure you that they will up their value analysis game.

As Jack Welch, GE’s legendary CEO, has preached for years, “The essence of competitiveness is liberated when we make people believe that what they think and do is important – and then get out of their way while they do it”.

So make your value analysis program a game…that’s fun…and you will never need to motivate your value analysis teams again to do the right thing by coercion, pressure or nagging until your team members turn you out and off.

Competition will liberate your teams into action without you needing to hold their hands, get in their way or be heavy handed since value analysis now is a contest to win or do better than others.  It’s not even about saving money any longer; it’s about being the best you can be by beating your teammates at the value analysis game!

I just read about a new ACO that is forming in the Northeast that has 1,200 physicians and four hospitals who would like to serve the Medicare and Medicaid population of five counties in New Jersey. If you are a competitor in this ACO service area how many patients does this leave you with to serve?

My point here is two-fold: ACOs will probably dominate the healthcare landscape for many years to come and that being a low cost provider is the ticket of entrance to this new game. This means to me that healthcare organizations must close the gap on their costs if they are looking for a competitive advantage in this new emerging healthcare marketplace. 

Supply chain professionals need to understand and internalize the changing face of healthcare. They then need to drive out all of the waste and inefficiency in their supply stream, since there are still billions of dollars to be shaved from healthcare organizations’ supply chain expenses. We actually are now, as an industry, only at the starting gate of vigorous cost cutting that hasn’t even scratched the surface of our supply chain expenses.  There is much much more that needs to be cut out of our supply chain budgets to gain a competitive advantage over your competition.

The place to start on this quest to lower your supply expenses is not to benchmark your hospital against global standards (e.g. supply cost/revenues or supply expense per adjusted patient day, etc.) at 30,000 feet level, but instead to measure yourself at the SKU (stockkeeping units) or ground level where your hidden savings is residing. Any other measurement but this, we have discovered is lacking in specificity, quantifiability and actionability that is needed to truly reduce your supply expenses beyond current levels.

To this end, we would urge supply chain professionals to rethink what they have been doing, since the old ways of doing business won’t brand your hospital a low cost provider, but will instead leave it behind in this race to lower our nation’s healthcare costs by billions of dollars for the next few decades.   It is a challenge we must all accept as doable if we are to survive and thrive in the new healthcare economy!
 

However, we also talk about the importance of identifying stakeholders (anyone who can block or influence your initiative) and experts (knows more than any other person about the product, service or technology), because if you ignore anyone of these customer classifications in your value analysis process, you can and will destroy your credibility.

I cannot tell you how many times we see value analysis project managers forget to communicate with their key customers and stakeholders in new product evaluations that their value analysis team has approved for purchase.  Then through happenstance they find out that these customers and stakeholders were using the product improperly and wastefully, not to mention upset that they were not involved in the value analysis process of their product. These misunderstandings are quite an embarrassment for value analysis teams when the key customers and stakeholders find out (and they will find out) that they were omitted from their product’s value analysis process.

I can’t think of any one thing that can terminate a value analysis study more rapidly than missing or ignoring a key customer in your value analysis process. This mistake happens most often because at the start of their projects value analysis project managers don’t map out (on paper) who their customers, stakeholders and experts are in their value analysis study.  Don’t make this same mistake!

All it takes to avoid this fatal error is to ask these three questions: who touches the product, service or technology through its life cycle, who can block or influence this initiative and who knows more about the product, service or technology than any other person. By conducting this short exercise you can be assured that you won’t miss a customer, stakeholder and expert in your value analysis process ever again.

To avoid excess “project cycle time” here are three things you can do to execute your supply chain projects more efficiently:

1. Establish Ground Rules: One of the most important ground rules  that you can establish is that you must have a time limit on your projects or they will meander on endlessly.  We recommend a 30-day, 60-day or  90-day time line that is doable and manageable for most projects. If the project isn’t accomplished within its allotted time then it should be  audited to determine why it wasn’t completed on time. Only after your audit and suggested new guidelines should you establish a new time line for completion or the project could continue indefinitely.

2. Clearly Define Your Project’s Scope: Project teams work more effectively when they know the starting point, middle point and  end point for their projects. We see this all the time where project managers take detours, wrong turns or even the inappropriate paths in trying to complete their projects. I remember one project manager we worked with who spent weeks visiting other hospitals’ laboratory departments to gain information for her project when this was clearly out of the  scope of her project.  So clearly define your project’s scope and  latitudes before you send your project teams off to save money,  improve quality or solve a problem.

3. Choose the Right People: It’s been our experience that the most important factor in the selection of your core project team  membership (the people who get things done on time and on budget) is that they must be “agents of change”. They then can seek out customers, stakeholders and experts to fill in their ranks who have the necessary knowledge and expertise to allow them to successfully complete their assigned task. This might  seem like a strange or  foreign team structure to you but we  have  found over the years that heterogeneous vs. homogenous  project teams work best to make lasting change happen.

These are just three important ideas to speed up your supply chain project cycle time so your projects aren’t droning on forever. I know this is a big irritation for us when our projects never seem to end and I’m sure it is on your top 10 list of reasons why things aren’t getting done around here. But as we have suggested, it doesn’t need to be that way – any longer!

My answer was that I had been in his shoes many times over my career and that I found, through the school of hard knocks, that first and foremost he needed a solid foundation before he hired a value analysis director or consultants or else he would revisit this issue over and over again. This had been my experience early on in my value analysis career when I had organized, trained and facilitated value analysis teams, and I didn’t get all of the elements right the first time.

The secret I told this vice president in value analysis was to close the loop on all his value analysis essentials by developing a strategic value analysis plan before he hired his new value analysis director or launching his new value analysis program. As Thomas Carlyle pointed out, “Nothing is more terrible than activity without insight”, and that’s what a strategic value analysis plan can help you avoid.

To this end, a strategic value analysis plan has many similarities to a strategic, long-range planning process in that it is a systematic and defined planning process.  This enables a healthcare organization to appraise the strengths and weaknesses or gaps in their current value analysis strategies and tactics and then devise new strategies and tactics for reducing and controlling their supply chain expenses. 

It all begins with defining your vision, mission and values for your new or refined value analysis program in terms of what your aspirations are, one, two and five years out. What savings and quality goals are real and achievable?  What policies and procedures are required to align them with your new and reinvented value analysis program?  What steps do you need to take to train, manage and control the outcomes of your new value analysis teams? What problems or hurdles can you anticipate that would threaten the success of your value analysis program?  And how do we get started?

These are just five of the hundreds of questions that need to be asked and then answered to get your new or refined value analysis program off the ground successfully.  In fact, we believe that his strategic value analysis planning process is so important that we have developed a 44-page strategic value analysis planning workbook to guide clients through this wide-ranging cultural organizational analysis.

So if you are thinking about starting, refining or reorganizing your value analysis program, like my vice president colleague I just talked about, it’s not something to be entered into as just another routine supply chain project.  It needs to be thoroughly and extensively planned and thought-out so that you have a solid foundation that will be built to last for many years to come. To do less, is to risk failure out of the gate or at best marginal results from your value analysis teams once you have launched your new or refined value analysis program.

To avoid these negative outcomes, make sure that you close the loop on your value analysis essentials with a highly organized strategic value analysis planning process that answers all of the critical questions needed to smooth the road to your inevitable value analysis success.

Supply utilization management really shouldn’t be mystifying, since we all experience this discipline in every waking hour of our existence. For instance, when you buy a new car aren’t you particularly interested in how many miles per gallon it is rated? When you buy a new furnace for your home aren’t you attentive to how many BTUs it will consume? Or, when you buy a stock do you pay attention to its annual yield (amount of cash it returns)? I know I do and you should too!

That’s what supply utilization management is all about: measuring and then investigating the variant or irregular velocity, yields, trends, patterns and variations in your supply spend. It’s not about the price at the pump! You should already have that under control. By doing so, you will uncover hidden savings in the range of seven percent to 15-percent almost overnight.

We have found that the quickest way to capture countless utilization misalignments in your supply spend is to undertake an “extreme makeover” of all of your products, services and technologies since they are generally over-specified.  Meaning, they have too many unnecessary functions and features that aren’t wanted or needed to provide your patients with the highest service quality. This is just one big reason why hospitals have a higher than average cost per patient day, per procedure or test than their peers.

We’re sure you get the idea by now that price, standardization and compliance is just one small element of your supply spend cost. Maybe 21% overall!  So where should you be expending you time attacking your supply expenses?  On the 21% that is in relative control or the 79% in supply utilization cost that is out of control and that is eating away at your hospitals, systems or IDNs bottom line? You decide!

To the contrary, one of the most important communication devices  that I have found for keeping my bosses completely informed about my supply chain department’s activities is a monthly and annual report. I also recommend this tactic to all of my clients, any chance I get. These periodic reports create a level of transparency, trust and communication that no other tool can provide.

Your bosses are busy, preoccupied and rushed in all things, so you need to get their attention with a formal report that touches on all phases (e.g., savings, statistics, staffing, inventory and asset management, etc.) of your supply chain operations. I call this an integrated supply chain report that is designed to show your bosses your supply chain financial and nonfinancial success.  In this way, there is no confusion on what your supply chain department is achieving monthly, quarterly and annually. It’s down on paper for everyone to see! 

Another idea I use for these reports is, since most hospitals manage by goals and objectives, I liked to show my department’s progress against my annual goals and objectives on my monthly and annual reports. This made it easy for my boss to see how I’m doing on these goals and objectives without even asking me about them. See how this can make your job easier?

I would like to think that all supply chain managers would buy into this concept (integrated supply chain reports) as the best communication tool to keep their bosses informed of their success, but I know a few will still feel that this is just an extra job that isn’t in their job description. 

To them I say, isn’t it worth the extra effort each month and annually to absolutely ensure that your boss doesn’t wonder what you are doing each month and each year to bring more lasting and intrinsic value to his or her hospital, system or IDN.  I would think after some reflection the answer would be…YES!

Newsflash: Industry has found early on that price is only one component of the “best value” equation with their suppliers. It is equally important to industrial supply chain managers that: (i) they become their suppliers customer of choice, (ii) grow emphasis on value, (ii) leverage supply network capabilities and, (iv) capture supplier value early in new product and service development.

This is a whole new way of thinking about your suppliers that requires new strategies, tactics and techniques to ensure that your suppliers are true (not just in word, but in fact) partners in your supply chain success.  It means developing close, effective and significant working relationships with your suppliers that go beyond price to bring about value-added partnerships to your healthcare organization.

For example, one of our clients is working closely with his suppliers to re-specify and then reinvent his I.V. catheters’ functional specifications that are now extremely feature rich, and getting their input along the way. Instead of telling his suppliers what he wants he is getting their input, which hasn’t been the traditional way of doing business in healthcare.

Is this really an emerging healthcare best practice? Our bet is that it is, since suppliers know where to save money, trim fat and eliminate waste in your healthcare organization if you would just create a healthy relationship with them. You need a relationship where they become real partners, and then don’t keep them at arm’s length: Keep them close, active and productive in all of your supply chain initiatives to sustain your supply chain savings.  

Think of it this way! Most of our best healthcare supply chain ideas have come from industry, so don’t ignore this opportunity to be a trailblazer with your own “supplier relationship management” program that can provide substantial dividends to your healthcare organization now and in the future.  

In fact, your customers will find every excuse, ploy and even subterfuge to keep you from doing so.  It’s human nature to hold on to what you have now vs. accepting the unknown. However, our nation’s hospitals’ meager reimbursement structures can no longer afford any product, service or technology that isn’t grounded in proven cost effective functionally acceptable outcomes. 

This reminds me of when I worked as a consultant for a bankrupt Catholic hospital a few years back, where it was my job to reduce expenses (labor and non-labor) to the bone.  When I brought to the attention of the vice president of operations (who was a nun) that we could save in excess of $100,000 dollars a year by outsourcing her laundry/linen function, she turned me down flat. Her reason was that the quality of HER linen (notice the possessive noun) wouldn’t be as good as her in-house service. 

While the Sister had a point, I then decided to ask her who was going to pay for the Trump Plaza quality laundry/linen service at her hospital, since her patients where almost exclusively Medicare and Medicaid and She didn’t have an answer to this question.  As you could imagine, it took me a few weeks to get Sister to agree to outsource her laundry/linen service. Guess what! Sister never complained about the quality of her outsource laundry/linen service going forward since it met her functional requirements reliably and cost effectively.  It wasn’t the highest level of quality service that she had before, but it was adequate, acceptable and reimbursement justifiable.

As this story suggests, the secret that we have found to executing “takeaways” in value analysis is to calculate the COST of NON-CONFORMANCE ($100,000 in my example above) of not doing something, and then estimate the reimbursement that your hospital is receiving for the procedure, test or case to raise your customer’s conscience as to the sparseness of their hospital’s margins.  This usually tilts the decision in your favor, but not always.

When all else fails, the next tactic we recommend to our clients is to show the COST of NON-CONFORMANCE on their value analysis monthly savings report and then share it with your value analysis steering committee.  With few exceptions, this protocol will solve 98% of your non-conformance challenge because your steering committee members will demand answers from your customers on why they can’t implement these savings.  You will find that very few customers can justify to your value analysis steering committee, the unjustifiable! 

If you aren’t already aware of it, Accountable Care Organizations (ACO) are structured to provide their patients, at a fixed fee, their total episode of care over a 90 to 120 day period. This is what third-party payers are promoting as one answer to the rising cost of healthcare.

To my thinking, ACOs are similar to a healthcare insurance provider who charges a set fee to their customers, no matter what the cost of their healthcare, during any given period.  They also absorb all costs and have set fees for their suppliers to hold down their own cost year-to-year. 

To achieve their goals ACO’s will also need to be aligned with their healthcare suppliers. Meaning, healthcare suppliers in the future will need to price their products and services at reimbursable justifiable rates, and will also be required to guarantee their products and services efficacy, performance and outcomes. No longer will it be an arm’s length relationship with your healthcare suppliers, but a true partnership where all parties bear the risks and the rewards of the ACO’s patients care.  

To this end, supply chain professionals should be thinking of ways NOW, to begin these Supplier Pay-for-Performance relationships with their current vendors to not only reduce their total cost of acquisition to disposition, but to gain vital experience on how to best structure these agreements that share both the risks and rewards for positive outcomes.

It is critical that you become aligned with your suppliers in new ways even if ACOs don’t get off the ground as envisioned, since your hospital’s reimbursement over the next few years won’t support your current cost structure. What better way to do so than forming Supplier Pay-for-Performance relationships that not only look at the price you are paying, but also validate the necessity and appropriate use of the products and services you are buying.  Sounds like a win-win to us!

The best part about benchmarking is that you can drive your hospital’s supply expense savings even higher without even leaving your desk. This has been our experience over the last 15 years where we have conducted thousands of benchmarking studies for our clients using our Utilizer® Dashboard this has open up a whole new world of savings for them.

One of the key elements that we have found that is holding back effective benchmarking in healthcare today is the lack of benchmarking partners. Yes, we know that every hospital belongs to one or two benchmarking services but the benchmarks that are provided by these sources are, for the most part, at the 30,000 foot level which are meaningless to supply chain professionals. However, these are services, not partners – there is a difference!

To effectively benchmark with a real impact on your bottom line, supply chain professionals need benchmarks at the SKU (stockkeeping unit) or ground level to have meaningful and actionable results. These customized benchmarks can best be developed with partners from your own national, regional or local GPO membership. Or, you can sign up with a supply chain benchmarking specialist who already has the relative data to compare your hospital, system or IDN at the SKU level with your peers to make your benchmarking job as easy and hassle free as possible. 

When I was told by an inventory specialist a few months back that a hospital’s inventory assets can have a value, on any given year, of up to 28% of a hospital’s total supply spend it took me by surprise. I always knew that a hospital’s inventories where a valuable asset, but I never realized the extent, breadth and depth of their impact on a hospital’s bottom line.

This little known fact, as I said, was an eye opener since if these liquid, but very vulnerable assets are piling up in your hospital’s closets, overflowing on your selves, carts and in your warehouse they aren’t earning investment dollars in your hospital’s bank, or paying for needed services that their cash value could put to good use. Then they absolutely will be a drain and drag on your bottom line.  There is no other way to think about this issue!

That’s why it is so critically important for supply chain managers to effectively manage and control all of your hospital’s official inventories over $100,000.  Although, based on the poor results found in our quarterly surveys of how hospitals are managing their inventory assets we have a long way to go before, we as an industry, can say that we have complete control over one of our hospital’s most vulnerable assets.

One of the best ways I know if to ensure that you protect these vulnerable assets, as I said, is for supply chain management to control them. At most hospitals in the country, this isn’t happening.  This job traditionally has been outsourced to your hospital’s department managers (e.g. operating room, laboratory, cath lab, emergency room, etc.) who very rarely, if ever, do a decent job of managing their own inventories.

Now that every penny saved counts in healthcare, I challenge you in 2012 to make hospital-wide inventory management a mission critical priority for your supply chain department. By doing so, you will protect one of your hospital’s most vulnerable assets and at the same time raise your status, value and recognition at your healthcare organization.

Yet, I discipline myself to do so every year for a few days, since I know that planning is the only way to win in the hospital supply chain game. I start by looking at my statistics (sales, savings, profits, losses, etc.) for this year vs. last year. I then look at the trends over the last five or six years to make sure we are going in the right direction.

In your situation you should be looking at your trends too, year over year, for the last few years.  For example, are your GPO savings growing, flat or deteriorating?  Is your hospitals’ official inventories shrinking or getting larger and by what percent?  Is your value analysis savings — beyond price — keeping pace with inflation (which is running about 3.5% this year)? What was your cost avoidance savings this year vs. last year? What was your labor turnover rate last year vs. national average? You get the idea?

Now, with this information in hand you can start to develop a picture of the health of your supply chain operations and start to formulate a plan to correct any and all deficiencies that you have uncovered. For instance, at most hospitals, systems and IDNs their GPO savings are flat or deteriorating over the last few years, so this challenge needs to be addressed — not ignored! I can tell you that most hospitals are turning the faucet on wider with their utilization savings to compensate for losses in their GPO savings that you should also be considering. 

What I have just described is a mini-lesson on how to get started with your own planning to win in the hospital supply chain game. As I mentioned, I spend days in my planning sessions with my staff analyzing the environment we live and work in while looking for threats to overcome and opportunities to capitalize on. This is the foundation of all planning exercises!

Yes, planning is hard boring work, but the payoffs are huge for you and me if we take our planning seriously. It keeps your supply chain organization from becoming complacent, confortable and reactive vs. proactive. Most importantly, planning provides you with the strategies, tactics and techniques to overcome any threat or take advantage of any opportunity that is on the horizon.  Don’t start the New Year without it!

1. Write Work Specifications:  The most important tip I can give you is to write your own work specifications for any new or re-       newal purchase service contracts that comes across your desk. If you accept the vendors’ contact – as is – you are probably buying services that you don’t need and want.  For example, one of our clients discovered they had been paying, for years, for conceirge services in their food service contract that they didn’t know existed, thereby costing them $100,000 a year.  This oversight has now been corrected, since this client now writes their own specs for their purchase service contracts without fail.

2. Include Performance Standards:  Just because you have a signed service contract with a vendor, doesn’t mean they will make their best efforts to improve your situation, since most contracts read that the contractor will meet or exceed national     standards. This statement isn’t enough to ensure the highest service quality for your hospital. To have failsafe agreements     you must include your own performance standards, such as, turnover will not exceed three-percent annually or contractor will     assume all cost of recruiting and retraining for new employees. That’s why standards and oversight are the only way to prevent your contractors from giving you below average service quality.

3.  Bid, then Negotiate a Contract:  There is a tendency to negotiate purchase service contracts with a preferred vendor. Let         me caution you against this questionable practice, since bidding is the only way I know of to keep your vendors honest, to gain    needed competitive intelligence and obtain the lowest possible cost. Naturally, it makes good business sense to negotiate after the bid to ensure all of the details of your contract are in your favor, but not beforehand.  

If you are not responsible for your hospital, system or IDNs’ purchasing service contracts at the present time, it is most likely that you will be in the very near future, therefore you might want to save these ideas in your intelligence files. However, if you are responsible for your purchase service contracts today these three tips and tricks will go a long way to guarantee that you won’t miss some big steps in getting your new and renewal purchase service contracts right the first time. 

1. Automation: It shouldn’t be a surprise to you that automating  almost everything you are doing in your supply chain business is the foremost way to optimize your supply chain resources, while lowering your cost. Yet, this seems to be the road less traveled by most supply chain departments. 

As I see it, the big reason for this not happening is that hospital, system and IDNs’ information technology departments are overwhelmed with other pressing tasks. But now with the advent of “cloud” software that is cheaper, easier to use and maintenance free there should be no reason why a supply chain department isn’t automating all of its labor intense processes. To this end, if  you aren’t investigating “cloud” software to improve your operations, now is the time to do so. 

2. Delegation: Everyone knows that delegation saves time and has a multiplier effect on your supply chain efforts.  Neverthe less, too many supply chain professionals still do most of the work of their value analysis teams. That’s not what teamwork is all about. By definition teamwork is a collaborative effort with a  group of people to achieve a stated goal, not one person doing all or most of the work. Isn’t time you have your value analysis team(s) share the workload?  This is the best way to utilize these resources, not doing their work for them.  

3.  Prioritization:  One of the best ways I have found to quickly sort what’s important, from what is less significant is to employ the 80/20 rule (80% of what’s important is in the 20% of things I have in my inbox) to decide on what to work on first, second, third, etc.  For example, if I am going to work on a savings project, it is always the one with the highest ROI that I work on first, not the one that is the easiest to implement.  This way I maximize my firm’s limited time, money and resources on the most important things first, not squander them on inconsequential projects.  

As I stated previously, there is no hospital, system or IDNs’ supply chain department, that I know of, that has unlimited time, money or resources.  Therefore, as supply chain leaders you need to devise strategies and tactics to optimize your human and physical capital to make the most of your resources.  It is my hope that these three ideas may be just what you need to help you to start utilizing your limited resources in a somewhat different, more effective and productive way. 

How Using Data-Driven Logic-Based Strategies Can Give You The Focus You Need On Your Customers To Make Savings Happen!

Uncovering Savings Opportunities In The 21^st Century Requires You To Use  Predictive Analytics (data mining) To Understand Your Customer’s Behavior – then modify them.

In the 20^th century supply chain professionals were fixated on price savings to reduce the cost of acquisition of their products, services and technologies, thereby making a big dent in their healthcare organization’s cost composition by partnering with their GPOs. Now that these “no-brainer” savings have run their course, it’s the optimum time for supply chain professionals to move from a price focused to data-driven, logic-based strategies and tactics to continue to make savings happen! 

I would guess that 80% of the hospitals and healthcare systems in the country have purchased new material management information systems within the last five years. From my viewpoint these systems are only being utilized to house raw purchasing data as opposed to utilizing them as fuel for value studies of their customers’ behaviors where literally acres of diamonds can be found in savings. 

How To Uncover Your Customer’s Behaviors That Are Hidden From Your View

The precise science of data mining using predictive analytics (or the analysis of trends, patterns, movements or directions of customer behaviors) requires four steps:

1.       Segmenting Your Customers Into Groups With Shared Characteristics Or Buying Preferences

This means isolating all of your customers who have purchased the same commodities (e.g., pacemakers, I.V. sets or catheter care kits) for the last 12 months by department.

2.       Organize These Groupings By Order Of Importance (80/20 rule)

Sort all of your customer group’s purchases by descending dollar, and then isolate those 20% of your customers that purchase 80% of the commodities into neat piles.

3.       Analyze Your Customer’s Purchasing Data To Reveal Savings Opportunities

Once step one and two have been completed, analyze your data for unfavorable trends, patterns, movements or directions that aren’t logical from you 20% customer pile.  For example:

·         Why is your operating room purchasing disposable and reusable hand towels too?

·         Why are you purchasing 57 different patient gowns?

·         Why are you using disposable and reusable oxisensors?

These findings and many more unpredictable discoveries will jump off the page at you without you breaking a sweat.

4.    Decide With Your Customers What Behaviors Need To Be Modified, Eliminated or Value Justified.

Once you have discovered, through your analysis, the various unfavorable trends, patterns, movements and directions in your customers’ behaviors you then need to meet with these customers to understand the WHAT, WHEN, WHY, HOW AND WHO of these buying decisions. Then, with your customers decide what behaviors need to be modified, eliminated or value justified.   

The structure that I have outlined for you herein to uncover unfavorable customer behaviors which are now hidden from view will enable you to move beyond price to the next level of savings performance. 

Never Underestimate The Power Of Data!

No matter how many times I teach, preach and educate supply chain managers on the importance of data mining their raw purchasing data, few take my advice because it is – hard work. Let me state with no qualifications that data-driven, logic-based strategies and tactics, focused on your customer’s behaviors, is the future of supply chain management in the 21^st century. Sophisticated analytical tools are available to perform this challenging work that you must master if you are to stay relevant, credible and employable in the ever changing and fast paced world of supply chain management. 

1. Value Analysis Analytics

For instance, 30% of those surveyed felt that their biggest obstacle was reducing cost while also maintaining service and outcomes. Yet, many hospitals, systems and IDNs haven’t even begun to seriously cut their cost at all levels of their operations. So why are these respondees so concerned about the quality aspects of their actions? Could the answer to this question be self-serving since it is the politically correct answer to this question?

The respondees to this survey also believed, by a margin of 32%, that the lack of accountability, follow-through and physician resistance was their single biggest obstacle to successful cost reduction. Now I believe we are getting closer to the truth as we see it. Though, I would like to add that staff resistance, at all levels, is also a major obstacle to success; only six-percent of the respondees felt this was a big problem.

It was also reported that only 10% of the respondees felt that the lack of sustainable processes for attacking their cost was an impediment to success, which we see is true in fact since there are a myriad of systems in the marketplace (Lean Management, Six Sigma, Utilization Management, Value Analysis, Spend Management, etc.)  to do so — but not in practice.  Too often these systems are underutilized, misapplied, or not fully understood, thus the full benefits of these cost reduction methods are not gained.

To sum up my views on this survey, these are just a few of the responses from this wide-ranging annual survey that I thought were interesting enough to comment on, since things aren’t always as they appear to be in print. We always need to look behind the numbers, motives and questions of any survey to dissect the real truth and meaning of these so-called thought leaders who like to take surveys in their spare time. 

It’s not going to happen by having them attend your value analysis team meetings, since they don’t have the time or patience for these get-togethers.  It’s not going to happen by talking to the chairperson of their department, since they really don’t very often listen to what these individuals have to say.  And even with the best intentions, it’s not going to happen if you invite them to a luncheon meeting with their peers to discuss savings money.

There is only one secret that we have discovered that will absolutely get your physicians involved, engaged and absorbed in your utilization management initiatives: relevant and indisputable data about their practices!

For instance, I remember at one teaching hospital where we were working a few years ago we were able to encourage their surgeons to conduct a utilization study on their surgeon glove usage. Interestingly, we usually provide the value analysis analytics for these studies, but the surgeons insisted on doing it themselves.  Who was I to say no to them?

While I thought this would never happen due to these surgeons’ workload, I was pleasantly surprised that at our next meeting the surgeons presented PowerPoint slides with the metrics (usage and type of glove used by each surgeon, etc.), that they thought were important for them to review and discuss. To make a long story short, these surgeons reduced the number of types of gloves they were buying and their usage too without us doing anything to facilitate this process.

I must admit that this wasn’t my typical experience with surgeons; I only mention this story so you can see that the physician’s role in utilization management is to understand and then interpret the data that is presented to them and then self-correct their behavior based on what the data is telling them.  Since physicians are actually scientists by their training, they always will relate to data, especially if it is telling them something about their own practices. This is what gets their attention, interest and emotional involvement in your utilization management initiatives.  No other tactic I know of will attain the same lasting results.

We have also discovered that if you attempt to bring together every last data element that resides in your MMIS or MRP system to perform your value analysis analytics you will soon find this task to be too time consuming and herculean to be of much use to you. This is because you will never have enough time in a week, month or year to get all of your millions of data elements synchronized in a timely and systematic manner.

But don’t be discouraged, since we have found that the most cost effective, time sensitive and logical way to organize supply chain expense data for analysis is to group your products, services and technologies by their natural classification, e.g. blood pressure cuffs, vacutainers, I.V. catheters, etc.

To this end, we have 276 categories that we track, trend and analyze for our clients that represent 86% of their supply spend.  The other 14% are either products, services or technologies that are under $25,000 annual spend or one time purchases of no consequence that we don’t capture and analyze.

The point of this discussion is that if you are now attempting to capture every data element in your MMIS or MRP systems for the purpose of value analysis analytics you are actually increasing your workload by 25-fold without a corresponding benefits.

Take a hard-learned lesson from two guys in the supply chain trenches everyday: Just because you have the millions of data bites in your MMIS or MRP system doesn’t mean that more data is always better for the purpose of value analysis analytics.  Actually, we have discovered — less is more!

After thinking about an answer to this supply chain professional’s question, I realized this was a tall order since it is dozens of big, small and nuanced value analysis best practices we have learned or observed over the last 25 years that make hospital value analysis teams successful.

So I decided, as a starting point, to answer this question with the 5 uppermost best practices that make hospital value analysis teams hum, prosper and achieve which are as follows:

1. Strategic Planning Driven: Too often, value analysis teams, after  forming, are asked by their senior management to “go save  money” and with little else to guide their way.  This is the worst  advice you could give to a value analysis team since what they  really need is a vision, mission, goals and a plan to really make  savings happen. Consequently, big and sustainable savings won’t  happen if value analysis teams aren’t given a well thought out  strategic value analysis plan to guide their way. 

2. Value analysis Steering Committee: Left to their own devices  value analysis teams will lose their way without the direction,  guidance and timely arbitration of problems that will arise that  are provided by a value analysis steering committee.  The  steering committee membership should be comprised of your hospi- tal’s senior management who have a vested interest in seeing  your value analysis program succeed.

3. 40-Hours of Training: Value analysis is an art and science, therefore practitioners need  up to 40-hours of training and coaching  to be proficient in this discipline. If you decide not to train your  value analysis team leaders and members you will pay the high  price  of only skimming the surface of realizable savings and be- fore long hitting the wall on new savings opportunities altogether.

4. Outcome-Based Results: Setting predetermined savings and  quality goals annually is the engine that keeps your value anal- ysis teams on track, on budget and on time with your value  analysis initiatives. This then enables you to measure, manage and control your value analysis teams’ outcomes each year,  as opposed to hoping that savings will happen on their own  without vigorous controls over your outcomes. 

5. Team-Based Project Management: Most value analysis teams  are really structured as committees, not project teams since  this slows down their productivity, erodes accountability and pro- motes group think.  A much better way is to consider each  member of your value analysis team as a project manager for  each of your projects (i.e. savings initiatives) who then is held  accountable for predetermined outcomes.  This one change in  your team structure, will transform your value analysis teams  into a saving machine – almost overnight.

As it is with any maturing discipline, there are dozens of best practices to choose from to improve and enhance your value analysis team’s performance. However, these five best practices that I have outlined herein are at the top of my list as the most inventive, impactful and transformative of the scores that are available to you today.

Why not try just one of these best practices this month to see if it doesn’t make a big leap forward in your value analysis team’s performance. You have nothing to lose and everything to save by doing so.

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(*) If you aren’t receiving our monthly Savings Beyond Price™ letter and would like to receive it free by U.S. Mail each month, just e-mail us at bobpres@strategicva.com and we would be happy to add you to our list of over 1,764 subscribers.

The only downside to value analysis is keeping track of all the moving parts (people, projects and performance), especially now that some healthcare organizations have six to 10 active hospital or system value analysis teams with a 100 or more team members. You can just imagine how these team dynamics can quickly become a formidable task to measure, manage and control such diverse and complex processes.

That doesn’t mean there isn’t an answer! The secret, we have found to organizing, managing, and controlling and keeping score of a healthcare organization’s multi-disciplined value analysis teams is to automate all of their team-related activities. In our opinion, the use of spreadsheets, list serves and multiple databases to manage a value analysis team’s activities is actually holding back dramatic advances in any and all value analysis team’s productivity and performance. 

There is a better and foolproof way for quickly and consistently generating superior hospital value analysis results by employing technology to do the heavy lifting for you. We reveal this in our new 16-page Guide to Automating Your Supply Value Analysis Program.  The best part of all, the guidebook is FREE, but the information is PRICELESS! Don’t miss this opportunity to gain the specific knowledge that is necessary for you to up your value analysis game.

We see our role as helping supply chain managers to find what we call that next level of supply chain savings (beyond price) in the new discipline of supply utilization management. This is the genesis of our Podcast #29: “4 Things to Make Your Supply Chain Job Easier” and what we have been focusing our attention on with our software, training and coaching of our clients.

We felt it was a good time to have a timely review of the strategies, tactics, techniques and tools that we have found helpful for ourselves and our clients as we and they are facing shrinking time, money and resources, but ever increasing demands on supply chain departments and their workloads. 

It’s not going to get any easier for supply chain managers to save money with their shrinking staff, limited time and meager resources. That’s why we all need to find new and better ways to make our jobs easier, while still meeting our savings and operational goals each and every year. 

Unfortunately, this won’t happen by working more hours, weekends or even skipping vacations, since there are only so many hours in a day, month and year.  But your goals can be met by organizing your time to be more efficient and effective, embracing technology to speed up your operations, empowering your value analysis teams to save more, and working smarter, not harder by going after your high-value targets. 

If you want to hear how all this can be accomplished I suggest that you listen to our Podcast#2: “4 Things to Make Your Supply Chain Job Easier” to get the insiders view on how to do so.

Getting to 10%: These are the incremental savings (price, standardization and value analysis) that you have been accustomed to saving all along, but now you will need to go one step further to re-specify all of the products, services and technologies you have been buying. This is because your department heads and managers don’t need everything they say they need in their specifications and you are just wasting your hospital, system or IDN’s money buying unneeded functions and features. An easy way to get started on this journey is to re-specify all of your packs, kits and trays. In doing so, you will discover that most of your packs, kits and tray’s components are feature rich, over-specified or not needed at all.

Getting to 20%: These savings are typically found (or most often ignored) in the way your department heads and managers utilize (i.e., waste, inefficiency, misuse, misappropriation and value mismatches) the products, services and technologies you are buying for them. We see these utilization misalignments all the time with I.V. sets, endomechanicals, oxisensors, floor gloves or custom packs. In most situations, no one takes the time or effort to investigate why your hospital is using more of a commodity group than their peers.

Getting to 30%: These savings most often come about by eliminating, recycling or reinventing the products, services and technologies you are buying. A good example would be moving from disposable to reusable operating room and maternity custom packs at a double-digit savings as many hospitals are already doing throughout the U.S.A.

Saving 10%, 20% or even 30% in your supply expenses is easier than you might think if you continue to implement your incremental savings, start attacking your utilization misalignments and then eliminate, recycle or reinvent the products, services or technologies you are buying now.

This isn’t an exercise in theory, but a foundation for reducing your supply chain expense to a bare minimum over the next five years. When you’ve got to cut cost, it’s much better to have a plan to do so than to hope that someone will come to the rescue before the inevitable becomes a reality. Remember: Planning takes the sting out of reality!

• Relationships: All supply chain expenses have a corresponding cost driver or relationship that is the key to saving money in the 21^st century. It is your job to find these intertwining relationships and then to hone in on their patterns, trends and variances to determine savings opportunities that are currently hidden from your view.

For instance, your custom pack’s costs are driven by your operating room procedures, (this is the relationship or cost driver); no procedures no attributor cost! If you track and trend your per procedure custom pack cost over time, you will discover that they change precipitously.  The question you then need to be asking is why are these costs changing over time?  This relationship building process is your window to identifying new and better cost savings opportunities.

• Real-time: To measure and monitor your supply chain expense relationships or cost drivers effectively, it is best to do so in real-time. Why? Thousands of dollars could be lost if you wait until someone stumbles over the fact that your I.V. set cost, or whatever, is going through the roof. Supply chain visibility in real-time is critical to reining in these anomalies before they get out of control.

• Rewards: The time you invest in identifying your supply chain expense relationships or cost drivers will be rewarded, from our experience, with an additional 7% to 15% more savings than you are realizing now. Let me make it crystal clear that these new savings aren’t price or standardization driven, but are utilization savings that are now being overlooked or ignored.

I’m sure you are thinking to yourself just about now that this process, that I just described, looks and feels like a lot of hard, demanding work. Well, it doesn’t need to be if you harness the power of technology, as we have, to search, measure and analyze, in real-time, the relationship between the products, service and technologies our client’s buy and the velocity and intensity at which these same commodities are moving through their supply streams.  That’s why data is the new supply chain currency in the 21^st century, because it opens up a whole new window of supply chain savings opportunities. 

How does this happen?  Strategic FAST organizations have these characteristic that set them apart from their competition:

●      Senior management is committed to initiatives’ success vs. the lack of senior leaders support.

●      Teams review how their work is going vs. not taking time to reflect on their work.

●      Teams capture their best practices vs. not debriefing after an assignment to document lessons learned.

●      Teams uncover breakthrough savings vs. fine-tuning their existing spend management.

●      Senior management makes sure there are no conflicts vs. working at cross-purposes by giving teams competing objectives.

●      Even experienced employees receive extensive training when assigned to teams vs. rarely, if ever, receiving training or education.

“Ultimately, strategic speed is a function of leadership.  Teams
that become comfortable taking time to get things right, rather
than plow(ing) ahead full bore, are more successful in meeting
their business objectives. That kind of assurance must come from
the top”, says Jocelyn R Davis and Tom Arkinson, principals at The
Forum Corporation.

Are these the characteristics your value analysis team(s) is exhibiting and the kind of senior management support you are experiencing? If not, maybe it is time you slow down to speed up by closely aligning your value analysis team(s) performance with your senior leader’s expectations.

There are many little and big things that can cut costs at your healthcare organization, that won’t even be missed. For example, how many subscriptions do you need for your magazines?  We sometimes see thousands of dollars a year showing up in this cost center. Do you need to buy everything prepackaged and pre-made for your food service department or would it be more cost effective to make some things from scratch? Are you still buying hundreds of calendars every year for your department heads and managers, as I used to do, or can you now eliminate them since everyone has a calendar built into their Microsoft Outlook? Yes, these are little things that add hundreds-of-thousands of dollars to your supply budget annually when you add them all up.

Just last night my brother-in-law, who is a travel agent, gave me another cost cutting idea that I never thought about.  What he told me was that he has observed that when an airfare, hotel and rental car is booked with his agency and then is paid for by a corporation, no one ever searches out a better rate with him.  They accept whatever he quotes!

However, when he is called by an individual who has to book their business travel arrangements on their credit card and then charge it back to their company for reimbursement, they are obsessed with getting the best fares and rates possible so they don’t build up their credit card charges.  What he recommended is that all business travel arrangements should be booked and charged back to corporations by individuals, and then you would see your organization’s travel expense drop precipitously.   

I thought this was just another great cost cutting idea that wouldn’t cost your healthcare organization anything to implement. That’s why I continue to say that it is easier than you think to cut cost, if and when, you start to focus on eliminating the big and little things that are no longer needed.

If that’s your take on this universal best practice, then you would be greatly mistaken.  Competitive intelligence is actually your window onto the marketplace that can open up your eyes to new savings and quality improvement opportunities that have passed you by over the years.

For instance, did you know that the best contract pricing we have seen is attributed to local, not regional or national contracts? That hospitals with the lowest supply chain cost buy more generic products, than brand name products? Or, that value analysis teams that employ the “functional approach” save 7x more than their peers.

These are just three examples of how having a window onto the marketplace can give you the competitive intelligence that is necessary to steer your supply chain ship in the right direction vs. guessing what direction you should be going.  It will save you a lot of lost time and wasted effort by doing so!

This competitive intelligence won’t come to you out of the blue, you will need to search it out through surveys, benchmarking and good old snooping around. When I was a material manager and now as a consultant, I never miss the opportunity to visit a hospital and then get a tour of the entire facility while asking dozens of questions along the way. I would pick up so much competitive intelligence on these tours that it would take almost a whole notebook to document what I had discovered.

As my company’s Chief Value Strategist I avidly collect, analyze and then disseminate competitive intelligence to our clients every day, since it’s the lifeblood of our software, training and advisory practice.

This should be your goal too, if you want to keep ahead of your competition or at least stay in step or you could risk falling years behind the intelligence/information curve at your peril!

A new kind of perspective! With the advent of supply chain regional service centers (one-stop supply chain shared services) popping up around the nation to reduce a free-standing hospital or system’s purchasing, inventory and operating cost, I believe that a new supply chain model is emerging that will set the stage for reinventing how your hospitals and system’s supply chain management is organized in the future.

It’s not just about cost! One of the benefits of the SCRSC beyond price savings is the efficiency that can be brought about by controlling more of your supply chain than ever before. For instance, one of our SCRSC clients has a custom pack manufacturing center which not only can dramatically lower custom pack cost and lower inventory, but can make changes to these packs almost overnight. Now, it takes about three months to make the same change through one of your pack manufacturers. This is a significant supply chain improvement over yesteryears supply chain models.

More control, more savings! Another important aspect of the SCRSC model is that hospitals can now venture into new supply chain areas (e.g., cook-and-chill food preparation, records management, drug repackaging, instrument repair, etc.) than ever before. This will give your hospital even more control and cost savings than ever before, since you will now be combining your volume with 5, 7, or even 12 hospitals that are owners of the SCRSC.

The times are changing!  With the advent of even more cost controls over the next few years by the federal government (i.e. $500 billion Medicare reductions), new and better ways to manage and control your supply chain operating cost must be identified by supply chain managers to ensure your hospital’s viability in this decade and beyond. 

The good news is that SCRSC’s are one big answer to this challenge in my opinion.  If you don’t have a SCRSC already in operation in your region of the country that you can join, may I suggest that you start one with your colleagues so that you too can gain a new supply chain perspective that will open the door to millions of dollars of new savings and operational improvement for your hospital.  It is the wave of the future!
 

When does it make good sense to save money on the waste and inefficiency in your supply streams that are eating away at your hospital’s profit margins?  When is a good time to stop the leaks in your dike that are negating all of the price savings you have been working so hard to achieve?  When is it the right time to develop multiple savings sources vs. just one –- price — to guarantee that your well won’t run dry?

One of our clients made this leap forward about three years ago when they decided to make utilization management one of their primary targets for savings each and every year.  They are now discovering that their utilization savings are almost equal to their price savings (in the millions) annually. If they would have decided that the timing wasn’t right for this change in “mindset”, a change from price only to utilization, they would have lost this opportunity to increase their savings yield by more than 84%.

Last week, I talked about the advent of Medicare’s “Value-Based Purchasing Perspective Payment System” that is going to wipe out 7.25% of your hospital’s profits over a five year period starting in October of 2012. If you don’t develop new savings sources (e.g. utilization management) how then are you going to meet this new, even bigger, challenge head-on?  The question then is not “if” your hospital will attack your utilization misalignments, but “when” There is no other right answer to this question.

When I was a supply chain manager I had to justify my (current and proposed) FTEs, each and every year, by showing my hospital’s budget manager that my workload and volumes supported my budget requests. That’s where I learned to develop labor standards and use productivity tools to instill accountability, eliminate productivity losses, and develop staffing predictability into my supply chain operations.

I even started to do time and motion studies that I learned as an organizational management major in college to determine the most efficient way to perform the numerous supply chain jobs that were under my department’s responsibility. For example, I once did a time and motion study to determine the best way to reprocess our thermometers (yes, we did reprocess them in the 60s and 70s) in my central supply department. By doing so, I found we could eliminate steps, reduce material cost and streamline what we had been doing for years, since no one ever questioned why we were doing it this way.

On the flip side of the coin, I have watched department heads lose staff every year because they couldn’t or wouldn’t value-justify why they needed all the staff they had in the first place.  By the way, I never lost staff and was able to hire new staff almost at will, since I had the standards, statistics and data to back up my requisition for new hires.  And I never asked for any staff that wasn’t absolutely positively necessary.  This attitude helped me to build trust with my management that when I asked for staff they knew I really needed them.

You can do the same…

To this end, I have found that supply chain managers that have superior productivity and absolute control over their labor cost employ labor productivity software to measure and manage their staffing. If your hospital doesn’t have such software in place now, then I would suggest you develop, buy or subscribe to one that can enable you to coordinate all aspects of your department’s work into an integrated system. In this way you will not only be accountable for your labor resources, but you will be able to push back on any effort by your management to reduce your staffing.

When I was corporate director of supply chain for an IDN I employed three strategies to keep my senior staff from becoming stagnated, overconfident and complacent that may help you, too, to create a supply chain learning environment. Here they are:

1. Monthly Training Program:  At each and every one of our  monthly department meetings, I had a half-hour training pro- gram conducted by a guest speaker or me on topics such as  leadership, value analysis, productivity, cost management, etc.
2. Circulation of Magazine Article: I sent pertinent magazine ar- ticles to my senior staff to make sure they were keeping up on  the latest trends in supply chain management. I still do this to day!
3. Encouraged Continual Learning:  Encouraged my senior staff  to attend conventions, seminars and workshops to sharpen their  skills. I even attended many of these events with my staff so we  could all be on the same page.

That’s not all; recently a director of supply chain for an IDN had his assistant call me asking that I add his five buyers to our weekly Savings Beyond Price™ E-Newsletter.  So as you can see, there are many ways that you can create a supply chain learning environment with internal or external resources that are available to you. All it takes is the commitment to do it!
 

This has been the trend line since 2008, and it doesn’t seem to be slowing down. The big question then is “Why are our non-labor expenses increasing?” I have a few thoughts on why this is happening and what we can do about it before we have lost control of this spend category completely. They are:

• Health Insurance: One of the largest non-labor expenses for a healthcare organization is health insurance which is increasing at an unbelievable rate of 8% to 8.5% annually, while our inflation rate in 2010 was 1.5%. I believe the answer to this challenge is for hospitals are to open employee clinics to control one of the most costly aspects of healthcare — unnecessary visits to doctors and emergency rooms. This won’t solve this costly problem altogether, but I have confidence that it will put a big dent in it.

• Purchase Services: In an effort to rein in their costs hospitals have outsourced more and more of their clinical and operational services over the years. This has increased this non-labor cost category exponentially from prior years. To control these costs efficiently and effectively they need to be centralized under the control of your supply chain department, which isn’t the case in most healthcare organizations today.

• New Purchases: I am always amazed at how many new products, services and technologies (we have seen it as high as a 24% increase quarterly) are purchased by every hospital we have worked with over the last 12 years. In my opinion, this is a symptom that value analysis programs aren’t working the way they’re supposed to at healthcare organizations today. This is especially troubling since there are very few really new products, services and technologies in the healthcare marketplace. Most are repackaged to look new, therefore we must do a much better job of value-justifying what we buy to hold back these purchases.

Since our inflation rate over the last three years is running an average of 1.4% annually you can’t blame all these non-labor expense increases of 3.5% in 2010 on inflation. It’s much more than that; it’s about effectively controlling all, not just some, but all of your non-labor expenses as successfully as you have done with your supply expenses. It’s all about committing the necessary time, money and resources to doing so!  Purchase Service Expense Reduction is well worth the time and you will reap big savings as a result!

This “single bullet” myth, so aptly described by Dudas, got me thinking about what solutions healthcare organizations are employing to rein in their supply expenses. The first and foremost of these solutions are GPOs; hospitals belong to 2.9 of them to lower their direct cost. The next solution, as I see it, is value analysis teams which are almost universally employed at all healthcare organizations today. Third is spend managers, which I’m told, about one-third of healthcare organizations are subscribing to these services to check their prices and manage their contract compliance. Fourth, are automatic supply cabinets to manage supplies, drugs and charges in customers’ departments.

These are four examples of the preponderance of solutions in the supply chain cost management, that come to mind, that are or will become best practices in the very near future. As I’m sure you notice, no one solution was the “single bullet” that resolved all supply chain expense management challenges. As Dudas suggests, it will require multiple solutions (or an arsenal as he calls it) specifically tailored to the task at hand to efficiently and effectively manage and control each and every unique aspect of your supply chain cost management.

The lesson to be learned here is that just because you have some of your supply chain cost management areas under control with your current solutions, no one solution (or single bullet) is the answer to all of your supply chain cost management challenges (i.e., utilization management, contract management, resource management, etc.). That’s why an arsenal of solutions is necessary to wring the towel dry on all of your supply chain expenses.  One solution or “single bullet” won’t get the job done! 

Consequently, by not delegating their VA responsibilities to value analysis teams, who have the time, knowledge and rapport with their clinicians to make savings happen, they are holding back millions of dollars of new savings that are ready to be harvested.  I call this progressive tactic THE VALUE ANALYSIS MULTIPLIER EFFECT: More people, more time, and more savings.

When I’m teaching our Certified Value Analysis Train-The-Trainer course one of the topics that I cover is the “Value Analysis Manager Productivity Index”, which says that a material manager or value analysis manager’s time, effectiveness and efficiency can increase by a whopping 79% if he or she is utilizing the team approach to value analysis.  

If you think about it, this “multiplier” concept is really common sense, since there are only 2080 work hours in a year and as an individual you can only get so much VA work done in a day, week or month. My guess is only about 34 VA projects can be completed annually by an individual. Conversely, when you have one, two or even four value analysis team(s) with 10 VA project managers, I have seen value analysis managers’ close-out as many as 160 VA projects yearly.

One of the objections to this “multiplier” concept is that, “No one has time to be involved in value analysis teams, since there is just too much other important work to get done”. Well, my answer to this complaint is that if a healthcare organization does make time to save money, then it won’t matter what other important work they have to do, since bankruptcy will solve this problem – forever!

I could cite numerous other benefits to the “team approach” to value analysis, but I believe the main justification for utilizing this technique is that it will enable you to save more money, in less time and with much better results.  It’s your choice, but I’m betting that some of my readers will decide to take this advice seriously and find a way to do so!

What I’m talking about here is the need for you to employ a data warehouse to manage, analyze and control your supply chain business vs. just managing routine MMIS or ERP transactional data. It means going deeper and broader than ever before to extract meaningful actionable data to save money and improve your operations.  Some of the benefits of a data warehouse are: 

● Enables you to maintain your data history, even if your source transaction systems
   (e.g. MMIS or ERP) do not.
● Integrates data from multiple source systems (A/P, financial and clinical files, etc.) so you can
   have a view across your supply chain.
● Improves data, by providing consistent categorization and descriptions, flagging or even fixing
   bad data.
● Presents your supply chain information consistently and reliably.
● Provides a single common data model for all data regardless of your data's source.
● Restructures the data so that it makes sense for your business use.
● Organizes your data so that it delivers excellent query performance, even for complex
   analytic queries.

If you feel that these attributes of a data warehouse aren’t important to you, let me show you how you can use this technology to control your supply chain expenses when you have the right analytical software for data mining.

If you would integrate your purchase service expenses, by category, (telecommunications, travel, transcription services, etc.) with their relational operating metrics (patient days, meals serviced, clinic visits, etc.) you will than see what your cost per operating metric is for each category of purchase service. If you then benchmark these same categories of purchase services, I can assure you that you will discover 11% to 18% in savings in these same purchase services.

Get my point here!  This same analytical exercise can’t be accomplished without a data warehouse.  Your current MMIS or ERP systems won’t cut the mustard; it’s beyond their capability to do so. So, if you want to move to the next level of data performance don’t wait any longer to make, buy or subscribe to a provider of these services to up your game.

For instance, it might be said that all initiatives involve people, processes and technology to accomplish their stated mission, but what isn’t well understood is that 20% to 25% of the success of the initiative rests on how well a healthcare organization follows these six guidelines for optimizing the outcomes of their big, small or transformational systems and processes:

1. Alignment

Everyone (executive management, customers and stakeholders) needs to be on the same page for any supply chain initiative to succeed. A directive can’t be just e-mailed by someone on high to all involved parties to ensure alignment. Alignment can only be accomplished by a series of organized educational sessions that build understanding, trust, engagement, and commitment to the work at hand.

2. Communications

Tepid, infrequent and unclear communications about your initiative won’t get the job done. You will need to develop a surefire communication strategy before launching your initiative to guarantee that there are no miscommunications. I’ve seen some healthcare organizations have a newsletter for major initiatives sent to every employee at their hospital, system or IDN to continuously inform their staff of what’s happening on a monthly basis since under-communicating can cause more harm than good.

3. Team Approach

Most initiatives require teamwork of some sort to achieve their goals and objectives, but leaving the “how-to’s” to your teams’ own designs without providing them with a defined structure, ground rules and training is a formula for disaster. This goes back to getting everyone on the same page and going in the right direction. This can’t be achieved if everyone is going every which way — but forward.

4. Engagement

This is all about getting everyone from your steering committee (if you have one) to your individual team leaders and team members involved, motivated and invested in the work that they have been assigned. This can be accomplished with clear communications about the importance of the work, team building exercises and providing (monetary and non-monetary) incentives for work that exceeds expectations.

5. Empowerment

We have found that teams can be easily empowered, to do the right things in the right sequence, if they aren’t required to ask permission from their executive management on every decision that they make. That’s why we insist on having a senior level champion assigned to the teams we facilitate for our clients to guide their teams in making the right decisions for their healthcare organization.

6. Accountability

A team has an obligation to accept responsibility for their actions and outcomes. Otherwise, they would be just another social network meeting to discuss common problems and exchanging ideas. That’s why you must set concrete goals and objectives for your teams and then hold them accountable for their actions vs. hoping that everything will turn out all right.

If you are looking for more successes than failures with your supply chain initiatives then I would suggest that you consider these six guidelines for success as a starting and ending point for any and all ventures that you are contemplating. Especially now that you know that 20% to 25% of the success of your projects depends on how you communicate, organize, train and then hold your team members accountable for their actions.

Specifically, S&P projected the gross domestic product instead of projected inflation to calculate what the U.S. government spending and total U.S. Debt would be for the next 10 years.  Quite embarrassing wouldn’t you agree, but these kinds of math errors aren’t unusual in the fast paced business environment we are all working and living in. 

I’m sure you could cite a few examples of math errors in your own supply chain operations that you too were embarrassed over and then never wanted to see them happen again. So how do you get your math right the first time?

Mathematician, Thomas R. Nicely says “The best method of preventing (errors) is to have two or more independent procedures for determining or checking the same result.”  We do this in our analytics work every day.  For example, when we receive a download of purchasing history for one year from our clients and then calculate their total spend, we also check what our client’s accounting department has reported to us for this same number.  If they don’t match we go back to the source to find out why.

Another way is to run the numbers (we call this a draft report) by the party that you are doing the work for to see if they agree with your assumptions, calculations and results before you publish your final report.  This is how S&P uncovered their $2 trillion dollar error.  They ran their numbers by the Treasury Department and the Congressional Budget Office, before releasing them publically, and then adjusted downward the USA’s projected future budget shortfalls once the error was caught.  

Lastly, we have found that fact-checking for the “reasonableness’ of your numbers works as well.  It’s been our policy for years that if one of our analysts discovers a savings for our clients of 50% or more on any SKU they throw it out or consider it an outlier. This is because we have found that it isn’t realistic or credible in most situations to present our clients with a number that is unlikely to save them money.

When all is said and done, everyone makes math, spreadsheet and calculation mistakes; however it should be as infrequent as possible. Only by having more than one fact-check, submitting draft reports and inspecting your numbers for reasonableness can you reduce your math errors to the lowest number possible. When all else fails and you do make a math error, make sure it never happens again.

Why you might ask is this important? Purchase service contracts don’t fit naturally into your normal strategic sourcing bidding protocols since they aren’t off-the-self commodities. Each contract is unique to your healthcare organization and therefore needs to be treated as such. The best way I know to do so is with a carefully crafted “Performance-Based Statement of Work” to measure, monitor and manage your supplier’s performance.

With this said, here is a checklist of the five primary elements of any “Performance-Based Statement of Work” to guide you through this process:

1. Performance Objective

What do you want to accomplish as a result of your contract? An example in a laundry processing contract would be: On-time, on budget, hotel quality linen service five-days a week. This way you begin with the end in mind with your performance objective, which makes it easier to write your contract terms and conditions.

2. Required Service, Task or Deliverable

This is the nuts and bolts of the agreement: The who, what, where and how the service is to be performed and then delivered. This could be accomplished in one paragraph, one page or a dozen pages. It all depends on the sophistication of the ser- vice.

3. Performance Standard

What is missing in most purchase service contracts: A standard(s) to hold your suppliers’ accountable. It could be error rates, accuracy rates, staying within quoted costs, downtime, etc. Whatever you decide on make sure that it is measurable!

4. Method of Surveillance

What is inspected usually happens, so it is your job to write into your purchase service contracts your measurement tool(s), such as supplier monthly activity report, monthly inspections, random samples, etc., to avoid any surprises or service quality is- sues.

5. Positive or Negative Incentives

Everyone, including your suppliers, work best when they have either positive or negative incentives built into their work plan, which can be monetary or non-monetary in nature. For instance, you could include a 5% annual bonus into your contract language if your supplier is under budget by 15%. Or, you can in- corporate into your contract a penalty of 2% for every one per- cent they are over budget for any given year.

There you have it, a five point guide to writing “Performance-Based Statements of Work” that will provide you with the purchase services needed, performance required and incentives to get your service work done right the first time.

Value analysis teams are no different than any other business units. They must be controlled and then held accountable by stringent rules and protocols or they will go rapidly off track. That’s why we insist that our value analysis clients adopt four new value analysis administrative rules to organize, speed up, and streamline their value analysis process as follows:

1. VA Teams must have clear goals, clear roles and a defined
process: Starting a VA team is much more that appointing
members and setting agendas. There must be pre-established
savings goals for any given year, job descriptions for your team
leader, champion, facilitator, recorder and members, and a
repeatable VA process that everyone understands and follows
precisely.

2. VA Teams must have a charter to define their scope and
boundaries: It’s easy to fall into a trap of not looking at
everything you buy or veering off course by looking at areas
that may not be your VA team’s responsibility This is especially
true if you have multiple VA teams that need to know where
their work stops and where another VA team’s work begins.

3. VA Team members must have a 90-day Timeline for
completing their projects: If you have open ended project
completion dates, your VA work will never be finished. However,
if you set a timeline for completing your VA project (extensions
can be granted by your VA steering committee, if necessary) you
would be surprised how 96% will be completed on time and on
budget.

4. VA Team members must be given time to complete their
Projects: One drawback to committee or teamwork of any kind
is that their members are pulled in many directions (pressured
by their regular job responsibilities and their committee or team
work). Therefore, your VA Steering Committee must be vigilant
that your VA team members are allotted the necessary time by
their supervisors to complete their VA projects.

Getting value analysis right begins with enacting “rules of the road” that describe how you want your VA team to do business. If you leave your value analysis team’s behavior or actions to chance, then don’t be surprised when your VA team becomes dysfunctional or ineffective.

It’s your job as a supply chain professional to set the tone for your VA team(s) with rules, procedures and regulations to keep everyone on the same page and heading in the same direction, because most things that happen by chance are unwanted and unwelcomed!

The reason that this works is that experiments (trials, tests, surveys, research, focus groups, investigations, etc.) will give you new ideas and new ways of doing things, and as a byproduct, give you the hard evidence to sell your better ideas to your executive management team, staff and co-workers. Scientists do this all of the time to find evidence for the right way forward!

For instance, a supply chain manager asked me recently if I thought that most hospitals were bundling their supply charges. I said “I thought most hospitals were bundling their charges, but don’t take my word for this until you perform an experiment”. I then suggested that he survey hospitals in his region to obtain evidence that this was truly the case. This is a much better way than guessing, predicting or intuition!

I read recently that this is the culture of Amazon who has dozens of experiments into new products and services going on at any one time. That’s why Amazon is always coming out with new products and services almost daily, when their competition is stuck in first gear. Intuit is another company that embraces experimentation. Scott Cook, the founder of Intuit, told Business Week Magazine that “he is trying to create a culture of experimentation in which failing is perfectly fine. Whatever happens, he tells his staff, you’re doing right because you’ve created evidence, which is better than anyone’s intuition. He says the organization is buzzing with experiments”.

Do I really need to say anything further about “experiment more to innovate more” to convince you that this makes sense? If the leading companies in the world employ experiments to drive innovation at their organizations, then it should be proof positive for you that you too should experiment more if you want to innovate more. It’s just that simple!

Peter Drucker once said that the best opportunities are “visible, but not seen”. Meaning that if you look at the healthcare landscape a few years out you will see the challenges that are on the horizon and then begin to address them with new innovative ways of doing things.

Sadly, too many healthcare organizations fail to “see” these “visible” opportunities until it is too late to plan for them.  Then they must deal with the consequences of their inaction and lack of vision. Don’t find yourself in this same situation!

One of the trends we all should be watching and preparing for is how the radically reduced reimbursement rates ($500 billion in Medicare reductions under ObamaCare and Medicaid budgets being slashed by most states today) will affect healthcare organizations in the very near future. We are already seeing that healthcare unemployment rate is above 10%, which tells us that hospitals are laying off their workers at an unprecedented rate. Physicians are selling their practices to healthcare systems at a brisk pace for security sake and investors are selling their stock in publically traded healthcare companies. It’s not a pretty picture!

However, to me these early indicators or warning signs mean that hospitals, systems and IDNs today, tomorrow and in the future will need to “do more with less” and then must embrace technology, at every level of their organization, to keep their labor and non-labor cost at the absolute minimum.

So, if I were a supply chain manager today I would be looking for new and better technology as the next best practices to weather the storm that is coming our way, since current best practices will only go so far in bridging the cost gap that your healthcare organization will be experiencing in the very near future.  I would bet my house on it!
 

1. Set Goals for Your Study – I cannot tell you how many VA Project Managers look at us like we have two heads when they receive their new value analysis studies from us and then we ask what their savings goals and objectives for their VA study are? 

      
   Let’s face it, the old “Go Save Money” model just doesn’t cut the mustard anymore.   If you don’t know what you are trying to achieve with your VA study, how will you know when you have reached your objective?   The answer is to meet with your VA Team Leaders to decide on reasonable goals and objectives for your VA study. It is that simple: Ask and you shall receive!

2. Planning Saves Lots of Time – The best investment in your time is the first hour or two hour you allot to planning your VA study — from the start to finish!   First off, it will give you an idea of what you know about your particular VA study and what you don’t know and will needs to investigate and collect data on.

      
   I have seen so many VA Project Managers go off “Shooting from the Hip” on their VA studies and then invest three to six-month’s time on their VA study while accomplishing absolutely nothing.  Who wants to have that happen to them and take the chance of looking foolish to your team management and peers? So remember, once you have a plan you can refine it, share it with customers and stakeholders while making adjustments on the fly.  The Lesson: Plan to succeed and you will!
    

3. Develop Rapport with Your Customers and Stakeholders – I think we would all agree that we need our customers’ and stakeholders’ feedback to help guide us in conducting our VA studies.  Without their advice and input we would only have our own very limited knowledge of how a product or service works in their environment. They are our experts. They will help us identify what is really required in their products and services and then allow us to move on to search for lower cost alternatives with equal or higher quality that will meet their specifications exactly.

      
   Most important, it gives us an invaluable rapport with our customers and stakeholders which is necessary to gain their buy-in on our savings and quality recommendations. More than likely you will have to engage in other VA Studies with these same customers and stakeholders but thanks to your prior studies you have already started to build a solid foundation that will make your job so much easier in the future!
    

4. Don’t Stop at the First Best Savings Idea – Often a VA Project Manager will quickly uncover savings on their VA project and be ready to shut it down.  However, they and you should continue on and complete your VA study since, more likely than not, there could be even more savings to be achieved, but not yet discovered.  Remember: Don’t stop at your first best savings idea!
    
5. You Have “Gotta” Believe! – It’s human nature to be skeptical, but for a Project Manager it can inhibit their willingness to complete their VA study.   If a project manager starts to think, “Is the savings even there?”  “Is the juice worth the squeeze?”  “Why did I get this study?” or “Why doesn’t purchasing just find a better price?” you can and will sabotage your VA study before it even begins.  Attitude is everything when it comes to VA studies. You must be open, curious and inquisitive to be successful.  It’s important not to throw yourself off of your game (or outta the game) by self-imposed skepticism that doesn’t match the reality of the situation.    You have “gotta” believe!

Value analysis is an art and a science that requires the application of proven strategies, tactics and techniques to be successful. Beginning with and ending with how you conduct your VA studies. If you don’t take your VA studies seriously or half-heartedly conduct them, the outcome of your VA study will be poor at best. Correspondingly, if you follow the five steps we have outlined herein, you will find that your VA studies will become easier, more productive and much more profitable for your healthcare organization. But you “gotta” believe!
 

There are 41,216+ medical products and equipment manufacturers worldwide. 90% of all nutritional supplements, face masks, exam gloves, enzymes and amino acids we buy are manufactured overseas.

70% of the world’s penicillin and two-thirds of aspirin are made in china, $88 billion is spent on medical supplies and equipment in the USA annually and 30% of our surgical and medical instruments are imported.

So as you can see, we are in a global healthcare marketplace that requires supply chain managers to think globally, not locally, regionally or even nationally. A recent article in Hospital and Health Networks warns that hospitals might be exposed to shortage during future pandemics, disasters or manufacturer supply chain disruptions that could be even worse than H1N1 product scarcity in 2009.

That’s why value analysis is even more important than ever before to identify NOW, not tomorrow, alternatives to the “must have” products in your approved formulary. To this end, when I was a supply chain manager, I had my buyer’s list alternatives on our critical buys on their product profile cards (now electronic) so we never had a stock out in our formulary, just a change of a product.

Then again, if a product is a “sole source” you will need to think about carrying a 90-day supply of this commodity in your official inventory. There is no way to get around this eventuality, in view of the fact that a disruption in your supply chain will cost your hospital thousands of dollars in lost revenues.

Supply chain risk management used to be a term only applied to industries that bought their raw materials worldwide, but now this is also a reality with healthcare supply chain managers. You will need to become a risk manager too, if you want to avoid disruptions in your hospital, system or IDNs’ supply chain or risk commodity shortages that can interrupt your hospital operations or even put your patients at risk.

This isn’t about having an agenda!  It should be an informal gathering, with lunch provided free of charge (that’s the hook), that only lasts 30 to 45 minutes. Remember these are busy people who have other things to do, but they must eat lunch — right. So don’t overwhelm them with too much information.

Where do you find topics?  A good way to do so is to survey your Docs to find out what they are interested in learning.  I have found the Medical Staff Office staff is a great resource to start to uncover this information.

Where do you get speakers?  Typically, you can find speakers on your own payroll, such as, doctors, lawyers, trainers or professors who have the expertise in the area in which you are educating your docs. And if you need to go outside your organization to find speakers, there are literally hundreds of speakers on any topic available on a no-cost basis to conduct a session for you. Just ask your Public Relations Department for help in finding them. 

There you have it, a short, but effective plan for having your own “Lunch and Learn” sessions with your docs that can and will have a lasting effective on your relationships with them.  So when you need their help in making a change at your hospital, they will be ready and willing to listen to your proposition because you have proven yourself a trustworthy colleague in their eyes.  

First off, benchmarks are a standard against something that can be measure and assessed. They can be used to gauge if you are obtaining the best price for a commodity you are buying or to see if your staffing is within acceptable limits. However, the power of value analysis analytics (The art and science of measuring trends, patterns, anomalies in your supply streams to quickly identify chain expense savings opportunities) goes beyond just one static metric to look at the total cost of acquisition to disposition of your products, services and technologies.

For instance, how would you know if your cardiac rhythm or orthopedic implants were within acceptable cost effective limits? How would you know that your endomechancials’ total cost (not price) had spiked by 26% over the last two quarters? Or, that your Oxisensor’s reprocessing program is costing you money vs. saving you money as anticipated?

More importantly, by employing value analysis analytics you can begin to understand the back story on why you have changes in your trends, patterns or anomalies in your usage patterns on any category of purchase. Better yet, you can dig and drill down to the SKU level and then the department level to see what is happening (the good, the bad and the ugly) with any department’s purchases.

As I previously stated, benchmarks are important but they won’t give you the whole story on why your commodity costs are out of line with your peers. Only through value analysis analytics can you get the whole picture of the what, who and why you are going off course.

If you would like to know more about this important topic you might want to download at — no cost to you — our Healthcare Supply Utilization Revolution book and then read chapter VII, “ Value Analysis Analytics: The New Science of Savings”, to get a better idea of what I’m talking about. You will find that it will open up a whole new world of savings for you.

It was the goal of this protocol to reduce the total number of forms in our hospital divisions (and of course, save money) to a practical minimum, consistent with the operating requirement of each hospital and inventory investment. It was a great idea at the time, but didn’t go far enough because, as I found to my dismay, people fall back to their old habits if they aren’t disciplined to follow protocols to the letter of the law.

That was then, this is now!  We now have an opportunity, as an industry, through workflow (paperless process) automation to eliminate thousands of paper forms at our hospitals by managing our documents electronically. This enables your healthcare organizations to control inconsistent and/or unauthorized form creation, design forms that are people and process friendly, and eliminate redundant data that is manually completed by your staff while saving a whopping $10,135 per occupied bed.

These systems work by scanning and converting paper documents into electronic formats, but also offering print-on-demand features for your staff. What I like most about these paperless automation systems is that they reduce errors and increase the productivity of staff by pre-loading and auto-filling data (patient name, social security number, doctor’s name, etc.) that is already maintained by your hospital’s clinical information system. They also decommission a form when a new version becomes available, which has always been a headache for supply chain managers who are charged with making sure that old forms are taken off their administrative and clinical areas when new ones are introduced. 

Hearing about the features and benefits of these paperless systems, now gives me confidence that a strong, disciplined and well-ordered forms management program can actually be planned, managed and controlled at any healthcare organization in the USA. Isn’t it time you too revisit you own forms management program with the goal of streamlining, revising and reinventing it with a paperless system?  

The Good: I’m happy to report , based on our surveys, that just about every hospital, system and IDN in the USA has a value analysis program (or some variation thereof) in place to evaluate their new product requests and vet their new and renewal GPO contracts. We are even seeing value analysis activity in other countries (Turkey, India, Saudi Arabia, etc.) who are contacting our firm by phone and e-mail for advice and guidance on developing their own value analysis programs. So as you can see, healthcare value analysis is alive and well in healthcare organizations today and is even catching fire worldwide!

The Bad: I’m sorry to say that even though value analysis has high name recognition in healthcare and it is saving money, its practices are universally still centered on price vs. function. Almost every healthcare organization is missing the point that value analysis by definition is “The study of function and the search for lower cost alternatives”, not price. Hospitals, systems and IDNs that get this salient fact are saving 10x more than healthcare organizations that are just fixated on price with their value analysis programs.

The Reality: Every conversation, over the last few months, that I have had with supply chain professionals regarding their value analysis or other savings programs has told me that they are hitting the wall on their price savings. In fact, most have told me that this reality is keeping them up at night! This is why healthcare organizations need to look beyond price for their value analysis savings of the future. But I’m not talking about the “so-called” value analysis that is being practiced today. I’m advising that healthcare organizations return to the classic tenets of value analysis developed by Larry Miles in the 1940s that always considers price the last element in the value analysis equation –not the first.

Well, there you have it: My view of the good, the bad and reality of value analysis today in healthcare. It’s an idea with promise, that hasn’t reached a level of maturity yet to be called a “best practice, since healthcare organizations still see value analysis as a price evaluation tool vs. a value-based methodology with a 71-year history that can completely reinvent the way a hospital, system or IDN buys anything.

Well, that was then and this is now!  With the advent of cloud computing, we now store all of these “must have” documents and files in an information toolbox on the worldwide web that now can easily be stored, updated and then shared with our staff and clients in real-time. No longer are we losing documents and files or limiting the ability of our staff and clients to see all of the “must have” information we have accumulated over the last 24-years to help them save money. It’s now there on the web, when and if, they need it! 

I’m bringing this idea to your attention since I see a real need for an information toolbox at every supply chain department to store their “must have” information. Yes, I know that many healthcare organizations have intranets to share information, but I’m not sure that intranets are the best vehicle for your knowledge management.  To me intranets are more like billboards than archives to store and retrieve important supply chain information.  You be the judge! I’m just passing along this idea to you in the hopes that an information toolbox will work for you as it has for us in making our information gaps much much smaller! 

First of all, most physicians have a kinship with your healthcare organization and want to see it survive.  After all, without hospitals, physicians have nowhere to send their patient for treatments, perform procedures or to seek expert advice from specialists. You might call this physician/hospital relationship a mutual aid society or an affiliation that strengthens with age. Whatever you call it now is the time tap into this relationship to unlock your savings opportunities.

As I see it, the physician’s role in saving money is to be a customer, expert and advisor in any and all clinical cost reduction initiatives that you are contemplating. They can help you rally the troops, create a culture of compliance to best practices, and focus your team on what is important to them.

I’m not talking theory here since I have worked with physicians my entire healthcare career and have observed what works and what doesn’t with them.  In fact, I have often been surprised at how engaged physicians can become in saving money.  I can remember one time when I was blow-a-away at the graphs and charts that a surgeon developed for a value analysis team meeting I was facilitating.  What amazed me was that this busy surgeon took the time to plot the usage on his peers operating surgeon’s gloves and then I couldn’t believe his enthusiasm on the changes he thought he could get adopted to reduce the cost of this commodity group. This wasn’t an isolated instance; I have experienced this happening many, many times in my career.

What you need to remember is that physicians are successful entrepreneurs who understand how to save money.  They do it every day in their own practices! Now it is our job to tap into the businessperson’s side of their thinking to assist us in unlocking savings opportunities for your healthcare organization. You will be surprised to discover how your physicians can use their everyday demeanor and leadership skills to set the tone for maximizing your supply chain savings.

We like to say that there is a “Whole new world of savings that will open up for you” if you start to observe and then analyze how your products, services and technologies are employed in your healthcare organization as opposed to being fixated on the price at the pump. This is where your gold nuggets will be found — not in price!

Now that inflation has kicked-in on cotton, rubber, food and fuel it becomes even more important to understand how your products, services and technologies are actually employed at your healthcare organization, so you can come up with creative ways to reduce your healthcare organizations cost. For example, many hospitals are making menu changes (e.g. chopped broccoli vs. broccoli spears) to mitigate some of the food inflation they have been experiencing. Others are switching from latex surgeons gloves to nitro gloves since the cost of latex has risen dramatically or limiting choices (size, shape, colors, etc.) of the products they are buying. One hospital system I just read about even changed all their printer defaults to century gothic font to save 30-percent on their ink usage.

This is the future of supply chain management: Tweaking, rethinking and shrinking all of your supply chain expenses to the absolute minimum. At the same time, make everything you do more efficient, more productive and easier for everyone that touches your supply chain functions and activities. That’s how you unleash your supply chain potential!

Something I have advocated, from time to time, is the use of posters to remind, coax, and guide your healthcare organization’s clinicians and support staff, through education, to embrace a best practice.

I have talked about employing posters in the past when there is confusion on what glove should be selected by clinicians for surgeries, nursing floors or ancillary units, since there are so many wrong choices that can be made that will dramatically affect your healthcare organization’s cost. 

I now see that the Cleveland Clinic is using this concept (they call it their “Cost Visibility Project”) extensively at their hospitals to change a resistant culture. This has been reported in the Journal of Healthcare Contracting, June issue. In the JHC article, Bill Donato, Executive director of supply chain management, says, “we’re educating our surgeons by placing posters in strategic locations in operating rooms, on supply cabinets and on hand washing stations. For example, a poster about reprocessed catheters illustrates the significant price difference between reprocessed and new ones and notes that they are equivalent in safety and quality.  Another poster about waste asks the questions, ‘Does everything need to be opened in advance?” Donato reports that the Cleveland Clinic’s “Cost Visibility” project has been well received by their clinicians and is really working.  It’s simple, but very effective!   

I think Cleveland Clinic’s success using posters to change the behaviors of their clinician’s points to the fact that sometimes it is the little things that you do that can make big changes in a resistant culture. It all comes down to finding new and better ways to communicate, educate and then encourage your clinicians to do the right thing without putting undue pressure on them to do so. The key to success is: It must be their decision to change — not yours! Then your best practices will become their best practices too!

Purchase services alone represents 39% of a typical healthcare organization’s supply spend. 57% of this is of a non-clinical nature (i.e. telecommunications, records storage, utilities, insurance, IT services, office rentals, etc.) that is under most hospitals, system’s and IDNs radar screens. The time has arrived to treat all non-salary expenses the same: Suspect all expenditures until they have been value-justified!

I remember assisting an IDN client’s saving $750,000 in their telecommunications expenses because their value analysis team never value-justified this category of purchase. It was always thought to be “off limits” until their value analysis steering committee authorized a value analysis study. Another one of our client’s value analysis teams is targeting their food service contract with the goal of reducing it by a half-a-million dollars that had never before been vetted. The moral to these stories is “Nothing is off the table at these two healthcare organizations”, why should it be at yours?

When we perform a Strategic Value Analysis planning session for our client’s executive management teams, one of the questions we ask them during this session is “what is the scope of your value analysis program going to be”?  Inevitably, their answer is EVERYTHING and EVERYBODY!  No executive team (we have done hundreds of these sessions) has ever limited the scope of their value analysis program. So, why shouldn’t you do the same when your executive management thinks the same way?  All you need to do is just ask them to broaden the scope for your value analysis program or as I did, just enlarge your scope until someone challenges you and says you can’t do it.

The truth is that I don’t need to tell you that we have entered a new era in healthcare, where every dollar saved is mission critical to generate a bottom line for your healthcare organization. This means that no stone should be left unturned with your value analysis program in meeting this goal and no commodity group should be excluded from your value analysis agenda.  It saves dollars and makes sense to do so!

Most hospitals, systems and IDNs’ capital budgets in 2011 are ramping up their technology purchases to include electronic medical records and physician order systems to meet the quality mandates of Obama- Care and to increase their productivity.

It just makes sense for healthcare organizations to embrace technology at every level of their operations, since, as I see it,   it is the only answer to healthcare’s vexing cost and quality challenges in the foreseeable future. However, I’m not sure that supply chain is on the top of the list of “must have” technologies when healthcare organizations are prioritizing their capital budgets. This thinking (supply chain being thought of as a step-child, and not a full partner in technology) must change if the supply chain of the future is to be a driving force in healthcare cost management

I can speak from experience, since up to 12 years ago we too tried to ferret out supply chain expenses without the support of analytics-driven technology and found that we were only scratching the surface of savings for our clients. As a value analysis director so aptly stated it to me just the other day, “Supply chain management is a game of numbers”.

By digging even deeper and broader (and not just playing the game at the surface ala price) into a healthcare organization’s supply chain purchases the supply chain manager of the future will be able to ascertain where their wasteful and inefficient consumption practices are hidden and then eliminate them while holding those gains going forward, since there is nowhere else to go for savings!

To be consistent with this rationale, supply chain managers need to develop a technology plan for their department each and every year.  It can’t be an afterthought, impulsive or just testing the waters.  You need to convince your executive management that with the latest technology you can bring about millions of dollars of savings for your hospital, system or IDN. Then and only then, will you get onto the top tier of your healthcare organization’s technology capital prioritization list. Otherwise, without cutting-edge technology your supply chain department will only scratch the surface of savings each and every year. 

To offset this reimbursement slippage, I believe that there are three “must have” supply chain survival software tools that are compulsory in every supply chain manager’s toolbox to pick up the slack:

1.     Price-Check Manager:  If you aren’t getting the best price on all of the commodities you purchase from your suppliers how would you know? Even your GPOs don’t know if their pricing is the best in class on every contract offering.  I can make this bold statement since we review hospital, system and IDN prices daily that aren’t best in class and most don’t know it.  So, if you want to ensure that you are obtaining the very best prices possible for your size healthcare organization on every category of purchase, you then need to have a Price-Check Manager get the job done right vs. gut feel.

2.     Utilization Manager:  Now that, hopefully, you have your pricing under control with a Price-Check Manager, you also will need to eliminate all the waste and inefficiencies in the consumption of your products, services and technologies. This is where 79% of all new supply savings are hidden.  It’s not good enough to get the best price at the pump.  Today, you also need to get the best mileage out of the products, services and technology you are buying. Products that are inferior, value mismatches, misused, misapplied or misappropriated must be identified and eliminated from your healthcare formulary. Don’t kid yourself, this can’t be accomplished efficiently and effectively without a utilization manager.

3.     Value Analysis Manager:  Value analysis is the most powerful savings tool in a supply chain professional’s arsenal. Though, to be truly cost effective, ultra-productive and self-managed, value analysis teams can’t continue to manage with spreadsheets, list servers and unwieldy forms.  Your value analysis process and its activities absolutely need to be automated so that they can be monitored in real-time. Otherwise, you will never realize the full benefits of this boundless and never-ending savings methodology.

Supply chain managers will be put to the test over the next few years to do more with less, but still save more than ever before.  This can’t be accomplished, in my opinion, with the old and tired tools of yesterday. Your healthcare organization’s aggressive savings goals can only be achieved with new and/or upgraded supply chain technologies to enable supply chain managers to meet this challenge head on. This isn’t a prediction, but a fact in the new healthcare economy that we are facing.

Yes, we can create a culture of supply chain possibilities, but first we need to eliminate the limitations we put on ourselves and our supply chain department so we can release this new energy for the possibilities at hand. The first step in this empowering process is to write down all of the limitations you believe are holding back your supply chain department’s possibilities (e.g. no money, lack of staff, management and clinicians’ inflexibility, etc.) until you get it out of your system.

Next, you’ll want to write down each of these limiting forces, but with a positive spin on them (e.g. my healthcare organization doesn’t have any money, but I still can make progress toward achieving my goals by being persistent, patient and progressive) to open up new possibilities that are available to you and your department.

As an illustration of how this works, my first supply chain director’s job in the 70s was at a children’s hospital that had no money, inadequate staffing and insufficient management vision (they were maintainers), but I was still able to automate my storeroom’s inventory using a cheap outsource service, initiate par level systems on our nursing floors and start up this hospital’s first value analysis committee while bringing order where chaos had reigned. This all happened because I didn’t let my limitation interfere with my possibilities.  

You have a choice. You can either let you self-imposed limitations hold you back from creating a culture of supply chain possibilities, or, you can unleash these possibilities by reinventing, revitalizing and reimaging what your supply chain can, should and will be, without any limitations at all.  All it takes to do so is defining and describing your limitations in a new, positive and uplifting way that opens the door to new possibilities!

What it is!  Value Analysis is a function-oriented, systematic team approach for providing, designing or investigating the right functions (primary, secondary and aesthetic) for the multi-million dollars of products, services and technologies that are required to operate a healthcare organization. The value analysis methodology can be applied to any product, process, procedure, system or service in your healthcare organization. Its goal is to ascertain through value analysis studies, those characteristics deemed most important by your customers, and then to search for lower cost alternatives to meet their exact specifications.

What it is not!  Value analysis isn’t: (i) a committee or team of 20+ members reviewing, evaluating and approving GPO contracts, (ii) Negotiating, bidding, comparison shopping or doing something else to reduce supply chain expenses, (iii) standardization, new product, service, or technology conversions, evaluations or introductions, (iv) approving new product, service or technology requests, and (v) any and all other of those things that most healthcare organization are now calling value analysis.

With this said, our surveys have shown that only 1 in 10 healthcare organizations are really practicing or applying the classic tenets of value analysis, thereby missing the opportunity to slash 7% to 15% of their supply chain expenses.  This is because, as I have mentioned previously, they think they are performing value analysis, but they are really doing something else and calling it value analysis.

It’s been our observation that most healthcare organizations have now picked “the ripe fruit” (i.e. price and standardization) in their vineyards, thereby obtaining the lowest price for the commodities they are buying. With little savings left in this vineyard to be picked, isn’t it time for healthcare organizations to move on to the next level of savings performance by employing the genuine, unadulterated and definitive value analysis methodology that has been lost in translation?

Over the years, I have identified three reasons that sanctions this executive management attitude to manifests itself: fear, unfamiliarity, and indifference.  To elaborate, the first one involves FEAR of change, or upsetting someone or some group. It can usually be overcome by showing some guarantees (vendors give them all the time), demonstrating where it has worked before successfully, or getting them involved in the change process.

The second cause, UNFAMILIARITY, which by definition means unaware or uniformed on the topic, can be reversed by giving your executive management more information. For example, I send new information (newsletter, case studies, podcast and testimonials) to clients on a monthly basis who aren’t ready to buy from us because they are unfamiliar with the benefits of our solutions, so we continue to educate them so they can make an informed decision in the future.     

The third cause, INDIFFERENCE, points to your executive management having different priorities than you do at the time you made your savings proposal.It’s your job then to wait until the timing is right to make your proposal again. I have done this hundreds of times as a supply chain manager with an excellent batting average for success.      

I’m sure you have heard the premise, “if you can’t solve a problem head on, then go over, under, and around the problem until you have surmounted it”.  It’s the same philosophy you need to employ when dealing with an uncooperative executive management: never give up, give in or become frustrated and infuriated with your setbacks. Just keep plugging away until you finally breakthrough the fear, unfamiliarity and indifference that is holding you back from implementing your savings ideas.

I have used this big idea (Waste Walks) for many years with my clients to identify waste and inefficiency in their supply chain operations.  First off, I have always insisted that all of my interviews be conducted at my interviewee’s workplace.  This way I could take a tour of their operations to see what was going on.  But even before I got to their office, I was observing what was going on in the hallways, store rooms, closets, patient rooms, etc., on my way to these interviews.

What I would observe on my tours was always an eye opener!  I remember one time I walking by an ICU unit that had a yellow bucket labeled “oxisensor recyclables” that had no oxisensors in it. When I inquired why this was happening, an ICU nurse told me that the staff always forgets to put the used oxisensors in the bucket because they were too busy.  When I talked to the hospital’s supply chain manager about this, he said he didn’t realize this was happening.

On another visit/interview to an operating room director, I asked to see their OR sterile prep and packaging area. What I found was duplicate and outdated stock on almost every shelf. When asked why this was happening I was told that surgeons that had asked for these items to be stocked had left the hospital and they were now left with this stock.  We then talked about sending the stock back for credit, even though the hospital would need to pay hefty restocking charge, the problem was solved on the spot.

“Waste Walks” can be conducted by an individual or a team to uncover waste and inefficiency in your supply streams. When I was administratively responsible for environmental services at one hospital where I worked, my managers and I would take a “Waste Walk” every Friday at 2:00 P.M.  We visited a different area of our hospital, for about an hour, to uncover shoddy work, safety hazards and project work that needed to be accomplished. It kept everyone on their toes and eliminating waste!

You can do the same with your supply chain team.  I would suggest that you pick the same day every week and at the same time, as I did with my environmental team, to tour an area of your hospital (including your own supply chain operations), so you can observe what’s going on.  You and your team will be absolutely amazed at the results of your first “Waste Walk”.  It will open your eyes to hundreds of thousands of dollars of waste that you never knew existed in your healthcare organization.  Best of all, it only takes an hour a week to uncover it. 

1. Utilization Management

Every product, service or technology has an optimum (or ideal) consumption pattern. By measuring the consumption of your commodities (trays, kits, pacemakers, custom pack, etc.) against your peers, you will be able to identify waste, inefficiencies, misuse, misapplication, misappropriation or value mismatches in your products, services and technology purchases. The next logical step is to investigate why your consumption patterns are different from your peers?

2. Demand Management

Even though your utilization might be in line with your peers, you also need to understand why the demand (or frequency) of the products, services or technologies you are buying is increasing; Is it because your cases, procedures, tests, etc., are increasing or has something changed in your practices. The answer to these questions will give you a clue as to the direction that you need to go and the reason for the change in your buying patterns.

3. Medical Waste Management

A recent study by Johns Hopkins showed that medical waste could be decreased by more than 30 percent solely by proper waste separation of infectious (red bags) from non-infectious waste (clear bags). This is because as much as 90 percent of what ends up in red bags does not meet the criteria for red-bag waste. This is an area that you need to have your value analysis team look at, since at most healthcare organizations medical waste management isn’t effectively being managed or controlled.

Overall, we have documented that 7% to 15% can be saved in your supply spend vs. just 1,%, 2% or 3% on price alone if you decide to attack these three areas of your supply chain operations. There is nowhere else to go for double-digit savings — wouldn’t you agree?

Well, here’s another example of how technology will make the difference in healthcare. It’s now been fully documented that voice recognition transcription can save millions of dollars and provide comparable quality to manual transcription.

Here are the facts! A study in the Journal of Emergency Medicine showed that voice recognition was 95.8% accurate vs. 99.7% on manual transcription with a 1.2 vs. 2.5 corrections rate on charts that had been audited. Best of all, the turnaround time for voice recognition was just 3.65 minutes vs. 39.6 minutes for traditional transcribing. The conclusion of the study was that voice recognition transcription works and the authors of the study recommend that it be used by physicians and hospitals for their transcription services.

That’s not all! Another study by Eastern Connecticut Health Network (349 licensed beds), Manchester, CT., demonstrated during a 33-month period, that their two hospitals documented savings of slightly more than $1 million and reduced their turnaround to about 30 minutes while reducing their length of stay for several diagnosis related groups, including total joints

Pass the Word!  Voice recognition transcription saves dollars and makes sense for any and all healthcare organizations. It’s the wave of the future!  I would recommend that supply chain professionals bring this information to their executive management’s attention so that your hospital, system or IDN can reap the benefits of this emerging best practice.  

A stress-test or an assessment of how your supply chain will function under severe and unexpected pressure of ObamaCare can help you prepare for the new healthcare’s unfavorable reimbursement climate that is underway. Here’s some stress-test questions (with context) that you will need to ask yourself to prepare for this contingency.

The ObamaCare legislation will cut $500 billion dollars in Medicare payments over 10 years. This means less revenue for your hospital. Consequently, what is the absolute minimum (full-time, part-time and flex-time) staffing you can live with and still delver adequate services with an increase — not a decrease in volume?   Where can you find even more savings (GPO savings might not be enough for you) to offset the dip in your hospital’s revenues.  How can your suppliers help you with this challenge?

Under ObamaCare, more surgeries, procedures, and services are expected to be performed (40% to 60% now) on an outpatient basis or at an alternate care site?  Are you prepared for this radical shift in supply chain logistics?  Are you considering an off-campus distribution center to lower your warehousing and distribution cost? Or, how about outsourcing your warehouse operations altogether?  Will just-in-time still work for you in this new healthcare environment?

These are just a handful of stress-test questions you should be asking yourself to prepare for the new healthcare economy.  As Peter Drucker once warned, “The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong questions.”  Accordingly, since each healthcare organization is unique by reason of their demographics, location, and services you will need to develop your own set of stress-test questions that are customized for your own healthcare organization’s distinctive situation.

Remember, time isn’t on our side to do so, since the healthcare reform train has already left the station and is racing forward at 100 miles per hour.  Don’t wait until the train has reached your hospital, system or IDN to stress-test your supply chain operations, or you will find that your options are becoming smaller and smaller to avert a collision.

Simon says that it is not only important for your employees to achieve their personal best, but to create a high level of commitment from them to build world-class supply chain organizations. He says that there are four tactics for doing so:

1. Pride in Purpose

   “If people are proud of their organization’s mission, they will assume shared responsibility for success”. This is one of Simon’s key points about how to get your supply chain team to be prideful and purposeful in their work. He cites the Marine Corps slogan of “Semper fidelis” (Always Faithful) as a prime example of how just two words can make any Marine feel proud of their organization.
    

2. Group Identification

   Simon also talks about becoming an “Elite” organization, like Seal Team 6 that has just a few exceptional men and ladies as their members. Make your supply chain entrance and fitness standards extremely high so only the best and the brightest may apply.  Anyone then would want to be a member of such an “Elite” group.
    

3. Trust and Fairness

   It goes without saying that when you trust your colleagues and management and can be assured of fairness in all situations, that you will support your supply chain organization through thick and thin.

We all realize that it is our “people” who make our supply chain organizations great, but without their commitment to each other and to their supply chain department’s success this is only a hollow platitude. Yet, with just a small measure of pride, elitism, trust and fairness this ultimate performance goal can be reached by all supply chain leaders who are looking for more than just being average supply chain operations

After some research we discovered that the most successful VA teams that we trained, organized and facilitated had the most people savvy team leaders. They had a positive attitude, looked to the future, were mentally agile and created order out of chaos. After establishing a rigorous selection criteria and a vetting process for the appointment of VA team leaders 80% of our clients’ people problems disappeared from their VA teams.

What about the other 20%? We then established criteria and a selection process for VA team members based on the attributes of successful VA team members than we had observed over the years (analytical thinker, organized, reliable, enthusiastic, takes initiative, computer literate, etc.). This quickly solved another 10% of our people challenges.

New rules of engagement! To top off our people skills strategies and tactics we added new rules to our VA Team-Based Project Management™ Model that were to be followed by our client’s VA team members which they would be held accountable. For instance, team members were to have their projects completed within 90-days; 80% attendance at all VA meetings; project status reports were to be turned in even if VA member wasn’t able to attend a VA meeting; no VA member could resign from a VA team without completing their current project, etc. These rules gave adhesive, substance and concrete guidelines to our clients’ VA process; now everyone involved knew what the rules of the VA game were.

All and all, we have discovered over the last two decades that the success of a VA team’s effectiveness is based on a combination of VA and people skills. The absences of one or the other of these skills will inhibit your VA team’s growth, maturity and productivity.  So if you want to maximize your VA team’s effectiveness don’t skimp on either of these must have skill sets or you will risk stunting the evolution of your VA team’s process.

Over the years, I have watched supply chain organizations capture, refine and report on the minute details of their operations without any thought about the relevancy or actionability of their metrics.  My point here is, if you can’t use the information today or in the immediate future for an actionable purpose — then why track it? 

That gets me back to what matters most!  Just because you can measure it does not mean you should. Instead, you should only measure a few vital performance indicators in each of your supply chain operations otherwise you will be swamped with data that you will never use. For example, price, standardization and contract compliance is all that is needed to be measured to gage the effectiveness of your purchasing operations.  All of the fancy ratios that you can think of won’t give you more information about your purchasing operations than these three key indicators.

You also should be concerned about what has changed, what is missing and what you should stop measuring in your database.  Case in point, we recently started tracking tissue sealants with our own Value Analysis Analytics since they are starting to be purchased by more and more hospitals.  On the flip side, we stopped tracking x-ray film since most hospitals have gone digital and are using very little x-ray film.

It’s also important to regularly update and refine your measurements to avoid conflicts, contradictions and the lack of believability with your data.  All of the metrics that we warehouse, track and analyze for our clients are refined and refreshed on a quarterly basis.  Why? Our clients expect us to be right the first time with their Value Analysis Analytics.  We have found this practice avoids constant tension, fire-fighting and the lack of trustworthiness of our measurements. You will too!

To sum up, mastering the art and science of measuring what matters is a supply chain management responsibility too, since without good measurement how can you manage your supply chain for peak performance?
 

Become a Savings Magnet

Read this book and in a few weeks save more money than you have in years. Sounds unbelievable? Robert T. Yokl and Robert W. Yokl, healthcare’s leading authorities in Supply Utilization Management, have helped hundreds of hospitals, healthcare systems and integrated delivery networks to saved close to a half billion dollars by employing the same utilization management strategies, tactics and techniques that they will teach you in this book.

 Don’t Miss this Extraordinary Opportunity!

The Book is FREE, but the Information is PRICELESS!

Changing The Game!

Every so often an idea, innovation, invention or revolution appears in the marketplace that changes the game forever.  I call these breakthroughs “Game Changers” or rules and variation that change the game enough that a new or different game emerges.

Innovations such as LEAN management and Six Sigma are good examples of how giant leaps forward were made possible in inventory management and quality improvement by changing the rules of these two disciplines.

These “Game Changers” usually come about when companies or whole industries are faced with big challenges.  For instance, Toyota’s focus in the 1940s and 1950s on eliminating waste and inefficiencies in their production was motivated by their quest to compete with the American automobile industry; an industry that was 50 times the size of their Japanese market. Still another factor was the need for them to have fast, flexible processes that gave their customers what they wanted, when they wanted them at the highest possible quality and at an affordable price for their own small domestic market just after World War II.

This quest for perfection by Toyota is now known as the breakthrough concept called LEAN Management, which has revolutionized the automobile industry.  LEAN Management by definition was a “Game Changer” for not only one company, but for a whole industry.

Fast forward 60 years: Healthcare organizations are now facing a similar big challenge: how can hospitals, systems and IDNs continue to reduce their supply chain expenses when their price savings are slowly disappearing? More importantly, price savings was and is the primary supply chain savings engine for more than 99 years.  Where are the next supply chain savings coming from? The simple answer is “Supply Utilization Management”, which can open up a whole new world of supply chain savings that you never knew existed!

This isn’t a theory or hypothesis any longer.  Our intensive research, comprehensive studies and the hundreds of client assignments over the last 10 years has proven beyond a doubt that “Supply Utilization Management” is a newrevolutionary discipline that all supply chain professionals need to master if their healthcare organizations are to continue to achieve double-digit supply chain savings in the future.

That’s why we have written the book “Healthcare Supply Utilization Revolution”. With this book we can take you behind the curtain of “Supply Utilization Management” so that you can quickly learn the little known secrets of this revolutionary and emerging need-to-know best practice.

Furthermore, it is our goal with this book to be your guides in these uncharted waters so that you can make this evolutionary transition from price to “Supply Utilization Management” as painlessly, productively and as easily as possible.

Order Your FREE Book Now!

Just-in-time works in the perfect world where there are no lead times, hording, transportation snafus, earthquakes, tsunamis, hurricanes, tornados, wars or conflicts.  A perfect example of this truism is our own automobile manufacturers who can’t build cars because of a shortage of parts from Japan. This problem is acerbated by suppliers fearing getting stuck with unsold goods if their customers change their buying patterns, so they keep their inventories at a bare minimum without any safety stock.

What smart companies are doing to hedge their bets are: (i) building a buffer stock on their critical items, (ii) sourcing additional suppliers for must have items, (iii) guaranteeing their suppliers a set amount of volume for three months, and (iv) warehousing safety stock off-site on essential items to ensure quick availability in disasters or manufacturers delays.

All of this might seem theoretical to us who are in healthcare, but just look at the chaos in our hospital’s drug supply chain. Over the last few years drug manufacturers have had major shortages in critical drugs (cancer, anesthesia, cardiac, etc.), almost weekly, due to manufacturing glitches or political correctness that has actually become life threatening to thousands of patients.

So if you want to avert major shortages and disruptions to your supply chain, maybe it’s time for you too to modify your own just-in-time philosophy and practices. Remember, almost all healthcare supply chain best practice have been borrowed from industry, so don’t ignore this warning before a disaster or a supply chain disruption comes calling in your neck of the woods or urban environment.

That’s why it is important to set your sights on being world-class supply chain organizations at the head of the pack with metrics in the range 90^th or 95^th percentile of all hospitals. Don’t accept average performance as good enough, especially if you want to boost your management, employee and customer’s satisfaction to the highest levels possible. 

There are three ways that I know of to reach the pinnacle of supply chain operational excellence: (i) visit the hospitals that are at 90^th and 95^th percentile to see what they are doing differently from your hospital to reach these inspiring metrics, (ii) survey your management, employees and customers to see what’s going right and wrong with your supply chain operations, and (iii) set bold goals, objectives and standards and then measure and monitor your progress to your ultimate success. 

The late great business philosopher Jim Rohn once said that, “Leadership is the challenge to be something more than average.” So make the decision to take your place among healthcare supply chain leaders who embrace the philosophy that average isn’t good enough for their supply chain department.  Then you won’t be average any longer!

1.     What is your return on investment?

It takes a substantial investment in time, peoplepower and resources to save money with your VA program, therefore, what is your ROI per project and overall per year? If your ROI isn’t greater than 25:1, then you are falling short on your investment and need to radically streamline what you are doing.

2.     What is your annual VA/Expense savings ratio?

On average, your VA program should save 3% to 5% annually, as measured as a ratio of your total supply/purchase service expenses.  Is this the type of track record you have at your healthcare organization, or are you falling short of this benchmark?

3.     What is your annual savings by category?

How much have you saved annually by category (price, standardization and utilization)? A good benchmark for you would be 45% price, 5% standardization and 50% utilization. Are you hitting these targets?

4.     What is your annual VA savings potential?

How much supply expense/purchase service savings is available to your healthcare organization? Overall, we have found 7% to 15% is obtainable at most hospitals, systems or IDNs today. Where do you fit into this range or are you falling short on your VA program’s potential?

As you can see from these four measurements, producing the ultimate “value” from your VA program requires even more from your VA teams than just meeting regularly and generating some savings. It necessitates setting big goals, exacting priorities and quantifiable standards that then need to be measured and monitored unceasingly to bring about the desired “value” in your VA program.  To do less will only constrain, inhibit or decrease the intrinsic “value” in your VA program.

Here is how one of our clients, Alan Weintraub, Director of Materials Management, Enloe Medical Center (EMC), Chico, California, bridged the gap with a new “mindset” that was written up in this month’s issue of HFMA’s Cost Containment Newsletter. “One of the keys to success at the outset of EMC’s utilization management program was to create a “new mindset” for its material management staff, physicians, clinicians, and department heads to spur them into action. EMC calls this mindset “value-based thinking”; taking a questioning, probing, and inquisitive approach as to why clinicians and staff do the things they do and focusing on outcomes, not activity. It was especially important for the program coordinator to realize that it was okay for her to challenge the organization’s long-held assumptions regarding the value of any given commodity.”

“This mindset brought about immediate results on one of the hospital’s first utilization management projects: wound care. Instead of signing off on a new (wound care) GPO contract being offered, ECM decided to pursue a value-based approach by reviewing the organization’s wound care program in total in an attempt to reduce EMC’s pressure ulcer rate.  During the course of the initiative, EMC reviewed its use of patient transfer devices, skin care and incontinent care products, ultra-absorbent pads, its bed-making process, and transport team training.  In doing so, the organization uncovered inefficiencies (in the use of patient transfer devices, the efficacy of the skin care products, value mismatched with absorbent pads, and lack of a consistent process in bed making).  Once these inefficiencies were corrected, EMC reduced its ulcer rate by 10 percent while reducing its wound care supply spend by $262,000 annually.”

There you have it!  A new “mindset” can bridge the gap between price and utilization for even bigger and better utilization savings that goes right to your bottom line. All it takes is the motivation to dig deeper and broader for savings rather than just accepting the next new GPO contract price that comes across your desk. 

If applied consistently and vigorously, they can ensure that your supply chain operations are effective, efficient, timely and energized. It’s what can keep your healthcare supply chain organization from becoming stagnant, complacent or arrogant.  Moreover, they will keep you from losing your way when your challenges become even more stressful, difficult and demanding.

For example, when I worked for a hospital turn-around company, the first thing we did when we arrived on the scene of an impending hospital bankruptcy was to quickly put out the fires by setting our priorities based on measuring and benchmarking where and how our client’s financial and operations had gone off course. In this way our turn-around team could put together a plan of action to right our client’s ship without hesitation or confusion.

It’s the same with the challenges you are facing right now. You need to have a process like SPMB=E that can quickly move your supply chain organization in the right direction when you uncover or are challenged by your management to solve or mitigate a pressing problem or up your savings game. If you don’t have an intuitive process like SPMB=E you could be like a dog that keeps spinning around in circles chasing its tail – but going nowhere fast!

There are literally hundreds of technologies that can speed up, manage and control a myriad of other supply chain functions (from asset management to patient charge administration) that need to be investigated.  Why? As a supply chain manager said to me just recently when she was addressing her supply chain challenges, “I don’t even think about asking for more staffing — since it isn’t going to happen”. 

Facing the reality that your supply chain department will need to do more with less staffing in the coming years is one of many good reasons why leveraging technology to improve your supply chain performance saves dollars and makes sense. 

Another motive for leveraging more technology is that it comes with built in discipline so that everyone of your tasks, transactions or activities are accomplished more consistently, reliably and faultlessly — every time.  There are very few shortcuts that you can take with technology if you want to get it right the first time.

If someone tries to manipulate the technology, you will know about it before they do.  For instance, a friend was telling me this weekend that her school’s IT department caught a teacher (an alarm when off in their office) watching a college basketball game on his computer when he was supposed to be teaching his students. So your employees can’t run or hide from their mistakes or excesses.  It’s all being captured, saved and archived — in real time!

Lastly, technology improves productivity. All of your transactions, tasks or activities that are computerized are being measured, monitored and analyzed.  You then can set standards, benchmark and measure your progress against predetermined productivity goals.

Remember, what is measured happens. 

The truth is that leveraging technology isn’t a nice thing to do, but an imperative in the new healthcare economy. It is the only way that I see going forward that you can improve your supply chain performance with the limited resources that will be at your disposal. No ands, ifs or buts about it!

However, over the last 12 years we have only targeted actionable savings dollars for our clients – not random phantom savings.   By this I mean we have benchmarked our client’s SKUs to precisely identify where their real actionable monetized (converted to precise dollars) savings opportunities reside. This tactic has eliminated hundreds of “dry holes” that used to frustrate our clients value analysis teams and caused them to become complacent with their VA studies.  Our savings yield also jumped, on average, to 35%.

Another reason for only targeting actionable dollars is that no one has the time in healthcare today to chase illusive and imaginary savings. We are all swamped with our own workload and can’t be chasing phantom savings opportunities.  Savings opportunities today must be quickly and predictably realizable or we shouldn’t be expending our time and energy to investigate them. No one has the time to do so!

Best of all, by showing only actionable dollar savings on your target list you can more effectively prioritize and strategize how to remove this waste and inefficiency for your supply streams. Just as important, you will gain support from your stakeholders to eliminate these wasted dollars by monetizing your savings opportunities.  When they see the actual monies that can be saved, most stakeholders will jump on the bandwagon to take advantage of them since it’s hard to ignore or deny ready cash that’s just lying around ready to be picked up or banked.

Look at it this way!If you are already looking into price savings for any commodity group, why wouldn’t you utilize the same data to measure your utilization?  This is analogous to changing your oil, but not replacing your oil filter at the same time.  You are already under the hood of your car, why not take a few more minutes and get the job done right.

Since 79% of all new savings are in utilization, not price, it just makes good common sense to have a much more rational two-step process for any or all products, services or technologies that you are investigating for possible savings opportunities. The first step is to validate at what percentile you are with your prices. If you are at the 95^th percentile, forget chasing any more price concessions here since you would be just spinning your wheels. A much more productive and profitable use of your time (step-two) is to investigate the utilization of the product, service or technology under investigation.

For instance, if you find that you are at the 95^th percentile on price on your dressing kits jump to step-two – utilization study.  This would be conducted by calculating your cost per patient day of your dressing kits and then benchmarking them against a peer hospital. If you find that you have a substantially higher cost per patient day than your peers you will then want to observe how your customers are utilizing these dressing kits, since there is a 98.6% chance they are misusing, misapplying or you have a value mismatch in this commodity group.

To summarize, price savings are still achievable on many commodities that you are buying today.  However, if you are already at the 95^th percentile on your pricing on these commodities, you can better utilize your limited time and resources in perusing utilization savings than price.  Why! That’s where your real, tangible and robust savings are hidden 

Why do we continue to pursue 1%, 2% or 3% savings solutions (i.e., price), when a seven-percent savings solution (i.e., utilization) is just as easily obtainable?  For instance, I know of healthcare organizations that have spent months to achieve a 3% savings on their cardiac rhythm management products when a seven-percent to 15-percent savings was realizable, in the same amount of time, by also attacking their pacemaker and difibulator utilization.

Look at it this way!If you are already looking into price savings for any commodity group, why wouldn’t you utilize the same data to measure your utilization?  This is analogous to changing your oil, but not replacing your oil filter at the same time.  You are already under the hood of your car, why not take a few more minutes and get the job done right.

Since 79% of all new savings are in utilization, not price, it just makes good common sense to have a much more rational two-step process for any or all products, services or technologies that you are investigating for possible savings opportunities. The first step is to validate at what percentile you are with your prices. If you are at the 95^th percentile, forget chasing any more price concessions here since you would be just spinning your wheels. A much more productive and profitable use of your time (step-two) is to investigate the utilization of the product, service or technology under investigation.

For instance, if you find that you are at the 95^th percentile on price on your dressing kits jump to step-two – utilization study.  This would be conducted by calculating your cost per patient day of your dressing kits and then benchmarking them against a peer hospital. If you find that you have a substantially higher cost per patient day than your peers you will then want to observe how your customers are utilizing these dressing kits, since there is a 98.6% chance they are misusing, misapplying or you have a value mismatch in this commodity group.

To summarize, price savings are still achievable on many commodities that you are buying today.  However, if you are already at the 95^th percentile on your pricing on these commodities, you can better utilize your limited time and resources in perusing utilization savings than price.  Why! That’s where your real, tangible and robust savings are hidden

It all starts with measurement! Following a conversion to a new custom pack company if, you can show your operating room director, through value analysis analytics that the cost per procedure of her custom packs are going up – not down — you now will have proof that something has gone askew, not based on conjecture or gut fee – but measurement.

Then you need to learn why!  Together with your operating room director, you will need to investigate what has changed that has caused the cost of your custom packs to increase.  Are the new components too expensive? Are new products being wasted or thrown out?  Or, there could be 10 or 12 other reasons this could be happening.

That’s how change comes about!  Once you find the reason (there is always a cause and effect for variation) for this anomaly, you now will have a partner for change (your OR director) who has seen with her own eyes why her custom pack cost is on the rise. This will bring about positive outcomes (lower cost) for her once the changes have been implemented.

Change can be hard or easy, I personally prefer the easy way of measuring, learning and then change comes about naturally without any strain, blame or temper tantrums.

A 2007 VHA survey documents that most of healthcare outsources services because: (i) resources are not available internally, (ii) it reduces operating cost and, (iii) frees up resources for other purposes. The top six non-clinical outsourced services based on VHA’s survey are document destruction, waste management, laundry services, food service, vending and housekeeping.  The top five clinical outsourced services are on-call radiologists, hospitalists, benchmarking services, acute dialysis services and emergency department. This list keeps growing!

More and more hospitals, systems and IDNs are outsourcing their billing and collections, chargemaster management, coding, financial benchmarking, revenue management, employee benefit plans, nurse staffing, PACS, information technology, claims management, biomedical engineering, and data center operations.  Do you see the trend here?

As healthcare organizations’ revenues shrink and quality becomes job one, in the near-term hospitals, systems and IDNs will need to let go of all or most of their non-core clinical and non-clinical functions through outsourcing, so they can focus solely on their critical core functions. 

Outsourcing clinical and non-clinical functions has been a winning strategy for lowering cost and improving quality at every healthcare organization in the USA for decades. It is estimated that, on average, 22% of a healthcare organization’s operating expenses is allocated for these services – and growing!

A 2007 VHA survey documents that most of healthcare outsources services because: (i) resources are not available internally, (ii) it reduces operating cost and, (iii) frees up resources for other purposes. The top six non-clinical outsourced services based on VHA’s survey are document destruction, waste management, laundry services, food service, vending and housekeeping.  The top five clinical outsourced services are on-call radiologists, hospitalists, benchmarking services, acute dialysis services and emergency department. This list keeps growing!

More and more hospitals, systems and IDNs are outsourcing their billing and collections, chargemaster management, coding, financial benchmarking, revenue management, employee benefit plans, nurse staffing, PACS, information technology, claims management, biomedical engineering, and data center operations.  Do you see the trend here?

As healthcare organizations’ revenues shrink and quality becomes job one, in the near-term hospitals, systems and IDNs will need to let go of all or most of their non-core clinical and non-clinical functions through outsourcing, so they can focus solely on their critical core functions.

This isn’t a theory, but a hard fact! Over the last 19 years of facilitating value analysis teams we have routinely seen VA project managers who have biases destroy VA studies with their indifference, outright sabotage and misdirection. For instance, one operating room director who was assigned a pacemaker project never found time to do her study because she didn’t want to “rock the boat” with her surgeons. But that’s not what she told her VA team when she was giving her bi-weekly project update reports. She just said she needed more time to complete her project. Can you relate to this…?

One of the tests that we employ to insure that VA project leaders don’t have built in self-interest in their VA project is to ask these two important questions: Do you touch the product through its lifecycle, or do you have any influence over the decision being made to buy it? If the answer to either of these questions is yes, then this individual is disqualified from becoming a project manager for this VA investigation.

If you ignore this very simple, yet essential VA team rule (no self-interest) you are defying human nature and unknowingly setting up your VA project for self-interest, prejudgment and misleading VA project outcomes. So don’t forget, you can keep these dangers in check by prequalifying your VA project managers with just these two unassuming questions.

The reason I’m bringing this topic up again is that I just read that you can now automate your sterile supply department’s instrument processing. A company called Robotic Systems and Technologies has now perfected a robot called PenelopeCS that has magnetic-end effector, allowing it to count, sort and inspect your instruments. The robot ensures that each instrument tray sent to your OR contains the correct instruments per the count sheet and that they are all in good working order. It then updates your hospital’s instrument inventory control system to provide traceability while reducing the workload on sterile supply staff. Best of all, Robotic Systems claims that their robotic instrument system will reduce the cost of processing your surgical instrument trays by as much 23 percent and you can expect a return on investment in less than 18 months.  

The reason we are talking about this robot is to raise you consciousness that there are literally hundreds of ways that you can automate your supply chain operations to reduce cost and improve your quality. This is especially important now that we know that all hospital’s reimbursement will be dramatically cut as ObamaCare mandates are rolled out over the next few years. We are already feeling some now!

So if you want to stay ahead of this revenue squeezing wave, look to automation to keep your supply chain department vibrant, in control and cost effective, since increased staffing in the new healthcare economy is almost “out of the question” as a supply chain professional so aptly put it the other day.

This movie’s title reminds me of the state value analysis healthcare today. It is performed “every which way” at most healthcare organizations, and often “very lose”.  This is disappointing, since value analysis is a well-established discipline with a body of knowledge that goes back 60 years.

The VA methodology (or functional analysis) was developed by Larry Miles at General Electric in the 1940s when industrial supplies were in short supply (rubber, steel, cooper, etc.) during the Second World War. Larry was charged with finding equal or better alternatives to what GE had been buying to keep their factories humming during the war years.   

With this said, VA isn’t about price, standardization or comparison shopping, it’s all about finding reliable functional equivalents to what you are buying now — at a lower cost. For instance, one of our clients performed a VA test on one of the grafts he was buying (at $10,000 a pop) and then discovered he could save $4,000 per graft by buying a smaller size then he had been purchasing. Best of all, it met his surgeons’ functional requirements but at a lower cost.  It was a win-win for everyone!

That is what VA is all about:  Identify lower cost alternatives (size, shape, texture, construction, etc.) that will meet your customer’s functional (primary, secondary and aesthetic) requirements exactly. It’s not a difficult concept to understand once you educate yourself and your VA teams on the philosophy, principles and best practices attributed to the VA methodology.

Why get a quarter of the pie, when you could have it all!  Price and standardization only represent about 29% of your total embedded supply chain cost. Why not get the whole pie (or, savings beyond price) by employing the proven, time-tested and original value analysis technique?

Does this really surprise you?

Well, it shouldn’t since for years we have been hearing that a hospital’s official inventories far exceed its unofficial inventories by millions of dollars.  What this means to you is there is millions of dollars on your shelves, storage closets, carts, etc., that should be in your hospital’s bank account earning interest, not depreciating each and every day. 

The solution to the challenge is that there should be no UNOFFICIAL INVENTORIES at your hospital.  It is either official, under control of the supply chain department, or it is work-in-progress stock that has already been expensed.  For example, all of your laboratory’s stock should be in your hospital’s OFFICIAL INVENTORY, with the exception of supplies that are stored in your laboratory sections (i.e., work-in-progress), which should have already been expensed.

This isn’t a theory, but a best practice!  One of our university teaching hospital clients employs this same inventory strategy.  Their materials management department is responsible, accountable and proactive in management all of their major hospital department’s inventories.  They have established par levels or perpetual inventories for all of their major departments and then they replenish them on a regular preset schedule. It just that simple!

Naturally, you wouldn’t have all of your departments (e.g. business office, admissions, public relations, etc.) fall under this inventory policy since they only have a few hundred dollars in inventory at any given time. These inventories should be expensed and forgotten about since they aren’t material as your accountants would say.

So if you are really serious about inventory control, you need to control ALL of your major inventories by making them OFFICIAL INVENTORIES, and then maintaining them either as a par level system or perpetual inventory, depending on their size, scope and importance.

By making this policy decision, you will move millions of dollars into your hospital’s bank account (due to better inventory controls), instead of having these same dollars tied up in slow moving and excessive inventories that are reducing

The whole idea of supply chain customer surveys is that you can’t really measure your supply chain department’s performance without your own built-in bias tainting the results. However, customer surveys provide you with the unvarnished truth that you need to hear to get better at what you do. To ignore this fact is tantamount to being in denial!

I have used customer surveys for years in our consulting practice to quickly get a handle on the good, the bad and the ugly of my client’s supply chain operations.  The results have always been enlightening, instructive and quite often surprising, but never superficial!

Surveys will confirm your own opinions about your operations (i.e., strengths, weakness or opportunities) and/or raise concerns about what you thought was working – but isn’t.   You will also find a few complements hidden within your survey results that will validate that your hard work is absolutely appreciated by your customers.

I organized my survey by department (purchasing, stores & receiving, central supply, mail/messenger, escort service, distribution, etc.) to cover all of my client’s supply chain operations.  Then within the surveys I would ask about 15 questions about each division’s performance.

For example, telephone calls to distribution are handled courteously – all of the time, most of the time, some of the time, never.  Your exchange care is replenished on time each day: all of the time, most of the time, some of the time, never. Your exchange cart contains all of your supply needs: all of the time, most of the time, some of the time, never.

Best of all, by utilizing supply chain customer surveys, at least annually, your customers will truly appreciate that you care about how your services impact their department and that you want to get better.

By doing so, it will make you look good in your customer’s eyes! Isn’t that a good enough reason to start surveying all of your customer’s opinions – today?

If this sounds familiar, then the secret to this conundrum is “When the going gets tough, it’s time to get organized”, so you can easily handle multiple priorities, identify and cut waste, organize for efficiency, handle the pressure of juggling projects and keep productivity high and stress low. In brief, once you gain control of your time, everything else will fall into place.

We have found that the best way to meet this goal (i.e., gain control of your time) is through the use of technology that has a multiplier effect on your time, labor and resources. As an illustration, many of our clients employ our CliniTrack™software to manage their entire value analysis program. If they tried to manage all of their VA programs’ details (meeting schedules, projects, agendas, minutes, etc.) with spreadsheets or forms, as most hospitals, systems and IDNs do, they would waste hundreds of hours a year and still be behind schedule.

Other clients of ours are utilizing contract management software to manage all of their contracts quickly, easily and efficiently. A few others have purchased project management software to keep all their projects and priorities on track and on budgets. Some even have bought staffing, productivity and budgeting software to automate these time-consuming functions or activities with great success. 

One thing all of these technologies, I just mentioned, have in common is that all of our clients just love the multiplier effects of these time, labor and resource saving methodologies. Even in my own office, we have upgraded, over the last six months, all of our mailing equipment to digitized versions that are 10x faster than our old gear.

There you have it:The one answer that we have found to all of your and our time, labor and resource challenges is to embrace technology that does all of the heavy lifting for you. In most circumstances at a cost that will easily fit into your organization’s budget since the new technology will either lower your current cost or improve your profitability.

That’s how when the going gets tough, progressive supply chain professionals get organized to manage their multiple savings sources, projects, objectives and deadlines.  It’s all about getting control of your time!

ABC is based on the assumption that products don’t drive cost, but activities do.  In healthcare activities (or cost drivers) are patient days, cases, procedures, lab tests, linen pounds processed, maintenance requests, purchase orders processed, etc. When you link an activity to a cost you then can measure it, analyze it and trend and track it.

As an illustration, when you link the cost of your custom packs for a given period to the operating room procedures (case mix adjusted for intensity) they are used in, then you can determine your custom pack cost per case. By benchmarking this number against your peers you can quickly identify if your custom pack cost per case is within acceptable limits.

Why is this important?  By reducing your supply chain cost to the lowest common denominators (activities and cost) you can then isolate your costs to determine where your best supply chain saving opportunities reside. I can’t think of any other methodology that can give you this kind of insight and visibility into your supply chain expenses.

We have used many cost management techniques over the last 24-years to identify supply chain savings opportunities for our clients, but ABC by far has been the most significant tool that we have added to your toolbox to date.   If you aren’t employing ABC at your healthcare organization, maybe it’s time that you update your toolbox with a more scientific, efficient and effective way to identify your supply chain savings opportunities.

1.     Already managing a successful VA program

We find most value analysis programs aren’t successful if they are just measured on annual savings achieved, since these numbers can be fudged.  The ultimate measurement should be how much their VA program has improved their healthcare organization’s bottom line.  That’s where the rubber hits the road!

2.     Make sure individual is computer and data savvy

Too often we have seen VA managers, who aren’t computer (i.e., power users of spreadsheets, databases and analytic software) and data savvy.  As we see it, computer software mastery and data mining is 80% of a VA manager’s job. Without these honed skill sets no VA manager can excel in this multi-dimensional position.

3.     Has strong project management and people skills

The other 20% of a VA manager’s job is managing teams and their projects, while persuading hospital staff to change their costly behaviors and practices. If this individual doesn’t have a high social IQ they then could be lost in the wilderness!

Naturally, there are more attributes for highly successful value analysis managers, but these three are on the top of our list after observing and/or interacting with hundreds of VA managers over the last 17 years.

It’s our hope that you will consider these three attributes when you’re hiring a new VA manager since they just might prevent you from making the wrong choice that could be dangerous to your healthcare organization’s financial health.

The reason for this happening is that our focus has been on price and not our products, service and technology in-use cost or utilization. This is where the rubber hits the road.  It doesn’t matter if you are obtaining the lowest price for everything you buy, if your cost per case, procedure, test, service, etc., is higher than that of your peers — you lose.

If you are motivated to reduce waste and save millions you will need to change your “mindset” from price to utilization by:

1.   Determining where to remove excess supply chain waste

The most effect way I know of to quickly identify waste is through Value Analysis Analytics*. Nonetheless, if you aren’t employing this powerful technique you can start by trending and tracking your supply spend by commodity group (case mix adjusted) as a first step. This data will show you the spikes in your supply utilization that need to be removed.

2.   Prioritize how to remove waste to improve bottom line

Since you can’t remove all of the waste that you will discover in step one all at one time, you will need to prioritize by return-on-investment the valued-few utilization misalignments that will be achievable with your current resources. This will take the pressure off you and your supply chain team to get all waste removed a one time, and will also give you the best savings opportunities to attack first, second and third to keep your VA process orderly.

3.   Show actionable dollars to be removed to gain support

One of the most important attributes of this exercise is that you can, with certainty, show actionable dollars to be removed from your supply streams to gain support from your senior management and VA team(s) to take action.

In brief, in the new healthcare economy you just can’t depend on price savings to right your boat, you will also need to dig down deeper and broader into your supply streams to remove all of the waste and inefficiencies that have crept into it over the decades. By doing so, you can reduce waste and save millions that you never thought possible.  Just like me, you will be amazed at the positive million-dollar results that will come your way!

With these facts in mind, a recent survey by Health Leaders Media showed that the top three priorities of healthcare organizations are: (1) cost reduction, (2) quality/patient safety and (3) patient experience/patient satisfactions.  As you can see, supply chain management will have a strategic fit into all of these initiatives. Your job will become even more important to your healthcare organization, which is a good thing!

On the reverse side, it is predicted by this same survey that there will be more mergers and acquisition activity. This means that some supply chain professionals will find themselves on winning teams and some on losing teams during this period of merger mania. I had this happen to me in the 80s.  I was on one winning team (was promoted after the acquisition) and then on one losing team (lost my job) after the merger were completed.

It also looks like a whopping 59% of physicians and/or their practices will be employed or acquired by hospitals, systems and IDNs. Some doctors even say they will stop taking Medicare and Medicare patients according to this survey.  As I see it, this employment trend with more physicians on your payroll could enable supply chain managers to find more physician partners in their quest to tame their healthcare organizations cost.

In the final analysis, the times are changing in healthcare and it will affect you in some positive and negative ways. The best thing you can do to keep ahead of the tsunami that is coming your way is to find new and better ways to save money for your healthcare organization to help keep them afloat on stormy seas.

You will also need to keep informed on the changes in healthcare legislation (federal and state), so you aren’t caught off guard regarding when the changes that affect your healthcare organization.  It is always better to be informed, vigilant and proactive, than to be blindsided to what’s happening around you!

The term CSCO is borrowed from industry, where the Chief Supply Chain Officer’s role provides a way for supply chain to earn a place in the boardroom and to assist in driving strategic decision making. The CSCO has emerged as a key stakeholder in companies to make supply chain transformation happen. The principle role of this individual centers around planning.

What industry has discovered is that supply chain managers are good at what they do operationally (keeping the train running on time) which is called LEVEL I, but what has been lacking is the “vision thing”: Looking beyond day-to-day supply chain operations to focus on planning (LEVEL II) – setting goals, devising strategies, outlining tasks and schedules to accomplish their preset goals.  

I can’t disagree with this analysis!  If healthcare supply chain professionals want a seat at their senior management table they too will need to look beyond their day-to-day operations (LEVEL I) and move to LEVEL II – planning to create a supply chain vision for their healthcare organizations.

No longer can we let our hospital, system or IDN senior management do this planning work for us, if we are to elevate our own positions in our healthcare organization. I remember, when I was a MM I did my own planning; no hospital executive told me what my vision would be. I told them what strategic direction my organization should be going with supply chain management.  It works much better that way! 

Clearly, healthcare organizations should be considering the new position of CSCO at their hospital, system or IDN because it can give your healthcare organization a strategic advantage.  Even if you are at a small hospital, you should consider yourself a CSCO or you will be pushed and pulled in the wrong direction by your senior management. You are your hospital’s supply chain expert, so don’t give up your rightful seat at the table when decisions are being made about the future of your supply chain department. It is mission critical for you to do so! 

One such trend that is breaking out is freight management.  Yes, I know that there are many companies offering this service, but from what we have observed very few healthcare organizations are actually signing up for these services. From my perspective, it’s an untapped and easy to control savings resource that is being overlooked.

UPS estimated that a healthcare organization’s shipping cost is 10% of their material cost. It has been documented that inbound freight savings can be in the range of 25% to 30% and if you contract with a third-party shipper, savings can be as high as 50%.  If you translate these figures into real dollars the typical small hospital could save $349,975 to $419,997 annually by employing this transportation strategy to control these illusive and hard to get out costs.

Can you manage these freight costs in-house?  I like to see outsourcing to be kept at a minimum at healthcare organizations, but some things like freight management just require too many resources to manage and then still have reasonable return-on-your-investment for most healthcare organizations to even consider in-sourcing.

Simply stated, there are some cost drivers, like freight management, that can be dramatically reduced –- almost overnight – if you outsource this function to a third-party. It’s a “no brainer”!

Remember, saving money isn’t about doing all the work yourself.  It’s about controlling all of your cost drivers by employing different and diverse strategies, tools and techniques to do so.  One savings opportunity at a time

By this I mean that I see too many healthcare organizations ignoring so many new sources of savings (utilization and demand management, functional analysis, and purchase services) that it concerns me that maybe we are all not ready to enter into the new healthcare economy where every dollar saved counts for as much as $25.00 in new revenues.

Reality Check! The Medicare Actuary at last week’s congressional hearings on healthcare predicted that 670 hospitals and 2,000 nursing homes would go into bankruptcy over the next few years due to pending cuts in Medicare reimbursement. The reason for this is that these healthcare facilities will have their Medicare revenues slashed drastically over the next few years and at some point they won’t be about continue to fulfill their medical mission any longer.

Since most healthcare organizations’ bottom lines are hovering at about two to three-percent at best, every hospital in our nation is at risk of falling off the cliff. The only way I see hospitals surviving this tsunami that is coming our way is to ratchet down all of their cost (labor and non-labor) to an absolutely bare minimum…NOW!

The good news is that supply chain professionals can become HERO’s in the new healthcare economy, if and when, they decide to ferret out the last dollars of savings in their hospital’s supply streams. This goal can’t be achieved if we are only focusing our cost containment efforts on price and standardization. Only when all supply cost drivers are vigorously and massively attacked and controlled, can our hospital have a chance of surviving in the new healthcare economy.

From time to time, I hear colleagues tell me that “there you go again Bob scaring everybody with your dire predictions”. I tell them not to “don’t kill the messenger”, for just maybe the messenger has a message that we all need to hear to jumpstart or refuel our savings engines to meet the challenges of the new healthcare economy.

From time to time, I hear colleagues tell me that “there you go again Bob scaring everybody with your dire predictions”. I tell them not to “don’t kill the messenger”, for just maybe the messenger has a message that we all need to hear to jumpstart or refuel our savings engines to meet the challenges of the new healthcare economy.

For instance, we’ve seen a client who has saved $139,344 on their stents utilization in the first quarter, only to realize that their savings are being eroded in the second quarter by their physician’s high-end stent preference. That’s when they promptly schedule a meeting to re-train their physicians on their agreed upon stent protocol to stop the bleeding.

We also see clients that say they obtained a price concession on their dressing trays, custom packs, or whatever that never shows up in their data.  Or, they think that their reprocessing program on oxisensors is working, only to find that it never got off the ground. Since they have our toolthey can quickly solve these problems before they become irreversible or too costly. How would you know this is happening at your healthcare organization?

I think you are getting the idea that if you don’t have a mechanism in place to ensure that the savings you are reporting are actually hitting your bottom line, all the hard work you did up front to obtain these savings is for naught!  Worse yet, you could be mortally embarrassed when your boss finds out what is really happening with the savings you reported as a done deal.

You may have heard the saying “if you want to expect something to happen, then you will need to inspect to ensure it really happens”.  This is the import or the message I’m trying to convey to you today: Never, ever, think that your savings are realized until you actually inspect (at least quarter) that they are still sticking or else, you will be in for a costly, awkward and distressing surprises down the road.

Case in Point! Cedars-Sinai Medical Center, as reported in SuperFreakonomics, was stuck at 80% compliance on their hand-washing policy, while their goal was 90%. One day their hospital leaders surprised their medical staff and administration at a meeting by asking them to press their hands into an agar plate. The agar plates were then sent to their lab for culturing. At the next meeting, the hospital leaders showed these same individuals photos of the plates that revealed gobs of deadly bacteria on all of the attendee’s hands that would later examine patients or eat lunch. The hospital also went one step beyond this demonstration. They took the filthiest photo images and made a screen saver to be shown on the hospital’s network of computers. Suddenly, hand-washing compliance spiked to nearly 100% and stayed there.

In some ways this concept is just like a science class. Until students with their own eyes can SEE an experiment work, FEEL its effects on their environment, they won’t CHANGE their preconceived opinions. The theory behind this idea is that knowledge alone is rarely enough to make change happen. People have to want change to happen!

This subtle change awareness is best achieved through EMOTIONS, not logic. This can be best brought about through demonstrations, experiments, and dramatizations; actually, anything you can think of that can get an emotional response!

So I hope you can see that while facts, data and statistics are important to inform and educate your customers, “It takes emotion to bring knowledge to a boil” states Dan Heath and Chip Heath the authors of Switch: How to Change Things When Change is Hard.

Through this insightful process it has become very clear to us that many VA teams need to be repurposed and/or need to change their strategic direction if they want to dramatically improve their savings performance.

Here’s our point! Too often what we find when we talk to VA team leaders is they are spending 90% or more of their VA team’s time on GPO contract approvals, renewals or clinical trials. Consequently, they are spending little or no time on digging out the waste and inefficiencies in their current supply streams where savings can be as high as 7% to 15%. 

While new and renewal GPO contract reviews by VA teams are important, they shouldn’t be all consuming for your VA teams at the exclusion of all other savings opportunities available to your healthcare organization. This is especially significant to understand in today’s healthcare environment since the return-on-investment on your GPO contracts is infinitesimal, whereas, your savings beyond price opportunities are huge!

What’s the answer? What we recommend to our clients to solve this conundrum is for them to establish a GPO contract team that concentrates exclusively on new and renewal GPO contract work.  This way, your prime or core VA team members can redirect their savings efforts to where the real big money savings reside at your hospital, system or IDN: Utilization, demand management and value mismatches.

Remember, doing the same things in the same old ways might not be the best way to meet your hospital, systems or IDN challenges of the future — NOW!

With this said, I would like to share with you three big lessons our clients have taught us on their road to success in utilization management:

1. Employ utilization optimization tool

Since MMIs and ERP systems lack the sophistication and nimbleness to dig and drill down sufficiently into their supply steams to uncover utilization savings, our clients have opted to purchase offline optimization to uncover this new savings source.

2. Sharing visual data with customers

They use charts, graphics, and statistics generated by their optimization tool as a visual aid to open a discussion with their customers about why their hospital is different. For instance, we just talked to a CFO client who said he was going to use his optimization tool’s charts to show his senior management team how much their legal expenses have gone up over the last quarter. This, he believed, would support his contention that his hospital needs to farm out much of their legal work to a lower cost legal firms.

3. Encourage customers to self-correct

Our clients are finding that all they need to do is show their department heads and managers their utilization data, which compares them to their peers, thus enabling them to self-correct their non-conforming buying behavior — in most situations. No need for arm twisting, no violent outbursts and no ruffled feathers!

These are just three big ideas to get your own utilization management program on the road to success. As our clients have found, it’s much easier than you would think!

I’m sure you realize that hundreds of commodities are bought monthly by your buyers that don’t go through your healthcare organizations formal value analysis process, because either their value is too low or so routine that they pass under VA teams radar screen. Yet, these items should also meet your VA tests in what I call JUST IN TIME VALUE ANALYSIS.

Here’s what I’m talking about.A few years ago a hospital buyer told me that she received a new requisition from her ICU Manager for disposable blood pressure cuffs costing $3,500 annually. So the buyer called the ICU Manager and asked what was the function or purpose for these disposable BP cuffs?  The answer was that the reusable ones where getting too dirty, so she thought the solution to the problem was to order all disposable BP cuffs. After some brainstorming between the buyer and ICU Manager, it was decided that disposable BP sleeves would solve the problem at a cost of $275 annually.

Get the idea!  This buyer just saved her hospital $3,225 for 10 minutes work.  I know your buyers are busy and it might not be practical for them to perform a VA test with every approved requisition that comes across their desk.  However, doesn’t it make sense that a VA test should be performed on routine purchases with a value of say $5,000 annually?    

All I’m proposing here is that buyers are healthcare organizations front line defense against wasteful and inefficient buying practices. If they can perform just one VA test on one requisition a day, trust me when I say, you can shave thousands of dollars a year off your supply spend.

It was such a good question that I thought I would talk about the origin of term Value (Analysis) Analytics to set the record straight and to take a pledge today not to use the term Value Analytics any longer, since I can now see it is a misnomer.   

Here’s the Origins!  17 years ago we were hunting, pecking and poking around for value analysis opportunities for our clients, when we realized there must be an easier, better and faster way to do so. Just as important, we needed a full-proof system that our clients could employ themselves to uncover all of their supplies and purchase service value analysis savings opportunities.  As well as generate savings yields that were much much higher than previously obtained.  

That’s when we adopted the use of the Activity-Based Costing Model (i.e. every product, service, technology or activity has a conforming and non-conforming total cost that can be measured, monitored and controlled) to root out all waste, inefficiencies, and value-mismatches in a healthcare organizations’ supply streams.   

By further enhancing the Activity-Based Costing Model with our own methodologies and technologies, we have found that any and all value analysis opportunities in a healthcare organization can be quickly and easily uncovered, rooted out and then tightly controlled over time.  

Why was I using the term Value Analytics?  I thought it was an attractive label to describe what we do, but I now realize that the term was really misleading, ambiguous and inaccurate. However, I’m not mistaken when I tell you that the key to long-term success with your value analysis program is the employment of Value Analysis Analytics to guide you and your VA teams to savings success.   

Why take the hilly, bumpy and less traveled road, when you can take the smooth, even and well-traveled road to value analysis success?

I was reminded by a long time reader of my blog that my statement last week that, “every dollar saved counts for five dollars in revenue” was entirely too conservative. My reader then gave me a much better scenario that I would like to share with you now that shows that savings in the new healthcare economy are really much better than even more revenues – by a long shot!

So the next time someone says to you that savings aren’t important, you might want to use this great example to show them that saving one dollar actually equates to $25.00 in new revenues which takes a lot more time, talent and effort to achieve today in the new healthcare economy.  

This is because, if you think about it, your physicians are the biggest cost drivers at your healthcare organization: Nothing happens without a physician order! So, if you are to reduce your cost, control your quality and re-invent what you are doing to prepare for ObamaCare, your physicians need to have a front-row-seat at the table.

“Physician engagement is the lynchpin to turn paper savings into real savings,” says Roger Weems, senior vice president, performance management, Westchester Medical Center, Valhalla, New York, “You can negotiate new contracts with better pricing in place, but if you aren’t effectively working with physicians and gaining assurances that their utilization patterns will support those presumed, savings it’s a useless effort.”

You might say this is easier said than done, but from my experience physicians are consumers too. And as consumers, most physicians don’t want to buy overpriced, non-reimbursable or low-reimbursable products to be used in their practice. They generally like to be known as being frugal, cost-conscious and open minded. However, they must make the decision to change their practice patterns – not you!

There are numerous techniques to engage your physicians in your purchasing process, but the best one I know of is to share their un-conforming practice patterns (i.e. graphs, statistics, metrics, etc.) with them and they will eventually self-correct — if they are encouraged by your champions to do so.

It’s now been fully documented that data can and will change your physicians’ behavior, if presented as comparisons to their peers. This is because physicians are scientists, and as such make almost all their decisions based on data. So the better the data you bring them to review the easier it gets for them to make a decision (favorable or unfavorable) about their current practices.

What I’m talking about here today will be “business as usual” for all hospitals in just a few years. Nevertheless, we haven’t come to the tipping point yet in our industry where all hospitals have bought into this “doing it with data” philosophy to change their physicians’ behaviors.

This is why you must educate yourself and your senior management that to change your physicians’ behavior you must first, give them a front-row-seat at the table. Second you need to share relevant, clean, and insightful data with them and third, elicit help from champions to smooth your way to success.

Yet, over the last few years I have been disappointed over the slow growth in the responsibilities and buying influence reported by this same survey. By way of example, the AHRMM survey reports that only 17.7% of central supply department’s report to MMs, 38% of materials management departments aren’t involved in contract management, and 62.4% of the respondents say they aren’t even responsible for value analysis at their healthcare facility. And a big surprise to me was that 88.6% say they aren’t in charge of their hospital’s laundry/linen services, which I consider a core function of material management.

Rather than bore you with more statistics, let me get to my point. When the concept of healthcare material management was first introduced in the 1970s the thesis was the MMs should be in charge of “anything that moves and isn’t alive”, as Charles E. Housley, healthcare supply chain guru, so aptly described it.

The thinking was that one person would be accountable, answerable and knowledgeable for the second largest expense for his or her healthcare organization. They would have ultimate control over all things related to a healthcare organization’s supply chain and then savings would naturally and easily cascade from this vertical supply chain organizational structure. 

Somehow, based on the results of AHRMM’s latest annual survey, we have moved, as an industry, away from this basic material management tenet over the last 41 years, or maybe we never got this concept right in the first place.

As we enter the third year of the new healthcare economy, where every dollar saved counts for five dollars in revenues, I would strongly suggest that you read Chuck E. Housley’s classic and timeless book “Material Management” circa 1978 (it can be found by Googling his name on the World Wide Web). This is one way that you can truly understand this powerful, and apparently underutilized management technique, that if applied consistently and religiously will drive all unnecessary and unwanted cost out of a healthcare organization’s supply streams.

By definition, a puzzle is a problem or enigma that tests the ingenuity of the person who is trying to find the solution. It is intended to be solved in a logical way to give you the desired solution. What I’m seeing in the healthcare marketplace is a tendency to overemphasis the importance of the price and standardization puzzle pieces to all others.

I just read an HPN article where three healthcare CEOs were asked to give their insights into their supply chain expectations. Not one of them talked about price and standardization as their criteria for supply chain excellences. What they did talk about was innovative processes to reduce waste, redesign the logistical flow of supplies, and the implementation of a procurement-to-pay system as meeting or exceeding their expectations.

What these CEOs’ off-the-cuff comments say to me is that your bosses are looking to you, as supply chain professionals, to recognize that price and standardization are important pieces in the supply chain puzzle. However, they are looking for more innovative strategic direction in your supply chain initiatives. One CEO even remarked that he expects his supply chain leader to act as the CEO of his supply chain service with all of the attending responsibilities and accountability.

So I hope you can see by these CEOs’ observations that supply chain management is entering into a new era of transformation – from perceived purchasing managers to highly effective executive level managers – that will require that you fit all of the supply chain pieces together.

Since most healthcare organizations have been surviving on the higher reimbursement from these insurance sources, not from their slim, if any, Medicare and Medicaid reimbursement, it could be catastrophic if these sources of income are dramatically reduced. For instance, two insurers have already dropped their single-children’s coverage and one carrier with one million customers has gone out of business altogether.
Not to mention that there will be $500 billion dollars in Medicare cuts, over 10 years, and a 2.3% excise tax on drugs and medical devices starting 2014.

These are just three changes of the hundreds of changes that will affect your healthcare organization’s financial health in the next decade. These are the facts that you should be utilizing to build a case for change at your own hospital, system or IDN starting in 2011.

Now that ObamaCare is a reality, you can actually see the face of healthcare changing right before your eyes. You should make it your job to spread the word about these changes so that your department heads and mangers can get a vivid picture of what their future will look like. Then when they requisition a new product, service or technology ask them how they are going to pay for it in the new healthcare economy.

Our Congress likes to use the term “PayGo” or pay-as-you-go forward with any new expenditure. I think we all need to learn to use this term in healthcare too or the effects of ObamaCare will drain our healthcare organizations’ financial healthcare — beyond repair.

It all starts with the development your business and personal goals and objectives for the New Year. This is what I do every year between Christmas and New Year’s Day. I look back at my company’s statistics (sales, prospects, contracts, revenues, expenses, etc.) and accomplishments or missteps to see where we have been, then I looking forward to the New Year and where we want to be 12 months from now. I also have a plan for my personal life too that in many ways dovetails my business life goals and objectives.

I have done this for almost all of my business life, even when I was a supply chain manager at a hospital, system or IDN. I would start with my department’s or division’s vision, mission and value statements, revising them to align with my healthcare organization’s goals and objectives for the year. You would be surprised how things change even in one year.

Next I would move on to a list of about 10 critical success factors (those things necessary to achieve my mission), such as, hiring employees with the best attitude and motivation to achieve. I then set my financial goals (i.e. savings, patient charge capture, budget reductions, etc.) for the year: Always having higher goals each year.

I then would plan my operational goals, such as, improving my inventory turns by 4%, increasing my staff’s productivity by 1% through automation or eliminating or outsourcing a supply chain function or activity. I would finish off with my training goals for the year.

As complicated as this process may sound, I can get through my yearly business and life goals and objectives in just a few hours, since I have my template already set up from prior years to be filled in. What takes time, energy and thoughtfulness is figuring out what opportunities I want to create for me and my company for any given year.

By doing so every year, I have accomplished most of the goals and objectives I have set out to achieve in business and in my life. Even when I have missed a goal or objective for one year, I either reset it for another year or drop it if it no longer makes sense to chase this goal for some obvious reason.

If you haven’t taken up this yearly planning and goal setting ritual every year, then you owe it to your healthcare organization and yourself to do so. You will find by doing so that you will create even better opportunities for 2011 and beyond.
 

All of these stressors on our healthcare industry are predicted to lead to deteriorations in our healthcare organizations financial strength, cuts in staffing and services, and uncertainty as to the quality and efficiency that these wholesale changes will bring about.

Yet, with every change there are seeds of opportunity, especially for supply chain professionals, who will be asked to dig down ever further into their supply streams for new and better savings for their healthcare organizations.

The seeds of opportunity that I see on the horizon for supply chain professionals are: (i) you will take a seat on your management councils instead of being kept at arm’s length for many years, (ii) you will received the resources that you require to perform at peak performance, and (iii) you will receive the salary, bonuses and perks befitting a high-level executive level manager that is running a multi-million dollar business.

Supply chain professionals can thrive through change in 2011 and beyond, if they see this rapid change that is predicted as their friend – not their enemy! Use this state of change to leverage your position, your resources and your responsibilities to new levels of performance, recognition and rewards. And never forget that in every change there are seeds of opportunity for you!

Unsurprisingly, this diversity in product evaluation and selection is so broad that the maximum product match between hospitals that we have worked with over the last 24 years is about 18%. The implication you can derive from this statistic is that healthcare organizations buy different products to perform the same functions 92% of the time. How does this happen?

In the perfect world all hospitals would be buying the lowest total cost functional products (e.g. catheters, pacemakers, dressings, etc.) for their intended purpose based on unbiased, scientific and evidence-based criteria. However, this doesn’t appear to be happening, based on our extensive research, or hospitals would be universally buying the same products from the same manufacturers consistently.

The only conclusion that I can come to from these facts are that hospitals’ product evaluation/selection processes are tainted with emotions since they aren’t employing a scientific and systematic value analysis methodology to insure dispassionate results. For example, at one healthcare system where we have worked their hospital divisions were buying six different surgical disposable shavers from six different manufacturers. There is no logical reason that I can think of for this to happen except that these hospital divisions had an emotional bias when they evaluated and selected these shavers. No other rational answer can fit this pattern!

What I’m getting at here is that there is one “basic” tenant that you should be integrating into your product evaluation/selection process: Removing all biases from your decision making process! This can only be accomplished if you have a functional approach to your product evaluation/selection process where you establish functional specifications for the products your department heads are requesting. Only then do you scientifically measure new product offerings against these stringent standards. This way, you will take the emotions out of the buying equation and replace it with unbiased scientific judgment.

We understand this challenge, since we had to face this reality ourselves a few years ago.  For 24 years, we were collecting benchmarks, savings ideas, and best practices on spreadsheets, binders or in our heads until it became impossible to manage and disseminate all of this information to our staff and clients. We then developed an internet portal called “Supply Chain ValueNet”to house all of our software, training and consulting team’s collective knowledge that we have learned along the way.

This portal is updated almost weekly as new ideas, books, articles, videos, benchmarks, training manuals, success models, etc., are developed and published and which we then immediately share with our staff and clients in real-time.  No longer do we lose important documents, ideas or the immeasurable wisdom that has taken us decades to learn, catalog and then apply. All of this invaluable information is now right at our fingertips with a few clicks of our mouse.

I see a trend where supply chain departments are starting to capture many of their ideas, documents and procedures in a “SharePoint” device, but from what I hear this tool is still hard to manipulate, manage and master.  Other clients of ours have their own websites where they are capturing and managing all of their collective knowledge. It really doesn’t matter how you decide to collect this hard-learned knowledge.  What is important is that you actually start to collect capture, organize, maintain and distribute this information on a need-to-know basis.

Simply put, if you are trying to manage, organize and maintain all of your supply chain staff’s collective knowledge in a non-digital format you will quickly (as we did) lose control of this knowledge and have it lost forever.  Investing in technology to protect your supply chain staff’s collective wisdom almost guarantees that you will never lose a good idea again.

It’s been our experience, after looking at literally millions of lines a purchasing data annually, that some reported savings do stick — while others don’t! This shouldn’t be a surprise to you since nothing in this life is perfect. But what should bother you is that many of the savings that you are reporting to your various constituencies aren’t hitting your bottom-line. This could be a disaster waiting to happen!

For example, there is a story I often tell about a supply chain manager who was boasting to his CFO that he had just negotiated the best pricing in their region for his system’s I.V. product line, only to be called on the carpet by this same CFO a few months later when the savings never materialized on his financial reports. Don’t let this happen to you!

You must inspect, if you are to guarantee savings results! One of our clients has set a precedent regarding their savings report that I think we can all learn from. Their savings report has two distinct line items: One for projected savings and the other for implemented savings for each of their savings projects. No implemented savings is reported until it has been fully audited, after three months, by their value analysis coordinator. This way they know with certainty that their savings are sticking.

You can do the same at your healthcare organization by instituting the same policy and procedure. Then you will know for sure if your own savings are really sticking! Don’t skip this important mission critical responsibility to validate all of your reported savings!

As you know, any new car design is road-tested for hundreds of hours before it would ever show up in a new car showroom. This is to ensure that it is ready for real-world driving conditions. It’s the same with savings ideas! It’s best to road-test your big savings ideas (little ones don’t need a lot of testing), with your customers who will be affected by any proposed change in their practices, before you officially present the idea to a larger group of decision makers.

We have a client who is a champion road-tester of savings ideas done in a setting that is always non-threating, casual, and informal.  He will find a reason to talk to one of his customers about an idea he has, that would save them time, money or resources and to get their reaction.  Many times he will get blow-back in his discussions, but that doesn’t faze him, since now he knows what obstacles he will face if he decides to formally present his big savings idea in a larger forum.  It also gives him an opportunity to soften, revise or further align his savings proposal from his customer’s perspective to make his savings proposal even more palatable.

On the opposite side of the coin, I have seen supply chain managers rush pell-mell into a meeting with their cardiologists and then formally propose out of the blue a 25% savings on their pacemaker purchases if only they would standardize on one vendor — only to be quickly rejected out of hand!

Can you see the difference? If you road-test your big savings ideas in a collegial and non-threating fashion, with your affected customers in an informal setting, you can gain insights into their concerns regarding your ideas. This way you can prevent your savings idea from being shot down out of hand in a formal environment. More importantly, you can have an opportunity to revise your savings idea based on your customer’s feedback, so it will be more conforming to your customers’ needs, wants and desires. It can save you time, effort and headaches by doing so!

What Collins is talking about is that having the right people in the right positions is the key engine for growth for any division (like supply chain) or business you are managing. You can’t grow without fantastic people!
“If I were running a company (or division) today, I would have one priority above all others: to acquire as many of the best people as I could. I'd put off everything else to fill my bus. Because things are going to come back, my flywheel is going to start to turn. And the single biggest constraint on the success of my organization is the ability to get and to hang on to enough of the right people.” is another bit of wisdom from Collins.
This quote reminds me of a supply chain manager that I was talking to about a year ago who told me that he decided that he couldn’t meet his short and long-term goals and objectives with his present staff since they didn’t have the skill sets he needed to grow his savings. Therefore, he was going to hire new talent over the next few months and discharge five of his current employees.

My first reaction to his decision was “Wow! That was a scary decision to make or even consider”. But after thinking about what he said a few hours later, I had to agree with his hardnosed decision since he was right: Without having the right people with the right skill sets in the right seats his job would always be in jeopardy due to his underperforming staff.

That’s what talent management is all about! Getting the right people in the right seats and then nurturing, incentivizing and mentoring them so they become fantastic employees. Take a lesson from any championship sports team. They wouldn’t win the Super Bowl, World Series, World Soccer Cup (you name it), without having fantastic players. Do you think you can win the supply chain game without hiring, training and retaining as many super stars as possible?

The answer is to develop multiple skill sets. It’s not enough to be an expert in just one or two skill sets, such as negotiations and group purchasing; you should also become skillful in project management, web technology, value analysis, MMIS systems, database management, inventory management, etc. This way you can move from one specialty to another or even from one industry to another — without missing a beat.

My own career is a prime example of this type of sharpening and adding to your job skills thinking. I have worked in manufacturing, a healthcare distributor, for-profit and non-profit hospitals and systems, a long-term care system, hospital management company, consulting firm and now my own software, training and consulting firm. Along the way I become an expert in about 22 skill sets*. As a result, even though I was laid off once from an employer, I never was without a job in my chosen supply chain career for even one day.

Just as important, people who win the best positions and promotions will be lifelong learners. And since most employers are becoming stingier about training their employees it will be up to you to seek out new experiences, mentors and courses that will add to your skill sets.  For example, at one of the hospitals where I worked I voluntarily took on the responsibility of this hospitals new facility construction buying (they were considering hiring a consultant to do so), so I could gain that important skill set.  It was a lot of hard arduous work, since I still had my routine supply chain work to do too. However, I gained a new skill set that I could add to my resume that only a few of my peers could boast about.

To sum up, very few of us will work for just one or even two employers (I have worked for 12 different employers in healthcare) in our lifetime.  It’s just how employment works in the new healthcare economy.  Nonetheless, the more skill sets you can show on your resume the easier it will be for you to move up, out or even over your competition to obtain the promotions and positions of your choosing without the fear of getting stuck in a dead-end-job. Or, worse yet, losing your job and then not being able to quickly find a new one at your current pay grade with upward mobility and stimulating challenges.

First of all, when most people think about savings they think of PRICE! While these savings are easy, safe and predictable, it only represents about 21% of the imbedded cost of the products, services and technologies that you are buying. Although, it will provide you with, on average, (or normal, middling or standard savings) of about 2% to 3% in annually — if you are tenacious!

So the first lesson you need to learn if you want to achieve AWESOME (26% or more on each commodity you target) savings you need to think Savings Beyond Price — not price alone. For instance, on a recent client assignment we identified with our Value Analytics a 42% utilization savings or $42,233 on their specialty bed rentals. Whereas, after a quick review of their rental bed pricing with our PriceCheck™ software, we found this client’s price to be well within acceptable limits. My point here is that if we were just thinking price alone we would have hit a brick wall on savings for this client. But with our mindset of Savings Beyond Price we hit the bulls eye – dead center!

Another self-limiting idea is that standardization is the preeminent way to save money for your healthcare organization. The idea that standardization (one size fits all) works is not wrongheaded, however it can cost your healthcare organization money in the long run. We see this all the time with I.V. sets. A hospital standardized on one feature-rich I.V. for all its departments (anesthesia to the emergency room) and then pays up to 6.62 per set, when a customized approach (providing the right I.V. set with the right features to the right department) could enable this same hospital to have an average cost of $3.37 per set and save thousands of dollars annually by doing so.

I must admit that moving from average to awesome savings is a transformational process that requires purpose, persistence and an action plan to discover a balance between your price, standardization and utilization savings initiatives that will give you the best return-on-your investment of time, technology and resources.

I call this plan the 10%, 10% and 70% rule! You should be expending 10% of your limited time and energies on price savings, 10% on standardization and then 70% on utilization. This way you can almost be guaranteed not just above average savings, but AWESOME and EXTRAORDINARY savings that you never thought possible.

As a corollary, supply chain managers need to play a good defense by proactively managing their supply chain cost and then avoiding cost spirals, while at the same time going on the offense by researching, developing and then implementing new and better methods, techniques and tactics to further drive down their supply costs while maintaining their quality.

Remember, there is always a better way of doing things if we continually experiment, innovate and take some risks, thereby nurturing these next generation strategies, systems and technology breakthroughs until they become a reality.  Here are some questions and benchmarks to help you on this journey:

• Are You Measuring and Monitoring with Value Analytics? If you don’t know you have a problem how can you fix it? A strong Value Analytics System will not only help you to quickly find and fix problems in your supply streams, but will also generate huge ROIs along the way.

• Do you have a Performance-Based Value Analysis Program? You must be analyzing your high dollar purchases to see where you can find lower cost alternatives that meet your customer’s requirements while maintaining and/or improving quality.  If you are just focused on your GPO contract conversions, you are missing even deeper and broader savings for your hospital.

• Does your Hospital employ a Supply Chain Strategic Planning Team? This team is composed of supply chain and senior management representatives that are charged with researching, developing and implementing the next generation of supply chain operational and savings strategies for your hospital, health system or IDN.   This team will be responsible for looking outside the box at all the emerging best practices in ALL industries to maintain your supply chain department at peak performance.

• Are you Vigorously Training Your Hospital’s Staff in the Latest Cost Management Techniques? Most hospital’s staff have had no supply chain savings training (e.g. value analysis, life cycle costing, Just-in-time, Activity-Based Costing, etc.) even though they budget and control millions of dollars of supply expenditures annually.  In effect, they are flying blind and then are forced to rely on their “gut feel” to make all of their supply expense decisions, which is a dangerous way to do business. Most hospitals have thousands of employees that are an untapped resource in the fight against rising costs — if only they were trained to do so.

Be aware that these ideas that I just shared with you must be fashioned into systematic, repeatable and auditable processes. They are not meant to be employed just one time and then be disposed of forever!  Also, don’t get caught in the trap of employing ONLY one of these ideas at a time, since the number one is the worst (and loneliest) number in mathematics.  This is due to fact that supply chain management is multi-dimensional and we must therefore be multi-dimensional in our approach to supply chain management to be successful.  Simply stated, if you have a good offense plus a good defense you can always be on top of our supply chain game.

Best Practice: There may be some research that supports this practice, but it is not yet backed by rigorous research studies. A hospital may determine that a particular best practice has resulted in improved outcomes (e.g., improved patient satisfaction, reduced supply costs) for its patient population.

Evidence-Based Practice: Rigorous research studies, preferably controlled studies, indicate that an evidence-based medical or nursing practice is more effective than other practices in achieving a desired outcome (e.g., reduce incidence of infection, a lower length of stay).

Do you see the difference? Anecdotal or loosely based evidence, even if reported by hundreds of practitioners, doesn’t make a best practice legitimate. Do you remember when it was believed that almost all stomach (or Peptic) ulcers were thought to be caused by stress? Now, we know with certainty, based on rigorous evidence-based research in 1982 by two Australian scientists, that 70% to 90% of Peptic ulcers are caused by bacteria. It’s interesting to note that John Lykowkis, a general practitioner in Greece, believed Peptic ulcers were caused by bacteria in 1958, and then treated his patients with antibiotics (now an evidence-based best practice), but he never did the rigorous evidence-based research to prove it. Unfortunately, he left the rest of his colleagues to figure it out for themselves.

What does this mean to you? When deciding on what should be a best practice for your hospital, always look to evidence-based practices first. For example, Sanford stated in her article that Catholic Health Initiatives (CHI) has rigorously researched bed making at their 74 hospitals and has decided not to change bed linens on a daily basis, except for bedridden patients or when linens become soiled or if a patient requests it. CHI projects they will save $3 million annually by doing so. I know that hundreds of hospitals follow this same bed making policy, but has anyone of them ever rigorously researched it?

The crux of deciding on a best practice for your hospital, system or IDN’s clinical or business operations is this: If your healthcare organization or some other respected organization (e.g., ECRI, JAMA, CMS, etc.) hasn’t rigorously researched, with double-blind studies if feasible, what really works you can’t really call what you are doing a best practice.

It’s just your opinion! 

Ron Howard, not the Hollywood director, but a Professor at Stanford University, tells us that “Decision making cuts across all human activities. Yet we rarely study – much less apply – fundamental thinking processes that should be undertaken before we make important decisions. Most of us can’t stop our emotions from having more sway than rational deliberations.”  Dr. Howard delineates the elements of high-quality (or value-based) decisions as: Proper framing, clear alternatives, appropriate information, considered preferences, and the logic necessary for the uncertain world we live in.

Dr. Howard’s description of value-based decision making could be the apt definition for the six-step LEAN Value Analysis Model that we developed 23 years ago to take the emotions out of all buying decisions. We found more than two decades ago that if a healthcare organization (or any other organization for that matter) doesn’t understand the distinction between “best value” and “best price” they will inevitably make the decision to buy from the lowest qualified bidder every time.

More importantly, all value-based decisions must follow a defined, repeatable and auditable process to ensure that the outcomes can be measured to make certain that they actually support the decision that was made. For instance, I can’t tell you have many times I have received a call from a supply chain professional who tells me that they have had a value analysis team in place for a few years, but they don’t know if their VA decisions have actually saved their hospital money or improved their quality. They then request our help to dramatically improve, validate and reinvent their VA decision making process. I guess you could call this the classic example of someone putting the cart before the horse!  As you know, the results are dramatically better in the inverse order.

Lastly, we are being mandated by the Feds to make value-based decisions, since the monetary incentives to do so haven’t been encouraged or promoted in the healthcare marketplace. You might consider this a catch 22 event, but this is the stark reality in healthcare today!

With this said, the healthcare experts are 100% right when they say that healthcare providers are being reimbursed today for activity — not for positive outcomes. These outcomes certainly can and will change as we in healthcare realize that cost effective value-based decisions can only be increased, when and if, we dramatically improve the quality of the processes that we are employing in making these decisions. There will never be a substitute for rational, objective, and unemotional high-quality repeatable decision-making processes.

1. All purchases must be specifically budgeted

Every year thousands of new product, service and technology purchases are bought by hospitals that aren’t specifically, explicitly, and categorically budgeted. By this I mean that there isn’t a line item in the department’s budget specifically designating a description, manufacturer, product number, volume and dollars that is being budgeted. If you look at most department heads’ approved budgets for any given year all you would see is a category called supplies, purchase services or capital that had a budget number filled in by accounting that I would call a blank check.

Correspondingly, what progressive hospitals have been doing for years to control their expenditures is to have their department heads fill in the blanks (description, manufacturer, product number, volume and dollars) for each and every new product, service or technology that they perceive they want to buy each year. Then they must justify them with numbers, which we will talk about in idea #3.

If a department head was able to get through this gauntlet, then maybe their budgeted commodity would be purchased sometime in the next 12 months, if and when, funds were available and if it could pass the value analysis tests conducted by their value analysis team.

I’m sure you can easily see how this budget process would ensure that NOTHING is purchased that isn’t absolutely, positively necessary vs. most budget processes in place at healthcare organizations today.

2. Emergency purchases, must be counterbalanced with a reduction of some other budgeted item 

Another technique that works wonders to keep a hospital’s budget in balance is to counterbalance any approved emergency purchase with a reduction of another item in a department head’s budget. For example, at one hospital where I worked the environmental department was always breaking equipment (carpet sweepers, wet dry vacuums, buffers, etc.) during the year that wasn’t budgeted. They then had to give up some other item in their budget of equal value to obtain approval of their emergency purchase. It might seem harsh to do so but guess what, my hospital never went over budget in any department and we somehow found a way to do more with less.

3. All purchases must have a numerical justification

I talked about this idea in my blog article on September 17th, but I thought it was important to reiterate that if your department heads can’t justify their proposed new budget items by the numbers (statistics, ROI, and life cycle cost) then they shouldn’t be permitted to budget for this new commodity. No…ands, buts or ifs about it!

As I said, all of these three lessons have come from the school of hard knocks and have also passed the test of time. If your healthcare organization isn’t employing these ideas to control their budget maybe you should talk to your CFO about doing so. I can guarantee you that it will make your job easier and absolutely hold your healthcare organization budget in line in any given year.

These are the heroes (see side bar) who have led the way to the professionalization of our healthcare supply chain industry. One such hero is Daniel E. Mayworm, which I would like to highlight herein since I believe that  education (that’s what Mayworm did best) is one of the primary reasons why our supply chain profession is now recognized as a respected discipline, not just a function in a healthcare organization.

The Bellwether League’s Class of 2010 honorees includes: Ted Almon, Carter F. Blake, Br. Ned Gerber, George R. Gossett, Frank D. Kilzer, Michael Louviere, Robert Bross Majors, Franklin J. Marshall, Daniel E. Mayworm, Foster G. McGaw, Mark M. McKenna, G. Gilmer Minor III, Curt M. Selquist, Donald G. Soth and Louis Vietti.

HPN magazine tells us that “As an active participant in healthcare supply chain management development, Dan Mayworm successfully published several influential magazines (e.g. Journal of Healthcare Resource Management) dedicated to the industry and served as a frequent speaker at various trade association meetings after a market-leading career in medical product packaging.

A prolific author, educator, speaker and advocate of materials management, sterile processing, surgical services and infection control issues, principles and standards, Mayworm consistently sought to foster clinical and process innovation and quality, as much as report and write about it. His publications and seminars encouraged and influenced many in the industry to explore the scope and depth of the healthcare supply chain as something more than just purchasing.

If you look at history, all of our best ideas in any discipline have been passed down by educators (books, seminars, workshops, magazines, etc.) like Dan Mayworm to the next generation of leaders so they too could learn the best ideas from the best sources. Since there are very few formal education models for supply chain professionals, we all have learned our trade from our peers.

What has speeded up this educational process is having enlightened, dedicated and motivated educators to share their collective experiences, lessons and best practices through their media organizations where we can all share in this collective knowledge.

We all need to remember that without the Dan Mayworm’s in our industry to spearhead and guide our supply chain education, we would all be swimming in different rivers and never learn anything much about what the other guys have learned who may be swimming even faster than we are.

So I salute the Bellwether League for their supply chain hero’s selections again this year as they induct their Class of 2010 into their “Supply Chain Hall of Fame”. We all owe BLI’s founders (Jamie Kowalski and Rick Dana Barlow and their Board of Directors) a debt of gratitude for doing so!

If it is a relentless priority with you, you will find that you can slash your supply and purchase service budget by seven to 15% almost overnight. I make this distinction because if you make the active decision to adopt the ZERO WASTE mindset you can immediately have a new savings source that will give you enormous dividends.

I can point to one of our clients who has adopted this philosophy, a few years ago, with the result that he has shaved 13% (or $3 million) off his supply and purchase service budgets, while his price savings took second place in his savings scorecard. He says “We found that one of the keys to success at the outset of our utilization management program was to create a “new mindset” for our material management staff, physicians, clinicians and department heads to spur them into action.

We call this mindset “value-based thinking”: Taking a questioning, probing and inquisitive approach as to why we do the things we do in our hospital as well as focusing on outcomes, not activity. It was especially important for our program coordinator to realize that it was okay for her to challenge the organization’s long held assumptions regarding the value of what we were buying, doing and spending on any given commodity.”

Waste is insidious; it seeps into EVERY product and service that you buy – over time. This is an indisputable fact and is the unintended consequence of our fast pace, get it done today, and worry it about tomorrow culture. We have worked with 526 hospitals, systems or IDNs over the last few decades and haven’t found even one healthcare organization that didn’t have massive waste and in efficiency in their supply streams. Why would your hospital, system or IDN be any different?

If you are looking to have absolute fiscal control over your supply and purchase service expenses, then your job isn’t done when you obtain the best price. Don’t settle for anything less than ZERO WASTE in your supply streams to complete your job as a supply chain professional: Best price, lowest utilization cost and minimum life cycle cost!

We would all agree that there are a whole host of supply chain savings strategies, tactics and techniques (in and outside the healthcare supply chain world) we can learn from. This is especially important now that the new healthcare reform bill has been passed, necessitating even more saving in less time and yes, with less resources.

With this in mind, we often see new saving ideas being promoted by healthcare organizations as a best practice, only to find that when they are applied at other healthcare organizations they can completely fall short due to either poor interpretation or implementation. How do we know what will work or won’t work at our healthcare organization?

Let’s face it, what works for one healthcare organization may not necessarily work for another healthcare organization. This is a conundrum in the healthcare supply chain cost management world. A perfect example of this fact is a multi-hospital system that we work with and whom we helped to recognize that they were over-utilizing (wasting, mismanagement and misusing) their Patient Bathing Systems thereby missing a hefty six-digit savings opportunity. Once this was brought to our client’s attention their savings strategy was to eliminate their bathing systems and go back to basics with only a washcloth and basin to bath their patients. Nothing complicated here!

Three-months later I ran into the same Patient Bathing System over-utilization at a free-standing community hospital client which statistically, we thought, given our very recent positive experience with the previous client I talked about, that we had another winning strategy that our client could employ at their facility. However, we still had to prove that this savings idea was realistic. After shadowing their customers for this Patient Bathing System and performing a value analysis study we quickly realized that this hospital was “Totally Different” than any hospital we had worked with before.

Our “sure thing” turned out not to be reality-based because (believe it or not) this client didn’t have working showers in most of their patient rooms, so they compensated for this fact by employing a Patient Bathing System to solve this inconvenient problem. Consequently, we recalculated our client’s patient days, adding in their ambulatory patients who could take a shower themselves, and their metrics came out to be exactly where they should have been compared to their peers —NO SAVINGS.

This is what I mean by the YING and YANG EFFECT in the healthcare supply chain: What works at one healthcare organization, might not work at yours. This doesn’t mean that you stop searching for new and better savings ideas from other hospitals, systems and IDNs. To the contrary, it means that you must incessantly MEASURE your supply expense in-use cost against your peers, utilizing the new science of Value Analytics and then OBSERVE what you are doing to see if their savings idea is a good fit for you.

Even though there are always some exceptions, it’s been our experience that in most situations savings ideas swiped from other healthcare organizations (with some adjustments for your unique culture, conditions and circumstances) will universally work.

1. MUST be senior executive with influence in your organization

Typically, this would mean a vice president or senior director who would commit to coming to every one of your VA team meetings to observe, comment and advise on courses of action to move your VA project forward. Lower level managers shouldn’t apply!

2. MUST provide emotional support and feedback on how to improve your VA process

This individual should be enthusiastic about your value analysis program and would show it by being actively involved in all aspects of your VA team projects. They would give feedback, advice and counsel to your team leaders and team members. No passive individuals should apply!

3. MUST be willing to help VA team learn to navigate hospital politics

Most VA team challenges involve hospital politics, therefore this individual must be willing to roll up their sleeves, get down and dirty and teach your team members how to navigate your hospital’s politics to reach their team goals. No gamers should apply!

4. MUST protect your VA team from negative attacks 

If your VA team is doing their job right, you will be attacked by individuals who don’t want any change in their practices. This is why you will need a strong executive champion who will protect your VA team from these negative attacks. No wimps should apply!

5. MUST fight for your VA team, when necessary, to gain the high ground

VA team leaders and team members shouldn’t be standing alone to fight the inevitable battles that will occur as a byproduct of your VA change-management process. That’s where your executive champion steps in to fight those battles with you. No weak-knee individuals should apply!

Now that you have the five criterions for selecting your VA executive champions, it’s time to search out the individual(s) that best fit this job description and then invite them to become your VA team champion. You will find that by doing so you will smooth the road for your VA success without wholesale changes to your value analysis methodology. IT’S JUST THAT EASY….

My brother-law calls the tactic that I will talk about shortly, as a “twofer”. Meaning, with few exceptions he tries to get two things done (that are connected in some way shape or form) at once. He will buy his gas at a gas station that has a convenience store connected to it so he’ll pick up his bread and milk for the day. He has a Christmas party every year and then invites everyone he knows to fulfill all of his social obligations for the whole year. He will only vacation at hotels where he can use his vacation club points, so he can get the best values. Get the idea!

Well, you can have a “twofer” with your supply chain expense savings too. It can also be called a “one two punch” by not just getting the best price on the commodities that you are buying, but obtaining the lowest possible in-use or utilization cost at the same time. One of our clients saved more than a quarter of a million dollars by doing so.

Instead of signing off on a new GPO wound care contract that was being offered and just getting a lower price, our client decided on the value-based approach of taking a floor-to-ceiling look at their wound care program in an attempt to reduce their pressure ulcer rate. During the course of their initiative they reviewed their in-use (utilization) cost of patient transfer devices, skin care and incontinent care products, ultrasorb pads, their bed-making process, and transport team training. Consequently, they reduced the ulcer rate by 10%, while reducing their wound care supply spend by $262,000 annually.

You’re got to admit that this client of ours was able to get a “twofer” that dramatically reduced his wound care product’s price and utilization cost (a one two punch) at the same time. So if you are looking to do more with less with no excuses, maybe this tactic is something you should look into — today!

We can ask questions that open up the dialog with our customers so we can learn the products, service and technologies and required functions (primary, secondary and aesthetic) so that we can truly value justify our purchases. Here are nine powerful questions to get you started on this journey:

1.           What is the purpose (or its reason for being without which it would be useless) of the product?

2.           What is its primary function (what 80% of customers need to perform their job)?

3.           What are its secondary functions (what other uses are there for this product)?

4.           What are its aesthetic functions (nice, desirable, and attractive, but may be superfluous)?

5.           Who are the customers who touch this product throughout its lifecycle?

6.           Who are the stakeholders who influence the buying decision?

7.           Who are the experts who could contribute to this discussion?

8.           What are three lower-cost functional alternatives as specified by your customers, stakeholders and experts?

9.           What, in the final analysis, is the alternative with the lowest total lifecycle cost that will meet the required functions reliably?

Did you notice that not one of these questions is related to the manufacture, distributor or price of the product? This is because this is the last question that should be asked in your value analysis process, once these other questions are answered.  Remember, Value analysis is not about price, but is all about best value.

In many value analysis studies you will find that the product under investigation might actually have the highest price, but in fact has the lowest overall lifecycle cost. That’s why if you change your questions, you will change your VA outcomes – for the better in all circumstances!

Well, there is a whole industry popping up that can provide your hospital with almost anything (paper boxes, linens, plants, trees, furniture, etc.) that you might only need from time to time to get your hospitals important work done. Why own it when you can rent it?

There is also another trend starting up where you share, barter, lend, trade, gift or swap what your hospital needs, wants or desires that can benefit all involved parties. I’m sure the hospital down the street or somewhere in the USA has all kinds of stuff that you have been looking for in storage. Why not trade, barter, gift or swap with them to obtain it!

Lastly, there is the redistribution market that is in high gear where the goal is to reduce, reuse, recycle and repair all kinds of stuff that you might have or want that can be swapped, bought or sold for cash. There is even a website Swap.com that will do all of this work for you.

My point here is that the supply chain world is changing at a much faster pace than ever before and the old ways of doing business (buying everything you own, keeping everything you have or finding other ways to obtain stuff cheaply) is really becoming passé. You will find all the answers you have been looking for in this new world of “Collaborative Consumption” right here, right now and in the right quantities on the World Wide Web.

We know this to be a fact since we have trained, coached and facilitated hundreds of teams over the last 24 years.  The secret to having “teamwork that works” is to improve collaboration, and to build balance and efficiency into your teamwork.  Here are five ways to do so:

1.    Team Structure

Most teams are really organized as committees (a forum where people are chosen to passively share their opinions and expertise). On the other hand, a team is an active workgroup where each team member shares, labors and participates in their team’s work.  The operative word here is “work” inside and outside of your team meetings to investigate, evaluate and implement alternatives and/or better solutions than what you are doing now.  If you still have a “passive” committee structure where there is a lot of talk but very little action, it might be a good time to roll out a new way of doing business that will bring you optimal results.

2    Team Membership

As one of my clients stated recently, “It is important to add a number of “critical thinkers” to your workgroups to radically change your team dynamics. We found that we didn’t need workgroup members to be subject matter experts to greatly contribute to our investigations. As a result, we were able to have more objectivity from these unbiased participants than typical process owners who too often are just trying to protect their turf.”   I couldn’t have said this better myself!

3.    Team Goals & Objectives

We have observed that too often teams aren’t given concrete goals and objectives (e.g., dollars to be saved, percentage reduction in infection rate, or number of procedures to be increased) which are absolutely necessary to focus your team members on their teams’ expected end results. If team leaders and team members don’t know what’s expected of them, then how can they ever be held accountable for their actions?

4.    Team Measurement

We have all heard the old saying, “What is measured happens”, but do we actually live by it with our teamwork? Do we measure our attendance against goals, savings against goals, quality improvements against goals, etc?  If not, we are sorely missing a key ingredient that would quickly improve our team’s productivity and outcomes.

5.    Team Leadership

If you don’t have the right team leader (e.g., bright, energetic, organized, committed, proactive, action oriented, and an analytical thinker) to lead your team(s) you will find that your team members will quickly lose interest in their team work and will move on to other pressing problems. This is why the selection of team leader(s) should be considered as important as hiring someone in a leadership position at your healthcare organization.  Therefore, it should be done with as much care, thoughtfulness and thoroughness as time will permit.

These are just a few ideas to make your teamwork more efficient, effective and productive. These five tactics will also enable you to build more successful work teams that will live up to their full potential with fresh ideas, more interaction and that can solve any challenge that is throw at them.

With this said, most of these dead-end conversations with your customers usually have some of the following idea killer ploys as described in John P. Kotter’s book “How to Save Good Ideas” to keep you from the truth:

• We have been successful. Why change?

• You’re exaggerating the problem.

• It’s too simplistic to work.

• No one else does this.

• People have too many concerns.

• Tried that before – didn’t work.

• Good idea, but timing is wrong.

• It’s just too much work to do this.

• It won’t work here. We’re different

• We can’t afford this.

• You’ll never convince enough people.

• We’re simply not equipped to do this.

Sound familiar? These idea killers are questions, arguments, and comments that are meant to derail your investigations — not to save your healthcare organization money. The inconvenient truth is that, too often, your customers are just trying to delay, deny, confuse or ridicule your savings ideas. Don’t let these idea killers dead-end your investigations!

You must always find a way, with the intervention of your executive management team, if necessary, to thoroughly investigate any and all of your savings ideas. As a material manager and now as a consultant, I have had these idea killer ploys thrown at me at every turn when I indentified a savings opportunity. Nevertheless, I didn’t stop my investigations until I had proven to myself that the savings weren’t real, obtainable or feasible for some legitimate reason and not because one of my customers thought the timing wasn’t right or they tried the idea before — and it didn’t work.

To generate even more big savings, we all need to be a little bit more like Sherlock Holmes (the fictional English private detective of the 1800s), who never let obstacles, friendships or speculation get in the way of his investigations. He based his decisions purely on data, data and more data. Then in a cold, unemotional and precise manner he discovered the unvarnished truth in all his cases. You too need to take a lesson from Sherlock Homes and never let your customers throw away big savings in your healthcare organization that are just within your grasp.

1. Business Law

This course was invaluable to me over my four decade supply chain career. I’m still asked questions related to this subject almost weekly by my staff and clients. In this course we studied the “Uniform Commercial Code” which is the bible for all business transactions (written or oral). What constitute a contract? What is consideration? Who is to be considered an agent? I therefore believe that Business law courses should be a prerequisite for all supply chain professionals, since it’s something we deal with everyday of our supply chain career (i.e. contracts, purchase orders, business transactions, risk and liability) and is critical for your supply chain success.

2. Accounting

Next to business law, accounting, in my opinion, is the next most important course a supply chain professional can take. I call it the language of business (double-entry bookkeeping was invented in Italy in the 1400s). This enables you to understand your hospitals chart of accounts, charge master, cost accounting and inventory management. Don’t leave business school without taking at least accounting 101 and 102, if you want to understand how your hospital business works.

3. Purchasing

Unfortunately, most colleges have dropped this important course from their curriculum in recently years. Although, a quick Google search shows that a number of colleges still offer this course either in a classroom environment or on line. I was very lucky not only to have taken this course, but to have had a seasoned purchasing director present the course. I found it priceless to learn from a purchasing veteran who had been in the trenches for 30 years. If you haven’t attended a professionally taught college purchasing course please sign up for one today. You will never regret that you have done so.

4. Statistics

Although statistics 101 and 102 are intellectually demanding, they are the foundation for all of the analytics you will need to perform on your supply spend (and other operational areas) to determine savings and operational improvements for your healthcare organization. If you haven’t been exposed to these enlightened courses you will be challenged with knowing the who, what, and where you can save money or get better at your operations.

I’m sure I had a few more courses in business school that helped me enormously in my supply chain career but the four that I have described above have made a real positive impact. I hope this knowledge will help motivate you to either sign up for one or more of these courses at your local college or to take a refresher course to sharpen, hone and refine your basic skill sets.

More importantly, inflation is raising its ugly head again with many commodities (cotton, aluminum, steel, iron, and rubber) that are going to necessitate suppliers to raise their prices to healthcare organizations. Further, I predict that regional GPOs and alliances will put a small dent in the rate of inflation on many commodity groups in the short-term, but won’t hold back the tide of inflation in healthcare supply chain expenditures over the long-term.

However, this doesn’t mean that there aren’t huge supply savings still to be achieved in healthcare supply spends.  We just did a study for a client that identified 8.6 times more savings in value analysis opportunities than in their price outlook, and seven to 15% savings available for all healthcare organizations in their utilization management savings.

Another client of ours just reported to us that their utilization management savings is in the range of $1.5 million dollars or 52% of their total savings for the period they reported to us.  This makes my point: There is still price savings available for healthcare organizations, although utilization management is actually outpacing price savings today.

So while healthcare organizations new price savings may be waning, on the whole, supply chain savings are on the upswing for hospitals, systems and IDNs who look beyond price for even deeper and broader savings that are ready to be harvested.

That’s why foresighted supply chain professionals are expending even more time on savings beyond price initiatives, than their price savings projects since their savings yield is much, much better in this area of their responsibility.  Isn’t it time you consider this same strategy to reign in your total cost from acquisition to disposition?

Why? Things change, people change and technology changes, which makes what we have been doing rapidly obsolete. For instance, I can’t think of a hospital, system or IDN who has totally kept up with the technology revolutionize in our industry. We now can utilize RFID technologies for the purpose of identifying, tracking, or charging supplies or equipment throughout their life cycle. Save even more money by applying the concept of Activity-Based Costing to our supply chain spend analytics and make our requisition to purchasing transaction process almost entirely automated.  Technology is just one of about thirty-five topics your Strategic Supply Chain should cover.

We have seen this observable fact at small to large hospitals, systems as well as IDNs throughout the country. The reason this has come about is that supply chain professionals haven’t stopped the clock to take a hard look at what their supply chain is doing (or neglected to do) or should be doing to plan, organize and create a visible, reliable and sustainable supply chain for the future.

Winds of Change: One big change that is right around the corner is the new healthcare reform bill. A portion of the bill went into effect this month and that will surely cost your hospital, system or IDN hundreds of thousands of dollars, or in many cases millions of dollars in lost revenues and will also drastically affect your bottom line.

Master Change: We in supply chain management always seem to be herky–jerky when it comes to strategic operational planning, even though planning is the little known secret you desperately need to stay on top of your game.  By looking at where you have been, where you are now and where you want (or need) to be in 1, 2, 3 or 5 years with you supply chain management program, you can manage these unpredictable winds of change more effectively.

Anticipate Change: This is the case with another client of ours whose management is telling their supply chain manager that he needs to do more with less. He has responded to this challenge by developing a Strategic Supply Chain Operations Plan, with our assistance, which includes re-inventing and re-tooling his purchasing operations and supply value analysis program to be leaner, meaner and more productive.  At the same time, our client is proactively increasing his supply saving yield by 11.4 times over the next few years.

If you want to be left standing when the winds of change hits your healthcare organization over the next few years, you need to master change by anticipating change with your own Strategic Supply Chain Operations Plan that will keep you afloat in good times and bad.

1. 1. Strike While the Iron is Hot

Having a good idea isn’t good enough unless there is a reason to implement it…NOW!  Many ideas float around every workplace in America everyday, but are never implemented because there is no sense of urgency or the timing isn’t right to do so.

That’s why it is so important to “strike while the iron is hot” to get your good ideas accepted. I remember trying for years (multiple presentations to my executive management team) to centralize the lab buying for my IDN, which wasn’t implemented until out of control budget overruns by the laboratory manager, finally (when the IRON WAS HOT) got my good idea implemented.

1. 2. Keep it Simple and Easy

Good ideas are like a light bulb, they shine brightest when they are simple, easy and turn people on.  Instead of making your good idea sound like a mathematical formula, make it seem like something that makes everybody’s job effortless, uncomplicated and a “no brainer”.

One of my clients once said of me that “I always make my ideas sound so simple that he wasn’t sure I was always telling the truth”. Well, that’s the way I wanted him to see my ideas, since he wouldn’t ever consider them if he had to move mountains to implement them. That’s one secret to getting your good ideas accepted, don’t make them sound too difficult to execute or no one will want to listen to them.

1. 3. Always Have a Good Story

If you can tell a story that dovetails with your good idea you are halfway home to having your idea implemented.  A client of mine told me that his healthcare system just lost thousands of dollars because a department head of theirs signed a win-lose contract with a vendor a few years ago.  I told this manager to tell that story to his CEO as a prelude to proposing his good idea of hiring a contract administrator to vet all of their system’s contracts to avoid this costly embarrassment from occurring in the future.  Guess what! He got his good idea approved when he did so.

1. 4. Find Champions to Fight for You

If possible, you never want to be the only one to propose a good idea, if you can, find a few champions to fight for your idea too.  This is because there is strength in numbers, and obvious weaknesses in being a lone ranger when you are trying to get your good idea approved:  People can ignore one person’s idea, but they must at least listen to a group that also has the same idea.  It’s a quirk of human nature that you can use to your advantage.

1. 5. Never Leave a Good Idea Die

I often have my own good ideas knocked down or ignored by my clients, staff or even on the home front, but I never leave my good ideas die if I’m convinced they are still worthy of consideration.  That is until someone dissuades me that they don’t make good sense anymore. I just keep coming back with the same good idea when the timing, circumstances or environment lends themselves to do so.

These five surefire ideas for getting your good ideas heard, accepted and implemented are just a few ways that you can keep your own good ideas from being shot down before being fully considered.

Remember, it’s not how many good ideas that got rejected (nobody is keeping score), but how many of them that you got implemented that really count.   So, keep on keeping on with those good ideas, but don’t forget that you need more than a good idea to sell it to others.

These questions are not just an exercise in brainstorming, but should be an actuality in the healthcare marketplace today:  Obtaining even more value on your purchases with your dwindling purchasing dollars.

As our healthcare purchasing dollars shrink, our goal as supply chain professionals should be to go deeper and broader into value creation on every commodity we purchase. This value creation starts with looking at the total cost of ownership (TCO) on every contract (GPO or otherwise) we are negotiating in the coming weeks, months and years.

Every product, service or technology you are buying has a TOTAL COST of OWNERSHIP factor (price, transportation, storage, distribution, training, upgrades, utilization, disposal, etc.), that needs to be negotiated downward or included in your price at the time of purchase to reduce your life cycle cost  – not just price.  This is the time when your suppliers are ready, willing and able to completely satisfy you to get your business.

Martin Finkle of Scotwork tells us that “To incorporate value (creation) into your negotiations, use the “total cost of ownership analysis” approach, combining the hard and soft costs of owning (a product, service or technology).”  He gives the example of the hard cost of a blood analysis machine’s TCO as the purchase price, implementation fees, upgrades maintenance contract, (supplies) contract and disposal cost.

Finkle says that it is even more important to focus also on the soft cost: management support, training, hidden costs and downtime. “Since these costs don’t occur at the time of acquisition, they’re often overlooked in budgets – leading to unexpected increases or even a transfer of management and responsibility to the end users.”

I think you get the idea:  Purchase cost is just the tip of the iceberg when you are negotiating any and all of your purchases.  This is how you create even more value for your healthcare organization.  Best of all,  your suppliers will be much more willing to negotiate your total cost of ownership, than their price in the new healthcare economy that is taking a bit out of their profits too.

Too often in healthcare there is a tendency to avoid, negate or ignore hard numbers when deciding on a customer’s new product, service or technology request.  I’ve even seen budget directors approve their department heads new budget requests without even one number to back up their assumptions.

Well, I come from the “old school” where my former budget directors wouldn’t even consider my new or existing budget requests without a string of valid numbers to back up my claims.  Maybe then my budget director would approve my new budget requests, if he was having a good day.

I think it’s about time we get back to the “hard numbers game” on all of our supply budgets and purchase requests. Starting with having our department heads having their new purchase or service request budgeted – by description and total cost – for any given year.  If a purchase request isn’t budgeted then these department heads can’t even put in a request for purchase for that budget year.   They would need to try again next year to get their new supply or service budgeted.

This isn’t just a theory! This is the way one of the hospitals I worked for many years ago did it in practice.  I hated the practice at the time because I had follow it to obtain a new product or service too, but boy did it work beautifully to keep our expenses in total control.  And if I had an emergency (say my $99.00 fax machine died), I had to trade another expense item in its place, so my budget was still in balance at the end of the year.

You might think of the budget process I just described as “overkill”, but I don’t think so.  Healthcare is in a new era of economizing, minimizing and flat out cost avoidance. That means we can’t do things the way we have always done them and still keep our boat afloat. Every purchase that we don’t make is really another dollar saved for your healthcare organization.

So when someone sends you a new purchase request, make sure you have them enumerate “BY THE NUMBERS” why they need, want or desire something new, different or better than what they are buying now.   You will find in most situations your customers can’t justify whatever it is they are requesting — by the numbers.

One reason for this is that “Manufacturers have expanded their product offerings at unprecedented rates over the past decade, often by taking a popular product and selling it in various sizes, brands, fabrics and flavors” according to the Wall Street Journal. Some manufacturers even think by offering more products (being all things to all people) it will increase their sales and deter competitors from entering the market.

There is also a trend by manufacturers of up selling almost any product that is on your GPO contracts now, so manufacturers can optimize their margins that can and will bloat you supply budgets.  I just read the other day of one IDN supply chain director who is questioning why there are still hundreds of sales representatives floating around his hospitals when there should be no reason to do so, except in his mind to up sell the products now under his GPO contracts.

Now we should know from our statistical courses that this phenomenon (18% matches) is mathematically impossible. We should be seeing a bell shaped curve, where 80% of our hospitals are buying the same products as their peers. So what should we be doing about this?

One answer is to tightly control your vendor access to your department heads and managers: All vendors must submit all of their new product offerings to your value analysis teams first before they are ever permitted access to your department heads and managers.

While many of your department heads and managers will be upset by this policy it is the only rational way I know of for a healthcare organization to ultimately control the spiraling cost of new product introductions.

If you let your vendors continue to roam the halls of your hospital, you are leaving the door wide open for even more escalating supply cost increases for your hospital, system or IDN that aren’t desired, needed or warranted in this new healthcare economy.

What Amabile discovered, along with her researcher Steven J. Kramer, is that the top motivating factor for employees is really PROGRESS. On days when her study group sensed they’re making progress in their jobs, goals, projects or when they received support or help to overcome obstacles, their emotions were most positive and their drive to succeed was at it peak.  On days when they felt they were spinning there wheels or encountering roadblocks their moods and motivation were at the lowest. 

Amabile says this finding should be very good news for managers, since she has found that the key to motivating your employees is well within your control. It all comes down to providing your employees with meaningful goals, resources, problem solving and encouragement and protecting them from irrelevant demands from yourself and others.

And by all means Amabile says, “Scrupulously avoid impeding (your employees) progress by changing goals autocratically, being indecisive, or holding up resources.  Negative events generally have a greater effect on people’s emotions, perceptions, and motivation than positive ones, and nothing is more demotivating than a setback – the most prominent type of event on knowledge workers’ worst days.”

Based on this study’s in-depth research you can best keep your employees at peak performance by clarifying your goals, removing obstacles in their way, supporting their efforts with the right resources, refraining from imposing time pressures and resisting making every small glitch seem like a crisis.

As a final point, this study also found that recognition (over money) is indeed a strong motivational factor and lifts your employee’s moods, but it can’t happen everyday.  “You can, however, see that PROGRESS happens every day”, says Amable.

One of our clients told me that her CEO told his department heads and managers recently that he expects them to save 5% over the next three years just to keep their boat above water.  So times are tough all over, but don’t wait to automate if you are to weather this perfect storm (the great recession. new healthcare reform bill and push backs in reimbursement from all third-parties).

As I have suggested, I believe that one of the answers to this big challenge is to automate every hospital business and clinical process, including all supply chain activities, so healthcare organizations can reduce their operating cost to the bare minimum.  We are working with a healthcare system at this time that is doing this very thing. This included automating everything in their supply chain to radically improve their productivity, performance and profitability before their new Medicare, Medicaid and insurance rates shrink considerably over the next few years.

The motivating factor to do so is that automating (MMIS upgrades, dashboards, spend and utilization managers, EDI, bar coding, hand-held devices, etc.) your supply chain functions beyond where they are today is self-funding. This means your hospital, system or IDNs return-on-investment in new and better supply chain technologies will be less than one year.

My point here is that “sometimes it takes a little money” to save a whole lot of money.  To do nothing or to nibble around the edges of automation is a formula for disaster.  So don’t wait to automate!

As you might have observed, Costco doesn’t meet this “no finish line to savings” goal by just focusing on the price at the pump.  They incessantly are searching for better ways to lower their total cost of acquisition to disposition.  Another way they do this is with their private label brand called Kirkland Signature, which is highly acclaimed in a number of categories (batteries, laundry detergent, cookware, etc.), as #1 rated in the marketplace.  My wife and I have found this to be accurate with most of the Kirkland Signature brand of clothing which is indeed superior to even some of the nationally advertised brands we had been buying for years.&nb