New Science for Bigger Savings
Savings Beyond Price -Weekly eNewsletter – January 28, 2009
Robert T. Yokl
President & Chief Value Strategist
New Science for Bigger Savings
There is a new science for saving and operational excellence called “value analytics” that can squeeze every LAST drop of savings out of your supply chain and make your operations even more efficient and effective than ever before.
At a time when every dollar saved is surely needed to hold back the red ink at your healthcare organization, if you aren’t employing this powerful technique to uncover new savings and leverage operational improvements you are missing out on a powerful transformational tool.
It comes down to this! Most hospitals, systems and IDNs are throwing darts at an elusive and moving target to find their best savings and operational improvements. And with meager results! This is because most healthcare organizations aren’t employing a scientific approach to identify their best opportunities.
That’s where “value analytics” comes into play. It’s the art and science of measuring trends, patterns, and variations in your supply chain spend and operations in order to quickly identify savings and operational opportunities.
As an example, we recently found that one of our clients was trending unfavorable, by as much a $172,339, in their defibullator expenses. In another study, we found that a client of ours was generating too many purchasing orders for their size organization and therefore needed to reinvent their purchasing operations to reduce their operating cost.
It’s not an accident that we uncovered these anomalies in our clients supply chain operations. It’s because we employed “value analytics” to do the difficult work for us that never would be uncovered by the naked eye or even intuition.
That’s why I call “value analytics” the science for bigger and better savings and operational excellence. This is where the future of supply chain management is going. Is this the direction you are going too?
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
1-800-220-4274
P.S. If you would like a reprint of an article I wrote for Hospital Materials Management on “Value Analytics” that explains this new science in detail just e-mail your request (with your fax number) and I will promptly fax it to you.
P.P.S. Don’t forget to check out our new blog “Is Value Analysis a Numbers Game?!” that will help you understand how to turbo-charge your value analysis studies.
Is Value Analysis A Numbers Game? Let’s Do the Math!
The mindset is simple; Fast and Efficient Studies = Fast Savings to our hospital’s Bottom Line. Fast and Efficient Studies = more studies being completed which create the multiplier of savings hitting your hospital’s Bottom Line! Is Value Analysis a numbers game? The answer is yes, value analysis is a numbers game. The more studies you can get completed with equal or better results the more new studies you can work on and add to your hospital’s bottom line savings in these tough times. Here are two case studies to help understand this concept:
- Average 100 Bed Hospital “A” Performs 15 to 20 VA Studies in a year and Saves $320,000 – not bad right?
- Average 100 Bed Hospital “B” Performs 30 to 40 VA Studies a Year and Saves $1.25 Million – this is what we need in this trouble economy, bigger dollars and more savings. However, it can only be accomplished by performing more studies.
Hospital “B” was able to complete more studies in less time and therefore attain bigger and better bottom line results faster. How did they make this happen? By having more teams, more team members and more projects that they completed within 90-days. It all about the numbers that makes savings happen faster and more efficiently than you ever thought possible.
Remember, you can do this too if you have the right numbers!
P.S. I forgot to mention that the Bellwether League is looking for nominations for their Supply Chain Hall of Fame for 2009. If you have a supply chain professional (active or retired) you would like to nominate for this prestige’s award please log on to www.bellwetherleague.org to do so.
Law of Deminishing Returns
Savings Beyond Price -Weekly eNewsletter – January 21, 2009
President & Chief Value Strategist
Excellence is an Art Won by Training
Aristotle is quoted as saying that “Excellence is an art won by training and habituation”. Training is the sure path to improvement, reducing the resistance to change and changing people’s behaviors. It is the only way that I know of to “unfreeze” existing thinking, replace it with new habits, and then “refreeze” these new ideas, behaviors and practices that have been learned to create a whole new way of doing things.
We see this truism play out every time we train a new value analysis team(s) for our clients. Prior to this training, our client’s department heads and managers are skeptical, risk adverse, lack trust, and are indifferent to new ideas about how to save money – beyond price. But then we win them over by teaching them that there is indeed a better way to save money, by having them practice the new skills we have just taught them and then by repeating the process until they achieve the desired results.
After 22 years of training value analysis teams in the art of excellence, I can tell you that I have found NO better way to change people’s minds and hearts than training and as Aristotle calls it “habituation” or practice makes training perfect.
This is just one example of how excellence is an art won by training, but it should be your best practice in everything that you are trying to accomplish. When you are installing a new MMIS system your staff needs training. Before you take your annual physical inventories your staff needs training. When you hire a new buyer they need training. Nothing new, different or experimental should happen in your supply chain operations without training. It’s your key to quality, financial fitness and operational excellence!
So now that you know the secret to changing people’s behavior and changing the “status quo” in your healthcare organization, I would encourage you to take one small first step in this direction: develop a training program for ALL of your new hires in order to build, not hope for, excellence into your supply chain operations. Once you have accomplished this small footstep, then move on to even bigger training challenges over the next few years. You will be absolutely amazed at the results of doing so.
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
1-800-220-4274
P.S. If you are interested in viewing a clip from our training video to see how we do our training, as well as pick up a few tips on what your training should look like please be our guest.
P.P.S. Don’t forget to check out my new blog “Getting to the Next Level of Savings!” now that your GPO savings are slowly disappearing.
Getting to the Next Level of Savings
I’m hearing from our clients that they aren’t saving money with new GPO contracts that are coming across their desk. In fact, they say that they are actually losing money due to 1%, 2% or even 3% price increases on these GPO contracts.
This reversal of GPO contract savings momentum is because the LAW of DEMINISHING RETURNS is now affecting the GPO healthcare model. This immutable law says that continuing efforts toward a particular project, goal or objective (e.g. contract savings) will decline in effectiveness after a certain level of results has been achieved.
Specifically, there is a level of savings that you can achieve with your GPO contracts (national, regional or local), but then inevitably you will hit a wall on savings. I personally believe we have reached the point in healthcare where LITTLE or NO new savings will be achieved in the very near future by any GPO. This is because we in healthcare have reached the level of diminishing returns with our GPO contracts after more than 68 years that GPOs have been in existence.
Now What? Healthcare organizations can’t survive without saving time, money and resources in all their operations every year due to the pressures of unfunded mandates, reduced reimbursement, inflation and now a weak economy. That’s why I have been preaching for nine years that we all need to get to the next level of savings: utilization misalignments in the products, services and technologies you buy. You need to do this or will risk watching your supply expense savings evaporate before your eyes.
Reality Check! The empirical data now quite clearly shows that your GPO contracts aren’t going to provide you with the savings momentum that your hospital sorely needs to survive and thrive in the new economy we are experiencing today. Isn’t it time you reprioritize your savings efforts from contract management to utilization management to hold the line on your savings increases?
Does Price Equate to Total Cost?
Savings Beyond Price -Weekly eNewsletter – January 15, 2009
President & Chief Value Strategist
Does Price Equate to Total Cost?
“Many CEOs(and supply chain professionals) have been conditioned to believe that supply chain management is all about price, and they have not taken a total cost approach and looked at other factors, such as utilization, in their (supply chain) model.”
This quote from one of HPN Magazine’s SURE AWARD recipients, Ministry Health Care CEO Nick Desien of Milwaukee, Wisconsin, is a WAKE-UP call to all supply chain professionals in this weak economy. Why? Because price is no longer king in our strategic supply savings arsenal!
If you want to continue to achieve robust savings every year, you must now refocus your savings efforts on your total cost from acquisition to disposition. The best way to do so is to attack your utilization misalignments, or your wasteful and inefficient consumption, misuse and value mismatches in your products, services and technologies.
Just the other day, one of our clients took this advice and saved $42,988 on their PICC trays by customizing their PICC trays to each of their value group’s (OR, ER, ICU, nursing floors, etc.) exact requirements. This client found that one size PICC tray doesn’t fit all of their customer prerequisites, so why should they be buying them all the same tray? For this reason, customization vs. standardization should be your goal too.
One final thought! Desien believes healthcare organizations that approach their supply chain as a strategic imperative, as other industries do, will be on the path to improve their hospital, system or IDNs overall performance. But this goal can’t be realized with price alone!
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
800-220-4274
P.S. If you are looking for faster, smarter and better technology in this New Year to give you ultimate visibility in your supply chain, why not “test drive” our Utilizer™ Dashboard for even greater savings yield this year.
P.P.S. Don’t forget to check out my new blog “Why Do You Need a Team Mission Statement?” that will show you how to give your teams a common purpose and a firm foundation for their savings work.
Measure What Happens!
I hear a lot of supply chain professionals talk about what metrics (supply cost/revenues, discharges/revenues, supply cost/operating expenses, etc.) they measure, monitor and report to their management, but are these measurements realistic, reliable and consistent enough to matter?
The answer is maybe yes or maybe no! It all depends on what you or your management are trying to accomplish with your metrics. If you are using them as performance standards that are measured over time against your peers, that’s a good use of your metrics. If your management is using your metrics to embarrass, harass or worry you, that’s a bad use of your metrics. You need to find a healthy balance!
With this said, I find that the most mature healthcare organizations that I talk to “measure what matters” — no more and no less. More importantly, these hospitals, systems and IDNs measure more than one metric to truly understand the supply chain’s movement, velocity and activity for any given period.
At SVAH, we track, trend and monitor eight global metrics, five department metrics and 133 supply categories of purchase to measure our client’s financial fitness on a quarterly basis with our Utilizer™ Dashboard.
Is this too much measurement? I don’t think so, since we have found that by doing so we are “measuring what matters” for our clients. By finding out what matters to you and your management, you will be on the road to operational excellence at your healthcare organization too.
Your Secret Weapon for 2009
Savings Beyond Price -Weekly eNewsletter – January 7, 2009
President & Chief Value Strategist
Your Secret Weapon for 2009
I had some time over the holidays to think about how the financial crisis we are now experiencing has affected almost all healthcare organizations’ census, investments and revenues, I came to this conclusion: Hospitals don’t need more patients, investment income or even revenues to be profitable. All they need to do is to become more efficient to be profitable!
This is your hospital’s SECRET WEAPON for 2009 to ensure your healthcare organization’s viability. I can’t think of any hospital that isn’t wasting their time, money and resources. But the good news is that you can cut 7% to 11% from your supply chain budget now if you waste less.
Here are six ways you can waste less in your supply chain in 2009 to survive in these hard economic times:
1. Lock Down Your GPO Contract Compliance
Most hospitals aren’t fully realizing their GPO contract cost benefits (i.e. food, service contracts, paper products, chemicals, physician preference items, etc.) because of their department heads’ resistance to change. This is unacceptable behavior in this harsh economic climate. Now is the time to lock down the compliance on all of your GPO contracts to realize your full savings potential.
2. Attack Your Utilization Misalignments
I can’t think of a better time to attack the biggest waste in your supply chain: Wasteful and inefficient consumption, misuse and value mismatches in your value streams which are costing your hospital 8% to 14% in unnecessary cost. If not now, then when would there be a better time to do so?
3. Shrink Your Inventories to a Minimum
Your hospital needs more and better cash flow than ever before. What better way to do so then to take cash off your shelves in the form of unnecessary and unneeded inventory and put it in your hospital’s bank account?
4. Re-energize Your Supply Value Analysis Program
I haven’t seen a supply value analysis program that couldn’t be renewed to be faster, better and to yield more savings beyond price. To do so you will need to refocus your savings on utilization of the products, services and technologies you are buying — not just on price.
5. Implement a Productivity Management System
If you don’t have productivity standards for all of your supply chain activities and a monitoring system to hold your staff accountable for their efficiency, then you are wasting a whole lot of time and money getting your work done. Remember: What is measured and monitored will improve!
6. Increase Your Use of Technology
There is no better way to cut waste and inefficiency in your supply chain than having technology lead the way. Using faster, smarter and better technology than you have now gives you ultimate visibility into your supply chain, not just using it for your transactions. In 2009 you need search out better technologies that will make your job easier and more productive!
Yes, we all will have a rocky start in this New Year due to our weak economy, but it doesn’t need to be a catastrophe for those supply chain professionals who decide that there is too much waste and inefficiency in their supply chain that now needs to be removed for increased profitability for your healthcare organization.
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
800-220-4274
P.S. If you are looking for faster, smarter and better technology in this New Year to give you ultimate visibility in your supply chain, why not “test drive” our Utilizer™ Dashboard for even greater savings yield this year.
P.P.S. Don’t forget to check out my new blog “Why Do You Need a Team Mission Statement?” that will show you how to give your teams a common purpose and a firm foundation for their savings work.
Why Do You Need a Team Mission Statement?
We are in the process of assisting a client who is forming three new value analysis teams that will be meeting for the first time in January. However, before these three teams get down to their hard work of saving money, we will insist that they spend quality time developing and agreeing on their team’s mission statements. Why is this important?
After 22 years of forming, training and coaching teams we have found that if a team is to reach their savings goals they need to have a common understanding of the team’s purpose, which gives a team a firm foundation for savings money. Right out of the gate it also helps them define success and establish boundaries for what is and is not included in their team work. The best way to do so is to have your team develop their own customized mission statement.
Your mission statement should describe the purpose of the team, distinguish your team from other work teams, let your team understand what work falls within their scope and is clear, understandable and brief. Here’s an example of a value analysis team’s mission statement to give you an idea of what your team’s mission statement should look like:
“ This Value Analysis Team is a Dynamic Interdisciplinary Group Dedicated to Reducing the Total Supply Cost (all Supplies and Purchase Services) of our Hospital While Maintaining Quality Provisions of Service to all Customers”
Notice that this mission statement is clear, understandable, brief and easily remembered. It doesn’t need to be long or complex to make it a good mission statement. It simply needs to be is clear statement of purpose that every team member agrees to.
The best advice I can give you on teaming is don’t start or re-invent any team without giving it purpose, boundaries and focus on what it is supposed to do vs. what it isn’t supposed to do. This way you won’t need to keep answering the question for your team members “why are we here”.
You’ve Got to Attack Unnecessary Spending!
Just the other day, a material manager (MM) told me that she oversees 26,000 products, services and technologies, but has no way of knowing which are out of cost control at any given time. As a supply chain professional, you know what that’s like. You must hold your total supply cost to the absolute minimum—and doing this requires vigilance.
There’s no better way to be on the lookout for savings opportunities than with your own supply chain radar! The Utilizer™ Dashboard is exactly that! It will help you detect the waste, inefficiencies, misuse, misapplication and value mismatches in your supply chain before they inflict serious damage to your bottom line. Some of these misuses and mismatches are costing your healthcare organization anywhere from four to 11 percent in lost savings opportunities every month, quarter and year you continue to fly blind.
This savings computes to 1 or 2 million dollars per 100 occupied beds. So if you have 180-occupied beds, this could mean 1.8 million to 2.8 million going right to your bottom line—which isn’t small change when you consider that your price savings are disappearing every day.
