When Savings Stall
Savings Beyond Price -Weekly eNewsletter – December 17, 2008
Robert T. Yokl
President & Chief Value Strategist
When Savings Stall
It’s no secret that price savings aren’t king any longer. I hear this truth from supply chain professionals every day who tell me that their GPO, capitation, standardization and custom contract savings have stalled or worse yet, are on life support. Is this your situation?
If so, take a deep breath and then dig and drill down even deeper into your supply chain to uncover the waste and inefficiencies, misuse and value mismatches in your products, services and technologies. By doing this you will find as much as 26% in new untapped savings just waiting to be unearthed. That’s where 79% of your new savings will be coming from in the future. Trust me when I tell you that this is an unassailable fact…not fiction!
The bottom line is that we are in turbulent economic times and your relatively easy heretofore price savings are now history. More importantly, inflation has eaten into ALL or MOST of the savings gains that you have made over the last few years. It’s now time in 2009 to refocus your cost savings efforts on Savings Beyond Price™. This is where a whole new world of virtually untouched savings will open up to you.
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
800-220-4274
P..S. Let us show you how easy it is to unearth these hidden savings with a “test drive” of our Utilizer™ Dashboard where we do all the heavy lifting and you get all the savings.
P.P.S. Don’t forget to check out my new blog article “The Best Advice I Ever Got” that I’m sure will show you how not to become absolutely crazy.
The Best Advice I Ever Got
As a young material manager I was counseled by my mentor at the time that “there is always a better price, a better deal or a better offering if you want to wait long enough to cash in on it. However, while you are waiting you are missing big savings opportunities along the way”.
That’s why from this point forward I didn’t accept any bid after my bid deadline, didn’t listen to so-called sweet heart deals until my current contracts were coming to an end, and never cancelled a contract because a better deal came my way. I have found, as years pass, that not only was my mentor’s advice prudent, practical and wise, but from a time management standpoint, it was the only way to do business without going absolutely crazy.
If you or I routinely jump from vendor to vendor because they have a better price, deal or offering,, we are actually losing money along the way since the time, money and resources required to introduce, value justify and implement a new contract is eating into your savings.
A much better way to achieve price parity at all times I have found is to have long term contracts (3 to 5 years) with fixed prices along with favorite nation and cancellation clauses to protect your investment. This way you are virtually ensured of the best pricing over-the-long- term and, as a bonus, the lowest cost-to-change imaginable where real tangible savings can be attained.
Choosing Cost Reduction Strategies for 2009
Savings Beyond Price -Weekly eNewsletter – December 11 2008
President & Chief Value Strategist
Choosing Cost Reduction Strategies for 2009
An article in the Hospital Materials Management newsletter predicts that GPO pricing will be going up in 2009 by as much 3.6%, even with the decrease in oil prices. Therefore, if you are looking to reduce your supply expenses in 2009 with your GPO contracts this isn’t a strategy you can count on to accomplish this goal.
That’s why when choosing strategies for cost reduction for 2009; you should be looking for inflation proof stratagems to keep your cost down permanently, not episodically. Here are some recommendations:
1. Re-specify Everything you Buy and Save Big
Since things change and people change, the products, services and technology that you are buying today aren’t being employed the same way that they were where when you first specified them 5, 7 or even 13 years ago. That’s why you can dramatically reduce your cost on almost everything you buy by re-specifying your customer’s exact requirements today.
2. Benchmark your Purchase Service Contracts
We are finding there is an unclaimed gold mine in all hospitals purchase service contracts, if only hospitals would start to trend, track and benchmark these high ticket purchases. Just recently, we identified a $4 million plus (i.e., 26.4%) savings opportunities in a client’s total purchase service spend. This dramatic case study should alert your attention to focus on the supply chain operational area. Paying more mindful attention to this could equate to huge savings.
3. Attack your Utilization Misalignments
I can’t emphasis enough that your hospital’s supply utilization misalignments is another virgin area of your supply chain operations that has been overlooked, neglected, or ignored for years. This is where 79% of your new savings could be coming from in the future. Don’t wait any longer to tap into these huge unending steams of savings opportunities.
So when you are choosing your strategies for cost reduction in 2009 don’t overlook these three inflation proof Savings Beyond Price™ stratagems that will boost your savings yield by 3%, 7% or even 15% in less than 12 to 18 months.
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
800-220-4274
P..S. If you want to know more about how to master your purchase service contracts why not check out my article “The Last Frontier in Supply Chain Management” in the December 2008 issue of HPN magazine.
P.P.S. Don’t forget to check out my new blog article “New Thinking for Turbulent Times” which will show you how to work smarter, not harder in this economic downturn.
New Thinking for Turbulent Times
In a recent conversation with a material manager on which he shared that his hospital’s admissions have slowed, their investment income is down and it’s getting harder for his hospital to make their bond payments. But his philosophy, to his credit about this whole financial mess we are all experiencing, was that it was time for him to work smarter — not harder to help his hospital work their way out of these turbulent times.
This should be your attitude as well! You can’t control the economic downturn we are all facing today, but you can decide how you can help your hospital weather this storm. Since supply chain professionals control 35% to 45% of their hospital’s operating budget, you have an unparallel opportunity to make a BIG impact on your hospital’s bottom line.
Here’s how it works in real-time! For every dollar you save in supply expenses (supplies and purchase services), 100% of that dollar will hit your hospital’s bottom line. For example, a client of ours just switched to a generic anesthesia tray and saved a whopping $9.58 per tray or, in other words, $52,298 annually. This savings alone can pay for a lot of expenses that this hospital needs to pay each month, but it’s only the tip of the iceberg.
I can’t think of any hospital department that can save more money faster than a supply chain department can if you decide to work smarter — not harder. By smarter, I mean that you need to benchmark where your best savings opportunities reside (as opposed to throwing darts at illusive targets). Then, investigate why you are different then your peer hospitals; and from that, implement all appropriate savings.
We have two roads to take as I see it in these uncertain times. We can blame, complain and get bent out of shape over this whole economic mess and become frozen or we can see it as an opportunity to show our management that we can make a significant economic difference in their bottom line when it counts in turbulent times. It’s your choice!
Good To Great
Savings Beyond Price -Weekly eNewsletter – November 20, 2008
President & Chief Value Strategist
Good to Great
All organizations seem to follow a pattern of growing, maturing, risk taking, being energized and profitable for an undetermined period of time. Then the inevitable happens, they become stilted, too comfortable, passive, risk averse; soon profits decline or are non-existent. This development model has come to pass to just about every healthcare organization in the United States over the last 25 years. The question I pose here is why does this happen and what can we do about it?
For the most part, when business is good and we are making money we turn off our creative juices and start to skate along smoothly until we hit an iceberg! As an example in 2003, IBM’s President, Sam Palmisano said that, “we were so successful for so long that we could never see another point of view. And when the market shifted, we almost went out of business.” Is this your healthcare organization’s attitude too?
In researching his best selling book “Good to Great” author Jim Collins found that only a handful of companies were able to sustain real growth and business success over a decade or two.
I don’t think I need to list any more “good to poor” companies to get your attention. What is really important is how fast these organizations went from “good to poor or non-existence”. It used to take centuries (e.g. Sears and Roebuck) to go from “good to poor”, now it just takes decades (e.g. GM, Ford and Chrysler). So if your clinicians think that your healthcare is immune to this developmental model then their thinking is irrational.
It’s your job as a innovative agent (I do it all the time with my clients) is to remind your physicians and clinicians of this fact, “what’s here today probably won’t be here tomorrow, such as, stability, good times, profits and big bonuses.” Do everything you can to avoid, “The Culture of “no” as Lou Gerstner the former President of IBM found on his arrival at IBM in the late 90s, when anybody can say “no”, but nobody can say “yes”.
Your goal must be to persuade your physicians and clinicians that change is as necessary as breathing or your healthcare organization can quickly slide from “good to poor or non-existent” faster than you can say Circuit City. It will take time, patience, statistics, stories and facts to get this point across to your physicians and clinicians, but the ugly alternative is to skate into an iceberg with your eyes open!
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
800-220-4274
P..S. If you want to become more innovative with your supply chain operations check out our Strategic Supply Chain Operational Planning for more ideas you can use.
P.P.S. Don’t forget to check out my new blog article “Learn, Look, Ask and Try!” This blog is about applying the new innovation concepts to your supply value analysis program to re-energize your savings initiatives.
