There’s More Than One Way to Shave Your Purchase Service Costs
I often talk about a healthcare organization’s purchase service savings opportunities being “equal to or greater than” their supply expense savings prospects, but too often this statement is interpreted to mean the price you are paying for your purchase services only. In fact, we have found that there is more than one way to shave your purchase service cost if you know where to look for them. Here are three additional ways you might want to use to discover them.
Utilization Misalignments
Just because you have the best price for your purchase service contracts doesn’t mean they are cost effective. You also need to eliminate all waste and inefficiencies in their value streams. Just like one of our clients found when they looked at their telecommunication invoices only to find they were being slammed with thousands of dollars of phone charges annually they hadn’t authorized. So don’t stop searching for additional purchase service savings because you think you have best price, when there literally is hundreds of thousands of dollars of new and better in-use savings that are just waiting for you to harvest.
Specification Overkill
When I read a purchase service contract that hasn’t had its specifications revised, improved or amended in a number of years, I can always find small or big savings opportunities because our customers don’t need everything that is included in the contract to perform the service that is described.
For example, how many times does your hospital’s windows need to be cleaned in any given year? Have many times a year does your high and low-tech equipment really need to have preventive maintenance? How many rent-a-guards do you need on each shift? Do you get the idea?
In-Sourcing Opportunities
For many years it becomes such an ingrained habit to outsource a particular service for many years that we overlook the possibility of in-sourcing these services again when the timing and conditions are right to do so. Food service or environmental service outsourcing are good examples of this happening. It’s been my experience that these departments generally aren’t outsourced for lower cost alone. It’s usually quality issues too, that drive the decision to outsource these departments in the first place. Therefore, it’s my suggestion that when any purchase service contract comes up for renewal it should always be considered a MAKE or BUY decision, not just a contract renewal decision. This way you never-ever leave any purchase savings dollars on the table – untouched!
As more and more supply chain managers take on the responsibility of sourcing, bidding and negotiating their healthcare organizations’ purchase service contracts, just remember that your purchase service contract price is just-the-tip of the iceberg! Your greatest purchase service savings are actually to be found below the waterline. This can represent as much as 26% in aggregate purchase service savings annually for your healthcare organization in the first round of value justifying your purchase service contracts. Don’t you think this is a much better way to shave your purchase services cost, than just attacking your price alone?
What Can Other Industries Teach You?
I always keep my eye on what other industries are doing related to supply chain management to see what I can learn from them. Especially since most of our supply chain innovations (MMIS, ERP, Just-in-Time, spend managers, LEAN, Six Sigma, etc.) have been swiped from other industries. This is something you should be doing too to keep your creative ideas percolating. To save you time I have listed five ideas below that other industries are focusing on in 2010 with their supply chain management:
- Creating shared services centers for material management and finance, to reduce business processes, control of spend and improve working capital.
- Training material management staff in negotiation, finance, analytics, quality, and lean where there was more value needed from their current employees.
- Outsourcing of non-critical operations as long as it wasn’t core to a supply chain activity.
- Working with suppliers to identify lower-cost-alternative (i.e. value analysis) products, services and technologies.
- Developing green packaging and re-furbishing products to avoid waste going into landfills.
I realize at first glance that some if these ideas might not appear to you to be translatable to the healthcare supply chain, but I see that every one of these ideas to be transferable. For example, I know of a number of healthcare organizations that have centralized their material management and payables departments under one roof to improve their efficiency. So you can cut and paste the ideas you like to fit your own supply chain environment. You don’t need to implement in whole cloth as they are stated herein. Your goal should be as Tom Peters, the management guru once said, is to “Steal from the best with pride”, since most of our healthcare best supply chain ideas have come from other industries anyway.
Do You Have a Reliable Saving Ideas Pipeline?
I know that most value analysis teams get off to a flying start with a lot of good ideas to save money, and then they “hit a wall” after a few months because they don’t have a pipeline of new saving ideas to fall back on to fuel their savings fire. To help you avoid this savings stumbling block to your VA program, here’s a pipeline of savings ideas from my new book, “The Healthcare Value Analysis Bible: Your Ultimate Saving Resource*” which is scheduled for publication in April 2010.
Large Dollar Expenditures - Products, Services or Technologies with an annual value of $25,000 or more.
Vendor Recommendations – Review brochures, catalogs, samples from vendors to cull new savings ideas.
Magazine Articles On Savings Opportunities - Call article authors to find out exactly how they did it. They will be happy to help you out without a fee.
New or Changes in Regulations - Most new or proposed changes in regulations costs can be reduced through Value Analysis.
New Clinical and Administrative Employees – Interview new employees for savings ideas they have been exposed to at other healthcare organizations.
Benchmarking – What are other healthcare organizations doing to save money?
Any Disposable Product – Can you return to a reusable product?
Any Type of Custom Kit or Tray – Contents of kits and trays should be fully investigated for their value!
New Technology – In addition to the cost of the new technology there is always add-on cost of labor and supplies that must be value justified.
High Utilization – Any Product, Service or Technology that has a high utilization cost is a candidate for study.
Product Recalls – Value Analysis Team(s) should be empowered to investigate why the product was recalled and the corrective action required to bring into conformity.
Bundled Products – Products like IV Starter Kits, Admission Kits, etc., need to be value justified.
Old Technology – Old technologies tend to be wasteful and costly and should be evaluated for appropriateness.
If you have any additional savings pipeline ideas, I would love to hear from you (bobpres@strategicva.com), since there is still time for me to add them to my new book. Naturally, if your idea is used in the book I would give you attribution for your idea. I’m looking forward to hearing from you.
___________
* “The Healthcare Value Analysis Bible: The Ultimate Savings Resource” will retail for $29.95, plus $5.98 for shipping and handling (pricing subject to change in the future). If you would like to pre-order this A-Z blueprint for establishing, refining or re-energized your supply value analysis program we are now offering a 10% discount on the retail price of the book, if you pre-order by February 26, 2010. You can e-mail your order (with your name, title, organization, phone number, e-mail address, and shipping and billing address) to bobpres@strategicva.com. You will then be the first to receive this important breakthrough must-read book no later than May 2010.
We’ve Come a Long Way from the Basement in Hospital Supply Chain Management
I remember at my first three jobs a the hospitals I was employed as a materials manager my windowless office was located in the basement, ether next to the storeroom, or near the receiving dock or half-way between both of these locations. Come to think about it, my salary was pretty much matched my location in the pecking order at these hospitals too. Yet, I was happy, productive and enthusiastic about my job, but I still had to work two jobs for many years just to keep a roof over my family’s head and bread on the table for my wife and kids.
I’m sure many of you can relate to these musings since you have found yourself in the same circumstances as you have moved forward in your own supply chain career. But the times are changing FAST in supply chain management. Many of us have moved from the basement to the rarefied upper-level floors of our healthcare organizations where we too have a window to gaze out when we get a few minutes to do so. Better yet, our salaries are now competitive with any industry I can think of and the perks (incentives, bonuses, health club membership, flextime, etc.) being offered are getting better every year.
To prove my point, I was just reading the results of ARMM’s Compensation Survey for 2009 which found that the average salary for MMs in 2009 was $87,650. The report also noted that 33% of the MMs surveyed are receiving bonuses, 58% have formal incentive programs and 9% are receiving other incentive benefits such as tuition reimbursement, child care and parental leave. Not bad for a profession that was considered basement dwellers just a few decades ago.
We have come a long way from the basement as attested by the results of the AHRMM survey I just referred too. But here are a few statistics from this same report you might not be aware of that tips the scale in favor of high income producers: MMs that had the highest salaries and held the most prestigious jobs in our industry had the highest educational levels (MA or MS), were Fellows in AHRMM, and had 50 or more staff reporting to them. This isn’t a coincidence!
As this data suggests, if you want to have the highest salary, best perks and to permanently move out of the basement like these trailblazers have done, you will need to go back to school, get CPM certified, become an AHRMM Fellow and get hired by one of the largest healthcare organization in your region.
Don’t get me wrong! I’m not saying this should be the goal for everyone reading this blog, but if you have aspirations for a bigger and better salary, more perks and additional responsibility this is the roadmap you should be following to meet this objective. As Sherlock Holmes would say to his friend Dr. Watson, “It’s as elementary as 1, 2, 3”.
