There is no Finish Line with Savings
I love the philosophy of Costco (super warehouse club), which can be reduced to “there is no finish line with savings” for our club members. Costco meets this mission by not providing bags for their customers, only carrying one brand of each product in each category, reducing their lighting costs on sunny days since every store has huge skylights, and delivering their products on pallets and then placing them right into Costco’s warehouse stores without double handling. They only accept one credit card (American Express) which gives them ultimate leverage with their credit card company. As you can see, Costco’s savings efforts are a never-ending cycle…
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.
My goal with this blog article was to give you some big and little ideas on how your hospital, system or IDN can emulate one of our nation’s leaders in providing your customers with a never ending cycle of savings. It’s not about price, but it’s all about finding innovative ways to reduce your total supply chain cost.
Here are a few questions you should ponder as you investigate your own never-ending cycle of savings for your healthcare organization:
- What percentage of private label brands are you buying?
- Are you utilizing a purchasing card for small purchases?
- Do you have too many hand offs of your products?
- Are your buyers looking beyond price for big savings?
- Are you employing the latest technologies to reduce your cost?
This is just a sampling of the type of questions you must ask yourself to create an environment for a never-ending cycle of savings, since there is no finish line with savings for today’s supply chain professionals if you are to meet the changes of the new healthcare economy.
Success is all about Periodic Change
Most of us don’t like change. A few of us run from it, some avoid it like the plague, while others stonewall any new idea that comes their way. Yet, periodic change is the key to success for any and all supply chain organizations who want to thrive and survive over the long-term.
Even successful supply chain organizations have to shake things up from time to time to maintain their competitiveness. I remember a pretty aggressive supply chain manager who told me that he was replacing all of his current buyers (he had six of them) since they didn’t have the skill sets he needed to ramp up his savings in all of his major commodity groups. This was a bold “change for change’s sake” that I had to agree would make his department even more dynamic then it already was.
How do you know when to change? There is a danger of staying the course, playing it safe and not rocking the boat that can become routine, since most change isn’t set in motion until a supply chain organization is deteriorating beyond the point of no return. A much better way to prevent this from happening is to look for the seven telltale signs that your supply chain organization is going off track and/or has become too comfortable with the status quo. They are:
- Is there a breakdown in communications between your supply chain and your customers?
- Are many of your employees uncomfortable with change?
- Do your employees operate according to well-established routines?
- Has the percentage of savings generated from new savings streams decreased over the past five years?
- Do influential groups or individuals impede your savings initiatives?
- Do you have the ability to obtain the resources you need to get your job done?
- Has collaboration between customers groups decreased over the past five years?
If your answer to two or more of these questions is yes than you need to invest the time to make some big, small and lasting incremental changes in what you are doing to bring your supply chain department back to the center line of peak performance.
The core of this “Periodic Change Philosophy” is that if you change before you need to then you won’t need to undergo painful major life threatening surgery, but only minor surgery to set your supply chain organization on the right path again. Just as important, your supply chain organization will continue to remain strong, nimble, and adaptable in this new healthcare economy.
Are you Keeping Score with Actionable Key Performance Indicators?
We found, 10 years ago that it was impossible for us to keep our finger on the pulse of everything that was happening in our client’s supply chain expenses unless we changed how we were keeping score. It was like counting the windows on a train as it passed by at 80 miles an hour. It couldn’t be done…
That’s when we started keeping score of our client’s supply chain expenses with actionable key performance indicators (KPIs). We use a measure of their performance (benchmark, target or time frame) that signals to us a change in our client’s purchasing patterns, utilization or demand for all of the products, services and technologies that they were buying.
As an illustration, we now have set an upper limit KPI for all of the client’s products, services and technologies that they are buying in our Utilizer® Dashboard. So when our client’s total cost per KPI go above their upper limit on any of their commodities we and they can see that something has changed in their practices and needs to be immediately addressed.
We also employ single value benchmarks, a range of Activity-Based Costing statistics and literally thousands of demand KPIs to keep score of our client’s supply chain expenses in almost real-time to ensure that our client’s costs are always within acceptable limits.
What does this all mean to you? If you aren’t keeping score of your supply chain expenses utilizing the power of actionable KPIs, you are missing an opportunity to be absolutely and lastingly in control of your supply chain expenses.
We have found, through the school of hard knocks, that you can’t accomplish this feat of conjuring by mere intuition, legacy MMIS systems, spend managers or even the manipulating of your raw statistics.
There is only one way to do so! You will need to reinvent what you are doing now so that you can quantitatively measure with a number, statistics or metric (KPI) every aspect of your supply chain expense activities. Then and only then, will you be able to rest easy knowing that you are firmly in control of your supply chain expenses….going forward.
How do you Compare to your Peers?
We just had two of our Utilizer® Dashboard clients ask us to provide them with a scorecard on their supply utilization management, over the last two years, so that they could discover where they had gaps in their performance. I thought this was a great idea and I was anxious to see the results.
Yet, until I actually reviewed the results of the exercise I didn’t realize how important a scorecard could be in identifying and then targeting where a healthcare supply chain organization needs to focus their supply utilization management efforts to get better than just good.
Here are the eight areas of our scorecard rated that we believe are the most important supply utilization indicators to be tracked for success:
| Data Integrity | Supply Utilization |
| Standardization | Purchase Service Utilization |
| National Best Price | Best in Class: Supplies |
| Inventory Utilization | Best in Class: Purchase Services |
Moreover, our methodology for this rating system was to compare these measurements against all of our clients in the same categories based on a statistical scale of 100 being the best in class. It was a pleasant surprise to find that the two clients who requested our supply utilization management scorecard didn’t fall below the 75th percentile in any category that we measure. In most categories, these clients were at the 90th or 95th percentile which was the motivation for them signing on to our Utilizer® Dashboard subscription service in the first place: To Improve their utilization management in all areas of their supply chain expense operations.
We also provided these same two clients with specific utilization supplies and purchase service categories (Custom OR Packs, Urologicals, IV sets, freight, postage, pacemakers, etc.) where they were “best in class” vs. their cohort group, which gave them even more particulars on how they stacked up against their peers.
Overall, I thought this exercise met its intended goal of shedding light on what was working or not working in our client’s supply utilization management program, thereby, providing these clients with specific targeted savings opportunities for this current fiscal year.
Now that you understand this rating system, how do you compare to your peers? If you know the answer to this question then you don’t need to read further. However, if you aren’t currently comparing yourself in all areas of your supply chain operations to your own cohort group then you are flying blind. To put it bluntly, you will never reach the level of “best in class” in any supply chain category you choose to excel in without first investing the time, money and resources to do so. You can’t win the game without first knowing the score!
Is Value Analysis Your Responsibility?
I was paging through AHRMM’s 2009 Material Management’s survey to look for trends that might be of interest to my readers. One trend that jumped out at me was that only 28.7% of the survey’s respondees reported that they were responsible for value analysis for their hospital. This is an astounding statistic when you think about it: 71.3% of MMs aren’t responsible for VA at their healthcare organization!
My first reaction to this eye-opener was that this must be a typo, but then I realized that this number was consistent with AHRMM’s 2007 (30.7%) and 2008 (36.5%) survey results, so it must be right. I also know that many hospitals, systems and IDNs don’t have active value analysis teams, so that’s one reason why this number is so low. Another reason it’s low is that not all supply value analysis programs report to material management. I have often seen this vital function reporting to nursing service, not materials management.
My thinking is that even if this number is a little off, it still shows a dangerous trend in healthcare: Material management isn’t 100% in charge of their healthcare organization’s supply value analysis programs or there is no VA program is place to do so!
As I see it, VA is a mission-critical function of materials management. Every hospital, system and IDN should have a supply value analysis program and it absolutely should report to materials management. This is because price is the smallest factor in the total cost equations (about 21%), while 79% of your product, service and technology cost is attributed to the in-use cost of the commodities you are buying. Based on our empirical experience, only VA teams can drive out these unnecessary and unwanted utilization costs…period!
In brief, if your hospital, system or IDN is to get ahead of the wave in the new healthcare economy that is upon us, you will need to embrace the value of value analysis in controlling your total supply expenses. This means, in practice that you will need to take charge of your VA program if it reports to another department or establish VA teams to get this hard work done.
The alternative is to either ignore this proven cost-cutting methodology or leave it to someone else in your hospital, system or IDN to get this important work done. This doesn’t seem like a plan to ensure your job security to me, so I would suggest that you take charge of your VA program today or get your VA program started to protect your turf and to keep your paychecks rolling in for the foreseeable future. It doesn’t take a whiz kid to see this as the road you should travel.
Getting Ahead of the Technology Wave
I was just thinking about the impact of the new healthcare reform bill on a hospital’s reimbursement (they will be going down, not up under this new bill) when I came across a research paper on “Computer Assisted Orthopedic Hip and Knee Surgery” which had me questioning how these two intersecting realities (emerging new technologies and lower reimbursement) will change the face of healthcare as we know it.
After reading the research paper, I was impressed with this new computer assisted orthopedic surgery (CAOS) that involves patient tailored instruments that has been proven to improve surgical outcomes incrementally. But what you might not know is that there is about a 90% success rate on hip and knee surgery today which is pretty impressive figure to my thinking. However, your surgeons are always looking for new ways to get better outcomes (and who can blame them?) at your hospital’s expense so they will be requesting CAOS in the very near future. Naturally, these CAOS will cost your hospital more money, while at the same time you will be getting lower reimbursement. Sounds like a catch 22 to me!
So what do we do about this dilemma? First, no longer can hospitals make these high-ticket technology decisions behind closed doors if they are to stay solvent in this new healthcare environment. All hospitals will need a multi-disciplinary value analysis technology team, headed by a physician, to strenuously evaluate the efficacy and then the cost/benefits of these new emerging technologies like the CAOS I just mentioned. Too often new technologies don’t work or cost more than as advertised!
Second, it is rare that there aren’t lower cost alternatives to the technology being requested by your physicians. In the CAOS category there are four major players selling surgical robots and six companies offering custom instrumentation and implants. This gives you ten alternatives to explore, just the way you would if you were buying any other commodity group. Don’t let your physicians intimidate you into looking at only one alternative, or YOU LOSE!
Lastly, decide if you can really afford this new technology at this time. Sometimes it’s better to let the hospital down the street absorb the cost of these new modalities as opposed to losing money on every procedure that you do. It might just be better to wait until the technology is a proven best practice before jumping on the band wagon! Other industries do this all the time, why not be one of the first in healthcare to pass on a risky venture!
As you can see, there is no one right answer when deciding on what new emerging technologies that your hospital should be buying. Nevertheless, there is a scientific process, similar to the one I just described, that your hospital should be adopting to make these high-ticket buying decisions. If not, you won’t get ahead of the technology wave that will be heading for your door step as your suppliers look for ways to maintain their profitability in the new healthcare economy and when your reimbursement will be falling at a higher velocity than ever before.
Looking Beyond Your Traditional Hospital Supply Chain Savings
We are finding that almost everyone in the supply chain business is on top of their game when it comes to their price and standardization savings. Yet, we have observed that these same healthcare organizations aren’t looking beyond these traditional cost cutting measures to shrink their total supply chain spend.
What am I talking about? What I’m referring to is looking beyond your traditional savings to start attacking your purchase service cost which represents as much as 9% of your revenues and up to 50% of your total supply spend. More importantly, we have found that these non-traditional expenses can yield you as much as 12% to 18% (or $2,866 to $4,217 per occupied bed) in additional savings that can go right to your bottom line in less than 12 to 18 months.
If you are a regular reader of my Savings Beyond Price™ e-newsletter and my blog, you know that I have been singing this tune for many years. This is because I still don’t see enough hospitals, systems and IDNs capturing these big savings opportunities that I just talked about.
Now that the healthcare reform bill has been signed into law and is beginning to be implemented in small, incremental and then eventually big doses over the next few years, we as an industry don’t have the luxury of waiting until these new regulations are fully implemented to reduce our total supply chain expenses. We need to reduce our total supply cost today, tomorrow and every year going forward so that we are ready when our reimbursement from all sources contracts, evaporates and eventually becomes a very small stream.
To quote one of my favorite sayings, “Noah didn’t wait until it was raining to build his ark”; don’t you wait any longer to cut all of your supply chain savings to the bone.
ZAPPOSIZE Your Customer Service
I hope that all supply chain professionals realize that their #1 job is customer service, since without exceptional customer service all of the other important things (savings, quality and logistics) you do for your healthcare organization will be ignored.
Simply stated, I have never seen a supply chain professional fired for not saving enough money, but I have seen dozens fired or retired for not providing top notch customer service. Doesn’t this Make Sense?
That’s why I believe we all need to ZAPPOSIZE (Zappos is the on-line leader in customer service) our customer service to ensure that we have the fundamentals, nuances and right people in place to achieve exceptional customer services. Here are six of Zappos secrets to getting it right the first time:
1. Make Customer Service a Priority
I’ve been in a few healthcare organizations that make customer service a priority (not a sometime thing), but these organizations have been an exception – not the rule. How many times do your customers get a live person on the phone? How many times do your customers get a call back within one hour? How often are your customers getting their storeroom delivery on time? Make it a priority that they do in the future!
2. Empower Your Employees to do the Right Thing
Train your front line employees to have all the right answers, do the right thing and always be pleasant and helpful. Rarely should they have to transfer a call or go to a supervisor for answers. Your customers are looking for speed, agility and flexibility in all of their interactions with your department.
3. Don’t Permit Customers to Abuse your Employees
Just because you are a service department, doesn’t mean your employees should be abused by your customers. If you find this is happening nip it in the bud by reporting this abuse to the offending party’s immediate supervisor for resolution.
4. Don’t Hide your Phone Numbers
Plaster your help desk’s phone numbers everywhere (exchange carts, nursing stations, operating room suite, etc.) so anybody at anytime can call your department immediately for help. A problem that festers, just get’s bigger!
5. View Customer Service Cost as an Investment
Most healthcare organizations believe that customer service is a cost, not an investment. Nothing can be further from the truth! If you place your best people on your help desk they will not only save your customer’s time, money and frustration, but your department too! Nothing costs more (or is more annoying) then having your clinical staff searching for answers to solve a supply, service or equipment problem and they can’t find anyone to give them a straight answer.
6. Celebrate Great Service with Great Stories
It’s also very important to celebrate your great service with great stories about your staff going the extra mile: how a help desk person solved a problem that has never been resolved before, how your storeroom manager came in on his day off to find a missing case of IV sets or how your purchasing department was able to get same day delivery on a critical product. Then share these stories with all of your staff to keep them pumped, motivated and energized to do even more for your customers than ever before.
As these six tips suggest, exceptional customer services isn’t one of the topics that is often talked about in supply chain circles, but I hope you would agree after reading this article that it’s really job #1 for all supply chain professionals. Once you have this aspect of your job on automatic pilot, then all of the other jobs you have (savings, quality and logistics) will be much easier to master, since you have now built a foundation of good will with your customers that will go a long way toward smoothing the road for any changes you might propose along the way.
Not So Fast, Perfect or Ideal Solutions that Work!
Many of us like fast, perfect and ideal solutions to our supply chain challenges, but our customers, more likely than not, see their world from a different prism…slow, easy and hassle free! So in the interest of our customer’s buy-in do you compromise on your solution or do you force your solution on your customers?
This is a real world dilemma that supply chain professionals face everyday: When to push, when to pull, or when to find the middle ground to get half-a-loaf vs. nothing from our customers! No one likes change, many times, even when it is good for them.
I have three tactics to share with you that you might find useful in your own quest for mastering the art of change management:
- Trade, if you have leverage – Trading is a skill used for thousands of years by people who took full advantage of their leverage. You can do the same if you have something to trade that the other person wants. For example, we know of one supply chain professional that trades requests for new purchases from his customers (moves them up the queue for approval) for changes he wants to see in their buying practices, such as, testing a lower cost alternative product vs. what they are now buying. It’s a simple idea that works very effectively, if you have leverage of any kind.
- Nibble around the edges – Get as much as you can now, and then come back for more bites of the apple at a later date. I used this same tactic in my supply chain career thousand of times. I would obtain agreement from my customers to make a very small change in what they were doing (e.g. removing one or two items from their custom pack or kit that they weren’t using), then I would come back year after year taking more bites of the apple until it was all gone. It worked 98% of the time!
- Wait until the timing is right – When I hear a supply chain manager tell me that one of their physicians or clinicians won’t change his or her practices, even though he or she is costing their hospital thousands of dollars a year, I tell the manager to wait until the timing is right (the physician or clinician moves up, moves on or retires) to make their next move. As you know, timing is everything in the world we live in – even when you want to change something!
There is no easy formula to change people’s minds and hearts, but there are tactics to move the ball forward that aren’t fast, perfect or ideal, yet are much better solutions than doing nothing about the situation at hand. Your goal should be to never let a savings, quality or process improvement opportunity go by without making some positive change happen.
Saving Money Isn’t Getting Any Easier
There used to be more new savings opportunities just lying around waiting to be implemented than there is today. In fact, GPOs are announcing more price increases than decreases on every contract that comes across your desk. Standardization has been achieved at most hospitals, systems and IDNs and value analysis teams are spending most of their time on GPO contract conversions with meager savings results. Saving money isn’t getting any easier, but that isn’t a good reason to throw up you hands in frustration, since most healthcare organizations are looking for savings in all the wrong places.
There is actually 7% to 15% overall in new supply expense savings available to you right now if you decide to reorient your savings efforts in three supply chain areas of your operations:
Utilization Management
We have proven beyond a doubt that healthcare organizations are bursting at the seams with utilization misalignments in their supply chain operations. These wasteful and inefficient consumption, misuse, misapplication, misappropriation and value mismatches are bloating your budget and need to be attacked by your value analysis team(s), and not waste their limited time on GPO contract conversions.
To this end, we recommend that you should have a Value Analysis Team dedicated to GPO conversions, if your VA teams are spending all or most of their time on this GPO activity, so they can focus their valuable time where your real supersized savings reside.
Demand Management
This is a new area of your supply chain operations that encompasses “measuring the velocity, intensity and frequency of the products, services and technology utilized over time”. We have found this to be a key metric to enable supply chain managers to begin a meaningful dialog with their physicians and department heads to understand why the utilization of any commodity they are buying is increasing or decreasing — beyond normal acceptable justifiable limits.
Contract Management
With few exceptions, we are observing that healthcare organizations aren’t ferreting out obvious and visible savings in their purchase service contracts where up to 18% in savings overall can be achieved. Every hospital has millions of dollars of purchase service contracts no matter how many occupied beds you have. These contracts should be benchmarked for price, utilization and demand reduction opportunities at least annually, to ensure that they are within acceptable justifiable limits.
These three areas of your supply chain operations are ripe for hundreds-of-thousands dollars (maybe millions) in supply chain savings for your healthcare organization if you decide to refocus your time, talent and VA teams on these untapped gold mines. This will then make saving money a whole lot easier, while everyone else is looking for savings in all the wrong places.
Finding Savings in What You Toss Out
We have been taking a hard look at what healthcare organizations toss out every day, week, month and year. This mounts to about 2.2 pounds per bed per day and is costing your hospital at least 61 cents per adjusted patient day to dispose of it.
However, what we call trash is a frequently overlook area for finding big savings for your hospital since the management of this refuse is so unbelievably fragmented at most healthcare organizations that it never gets properly managed. Here are five tips that I have swiped from industry experts on how to manage and control this prickly problem:
- Centralized Waste Management: I’m seeing more and more large hospitals hiring full-time waste management coordinators to manage their solid and medical waste from creation to disposal. If you are a small hospital, you need to appoint a part-time coordinator (they can have other duties too) to ensure that one person is responsible for this ever-expanding expense category.
- Recycle Everything Possible: This alternative to buying everything disposable is becoming much more important as healthcare organizations continue to increase their buying of disposables everyday, week and month. We can’t sustain these budget busting disposable costs much longer without paying a very high price for doing so.
- Segregate “Red Bag” Waste Correctly: Only about 10% to 15% of a hospital’s waste is biohazardous. Yet, hospitals continue to dispose of non-hazardous waste in their red bags at a cost of 10 to 20 times higher than municipal waste. It is therefore essential that this costly practice be stopped by giving extensive training to your hospital staff so that they can perform this task correctly.
- Review Multi-Vendor Costs: We are seeing hospitals employing three, four or even five waste management vendors to service all of their waste management requirements. It might make more sense to consolidate these vendors to minimize confusion, streamline your waste operations and reduce your overall cost.
- Remove Obsolete Equipment: There is time, money and resources expended in the storage of old computers, electronics, office furniture, etc. at most hospitals as opposed to having an annual or semi-annual sale to dispose of them.
These five tips, as I see it, are just the starting point for establishing a comprehensive waste management program at any hospital. And it makes sense to me that supply chain management should be in the forefront of this “green” movement since it should be your mission to manage everything that moves but isn’t alive from acquisition to disposition at your hospital. Isn’t that what supply chain management is all about — anyway!
Doing More With Less the “Jugaad” Way!
New hard to pronounce words are always showing up in our business lexicon that at first has no meaning to us. Yet in time become part of our own healthcare organization’s everyday language because it now makes sense for us to do so.
One of those new words you will be hearing about is Jugaad (pronounced “joo-gaardh”), that has its roots in the Hindi language, meaning “innovative fix” or using whatever is at hand to get the job done quickly and cheaply. Think of “Jugaad” as business duck tape to fix all those nagging problems you encounter each and every workday.
It’s best described as producing quick results for very little money. That’s why I believe it has its place in the healthcare lexicon, since today, tomorrow and the future healthcare organizations will be challenged with doing less with more. In fact, I didn’t know I was employing Jugaad when I first started to preach to our clients last year that if they were looking for quick fixes to their utilization challenges all they needed to do was “measure then observe” to root out much of their utilization misalignments in their supply chain.
I have become a believer! Prior to this “aha” I thought this transformation would only happen if our clients used our patented 6-step LEAN Value Analysis Funneling™ Process. But now I know that you can take some shortcuts even with our LEAN Value Analysis process and still make significant savings happen without all the fuss and bother of following a defined, repeatable and auditable process.
Don’t get me wrong! Jugaad isn’t an end all or be all and isn’t for everybody. It can lead to unrepairable fixes, safety hazards, and shoddy service if applied haphazardly. From my own experience, it must be applied knowingly, carefully and artfully. It’s like my plumber; he will take short cuts when he is fixing my plumbing leaks because he is an expert and knows what he is doing. If I tried the same thing, I fear I would flood my house. It’s all about knowing what you are doing first, before ever tinkering with any product, service, technology or process in your healthcare organization.
Take the road most traveled! While shortcuts (or The Jugaad Way) are the answer to some immediate challenges that we all encounter, I have found that there is no substitute for taking the road most traveled if you have the time, money and resources to do so. To illustrate, even though I have promoted here and elsewhere that the technique of “measure and observe” or “The Jugaad Way” will quickly uncovering much of your utilization savings, I know from our experience, observations and analytical data that you will still be leaving too much money (hundreds of thousands of dollars to be exact) still on the table — untouched. This isn’t a good thing to do!
Summing up, Jugaad is a great new technique to add to your toolbox for solving your ever mounting cost and quality problems quickly and cheaply if you know what you are doing. However, don’t compromise your hospital, system or IDN’s savings, quality or safety by amateurishly tinkering with things you know nothing about.
Change Comes From “Emotions” not Facts!
This is a simple idea, but with big implications: Change comes from “emotions” not facts. It’s been scientifically proven that people make their decisions based on their emotions, and then base their justification for their decisions on the facts.
A good example of this truism is that Warren Buffett a few months ago bought the Burlington Northern Santa Fe Railroad for $26 billion dollars because he said that his decision was “ in tune with the future” of America”. But on a recent interview with Charlie Rose on a PBS station he told Charlie that he always had a LOVE AFFAIR with railroads. He even said that “He has a toy railroad set in his attic” at his home, since railroads have always has been a passion with him.
So do you really think that Buffett bought this railroad, which he admits was “not a bargain” just because he thinks “it was an opportunity to buy a business that will be around for 100 or 200 years”? Or, do you think he bought it because it really was an “emotional” decision because he just loves railroads and then justified it based on the facts?
It’s the same logic with any decision that you want your customers to make. If you want them to make a decision in your favor, you will need to “emotionalize” the decision making process, then justify it with facts. Your clinical staff does this to you every time they bring up their emotional arguments of how any decision that is being proposed will affect the quality of their “patient care”. They then justify their “emotional” decisions with facts. It has been a winning formula for clinicians for decades.
So if you want to win more decisions on your product, service and technology proposals, you will need to find an emotional link to your proposals, and then justify it with facts. For instance, more and more hospital CEOs are preaching to their clinical staff that if they can’t reduce their hospital’s their supply chain expenses, then he/she will have no alternative but to look to cutting their labor cost.
This reality check has sparked an emotional “hot button’ with most clinicians when they hear this unassailable fact from their CEOs and makes them more pliable in their dealings with supply chain management. You might call this tough love, but I call it “emotionalizing” your decisions, and then justifying them with facts.
It is not a theory, but an indisputable fact that all change comes from emotions, not facts. Don’t underestimate this powerful change management strategy to make positive, previously unattainable and once thought impossible transformations happen at your healthcare organization.
No Better Calculation Than ROI to Determine Your Value Analysis Project’s Success
We can all fool ourselves into believing we are saving money on our value analysis projects, or we can actually prove it beyond a shadow of doubt by using a simple ROI calculation (ROI = savings – project cost/project cost x100) to determine your Value Analysis project’s success.
How to calculate ROI (Return on Investment)! As an example, if your savings is $190,222 on a VA project and your project cost (time, money and resources) to achieve this savings is $3,929, then for this project your ROI = 4,741%. It’s just that easy, although it isn’t as effortless as it looks to calculate all of these factors if you want to get your ROI to be accurate.
The big challenge, as I see it, in calculating your ROI is computing your project cost. This means that you need to estimate the number of people x hours x hourly rate of the involved parties (e. g. team meetings, ad hoc meetings, vendor meetings, ordering, stocking and storing new product, in service training, etc.) that is required to plan, organize, investigate, speculate and then implement the identified savings.
Is it worth the time? Yes, if you are truly interested in quantifying your actual project value, building stakeholder support, uncovering additional benefits and prioritizing future projects. No, if you would just like to continue to report to your executive management team incomplete, imperfect and subjective data that you think makes your value analysis program look good.
To this end, it has always been my policy to report the most accurate, complete and fiscally revealing information to my executive management teams and now my clients. This is because I have found that the most illuminating and actionable data available might require more time to actually bring together, but it always opens new doors and better ways to do things than shortcuts, easy answers and back of the envelope calculations. It’s your choice…
What a Great Model for Any Hospital Value Analysis Program
Last week I was on site at a client’s location conducting an advanced 1-day LEAN Value Analysis Training Program for their value analysis team leaders and team members. This was this client’s annual value analysis refresher course which I think is a perfect model for all value analysis programs to emulate. Why? Because too often hospitals start their value analysis program without any training whosoever (they just tell their teams to “Go Save Money”). Therein lies the problem! That’s why I like this client’s value analysis model: Annual refresher course to keep their VA teams on target, on budget and on the money each and every year!
Let’s face it value analysis is not as easy as it looks. If you were to tell me that you could establish a Six Sigma Teams without training black, yellow and green belts and then expect these teams to achieve Six Sigma outcomes you would be just kidding yourself. Your team members would need extensive training in Six Sigma to accomplish superior results. Value analysis is a discipline very much like Six Sigma or Lean Management. To be proficient at value analysis you need to have extensive, continuous and up-to-date training for peak performance!
That’s why this client not only began their VA program with extensive training for all their team leaders and team members, but they also realize that this education is never ending and that in order to continually improve their VA program they must refresh their VA training each and every year.
For example, this client told me that they contracted with a trainer last year who focused on evidenced based management. This year they hired our firm for advanced value analysis training as well. This is not a one-time event for this client, but an ongoing stratagem to continue to hire the best value analysis trainers and on an annual basis give their VA teams new and even better strategies, tactics and techniques that they can employ to boost their VA team’s performance.
It was also important to note that this client had their Chief Operating Officer attend this training session and then spoke to the group during a break. He reaffirmed how important all of their VA work is to their hospital, especially since their reimbursement is not going to go up any time soon even though higher technology expenses are still pushing their costs up each and every year. I can’t tell you how significant it is to have an executive management sponsor, like this COO, fully engaged and very active in hospital’s VA program! From my perspective, it will certainly make these team leaders’ and team members’ job easier and their teams much more successful.
One of the reasons this client’s VA program has been so successful over the last few years is that they keep the momentum going with VA training each and every year so that their VA teams never lose focus of how important they are to the financial success of their healthcare organization.
It’s easy for any hospital, system or IDN to put a VA team(s) together and say “Go Save Money”. It’s usually followed by capturing some low hanging ripe fruit that’s ready to be harvested. Nevertheless, we have found that the true test of a VA program’s sustainability, profitability and productivity is for them to achieve measurable and meaningful savings after their low hanging fruit has been picked clean!
An annual VA refresher course on the most up to date techniques in value analysis would be a good starting point for you too to keep your VA team(s) focused and motivate each and every year.
Last but not least, it doesn’t take a lot of time, effort or money to do so.
