Supply Chain Benchmarking Is All About Ownership
“I just don’t trust the benchmark” is the first response we often get when we show a client for the first time that their utilization cost is much higher in a particular commodity group then their peers. Since we have heard this same tune before, we then proceed to show our client their OWN internal benchmarks (if they are a system or IDN) and their OWN historical metrics over the last eight quarters.
This process of sharing multiple data points with our client enables us to triangulate our benchmark with our client’s OWN known, reliable and defendable internal data to confirm our benchmark’s validity. This procedure usually affirms to our client that our benchmark is consistent with his or her OWN internal data and therefore makes good business sense for our client to investigate this savings opportunity.
The operative word in this benchmarking validation process is OWNERSHIP. When your customers see with their OWN eyes that your benchmark is consistent with their OWN internal data you can then make a believer of them. Without their OWNERSHIP (or believability of your data) you will never ever get your customers to judge that your benchmark is reliable, dependable or trustworthy. It’s just that simple!
New Activity-Based Costing Model Makes Huge Supply Utilization Savings Happen!
Activity-Based Utilization Costing is a new utilization savings model that assigns the cost to natural classifications in supply chain expenses to identify their actual consumption by each category of purchase. By doing so, a healthcare organization can establish the true cost of the utilization of all of their products, services and technologies so they can eliminate any and all wasteful, inefficient, unneeded or unnecessary supply chain practices.
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I have just given you the definition (above) of a new and emerging best practice called Activity-Based Utilization Costing that can revolutionize the way you save money. I’ve done so because now that price savings are slowly disappearing this new methodology will help you dig even deeper and broader for new and even better savings.
Here’s what it is all about
Activity-Based Costing (ABC) was developed in manufacturing in the 1970s. It was introduced by cost accountants that were seeking to identify the cause-and-effect relationship of their organization’s products and services to more objectively and accurately assign cost to each of their operations. Prior to this point in time, most operating cost were assigned by accountants as broad percentage for direct and indirect cost.
Where products, services and technology costs are shared, such as we do in healthcare organizations, the ABC methodology requires some sort a weight factor to allocate cost accurately. This weight factor is based on what is called a COST DRIVER or activity that directly relates to your products, services or technologies actual cost. For example, the number of custom packs that you use in any given year would be assigned based on the number of case mix adjusted procedures (cost driver) you utilize. In this way you now have identified a cause-and-effect relationship between your custom packs and case mix adjusted procedures that can be precisely calculated.
Here’s how it can help you
We have found by employing the ABC methodology to measure utilization performance for our clients, once we have assigned a weight factor (or cost driver) to all of our client’s natural classifications (IV sets, Oxisensors, elevator contracts, dressing, trays, pacemakers, orthopedic implants, etc.), we can then quickly and easily identify any and all of our client’s utilization misalignments. This means in real terms a saving in the range of 7% to 15% based our client’s total supply chain spend annually.
There are no shortcuts
You might say after reading this blog article, “Bob you are giving me a headache with all these calculations, isn’t there a simpler way to get the same results?” I’m sorry to disappoint you but there isn’t an easy way to make these huge utilization savings happen. Believe me when I tell you that I’m always looking for an easier way to save money, but sometimes there are no SHORTCUTS to making savings happen.
Where are your next savings coming from?
I would like to restate the fact that your easy price savings are slowly disappearing therefore, new and better savings strategies, tactics and techniques must be employed for you to keep your savings machine humming. Activity-Based Utilization Costing is one of the proven best practices that can assist you in improving on any savings strategy that you are now pursuing to save money.
Lastly, don’t be overwhelmed by the intricacies of ABC methods that I just talked about because if I can learn, master and then apply these ABC techniques of this new science of savings — YOU CAN TOO!
Confronting the Tough Stuff
Every supply chain professional is confronted every day with tough decisions, inflexible people, immovable objects, and sticky situations, especially now that we are in a recession. How do you cope in this environment?
The short answer is that you need to become more skilled at dealing with difficult people, irrational situations and the politics of your workplace. There is an art and science in doing so. Here are five basics that work every time:
- Have Patience – Thomas Paine, in his pamphlet “Common Sense” tells us that all things and truths become clearer with time. That’s why you need to have patience when confronted with a tough situation. I personally wait at least 24 hours before making any tough decisions because the emotions of the moment have now passed and I have a clear head to make the right decision. Don’t make rushed decisions if you can avoid it!
- Listen Artfully -We all know the techniques of “Listen Artfully”, but how many times have you really used them? I have found that if you can keep people talking and keep yourself listening attentively you can find out everything or anything you want to know about any situation. It always pays dividends to listen!
- Be Respectful - Even when you totally disagree with an individual’s point of view, be respectful, civil and polite. In doing so, you might just learn their reason(s) for why they have a different perspective on the subject at hand. Then you have all the facts you need to make your own decision!
- Ask Why – The most important question you can ask anyone, when confronted with an opposing opinion, is why they feel that way. They will then need to defend their position. Often they will talk themselves out of this opinion, when they hear their own answer. That’s why the “why question” opens up a whole new way of thinking for even the toughest opponent.
- Don’t Cave In -The easy route to take when confronted with tough people, decisions or situations is to “cave in”, but this won’t solve your problems. It will just complicate them. Once your colleagues, employees or management realize that you change your mind easily they will never ease up on the pressure to change your mind on any subject. But if they know that you are hard as a rock and are an unmovable object, they will soon tire of trying to change your mind. This doesn’t mean that you should be inflexible or stubborn, but always be mindful that your opinions count too! Be firm and consistent!
The Reverent Robert H. Schuller has said that “Tough times never last, but tough people do”. That’s why you must master these five skills that are needed to deal with tough people, tough decisions and tough situations. If you do, I can ensure you that it will make your job and your life a whole lot easier, more productive and fun again.
Call Me If You Need Me…WRONG!
The most common advice a VA facilitator (I hope you have one) usually gives to his or her VA team members is “Call me if you need me”. The end result is that your VA facilitator never hears from your team members for various reasons (time constraints, embarrassment, or awkwardness in asking for help) and consequently your team members never become proficient in the art and science of value analysis. This then leaves hundreds of thousands of dollars in savings on the table at your healthcare organization — untouched.
On the other hand, if you have a structured, proactive coaching approach, where a coaching schedule is followed by your VA facilitator, team leader and team members, you will improve your overall team performance by 90%. Just as important, your savings performance will improve by 2, 4 or even 6-fold over your current savings performance.
There’s a lot more to effectively coaching your value analysis team members (qualities of an effective coach, duration and content of sessions, sponsor and team leader involvement, accessibility, documentation, etc.), but we will leave these topics for other blog articles.
What the lesson learned from this blog article should be for you is that telling your team members to “Call me if you need me” is the worst advice you can give your team members. Only with a structured, proactive coaching approach can you dramatically improve your value analysis teams and team member’s performance.
