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.
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.
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!
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…
Do You Think Your Success is Being Constrained by Your Lack of Resources? THINK AGAIN!
I just read an excellent quote this week from C.K Prahalad, the preeminent management philosopher, that says “Executives are constrained not by resources but by their imagination”. This quote got me thinking about all the constraints (time, money and people power) that supply chain executives face every day in getting their jobs done well and how they can use their imagination and ingenuity to break lose from these constraints. It’s all about attitude, not aptitude!
This insight philosophy reminds me of when I was just starting my career as materials manager at a children’s hospital that had ZERO money and ZERO resources to get my job done. I wasn’t there to long when my hospital administrator (that’s what they were called the hospital CEO then) called me into his office and asked me to buy a half dozen desks, chairs and filing cabinets for new staff members that he just hired for our hospital. When I asked him what budget I should charge this office furniture to, he told me with a big smile on his face that he didn’t have any money for these expenditures, but it was still my job to make this happen. He also told me that he needed this furniture delivered within two weeks. Well, since I was young, goal oriented and looking for challenges I wasn’t distressed or discouraged by this assignment, just a little amused and dazed that he made this request. It sounded like mission impossible!
A little imagination! I remembered that we were buying old and new equipment (offset presses, shelving, bookcases, etc.) from the Philadelphia Naval Yard right off of the ships that were in the Navy’s Mothball Fleet for just a few dollars through some government program we qualified for in those days. So I contacted our hospital’s Chief Engineer (who just happened to be a retired Lieutenant Commander in the Navy) to help me out with this assignment.
He gave a call to his contacts at the Naval Yard and the next day we were on our way with a truck to pick up the desks, chairs and files we needed. Once we reached the naval yard and got our paper work approved we literally went on old naval ships and picked the best furniture we could find (all battle ship gray mind you) and carried them off the gangplank and loaded them into our truck. By the way, the desk costs us $15.00, the chairs $7.50 and the files $9.50 each). We loved the prices we paid, but we still had a big problem since the furniture was still painted drab and dreary battle ship grey. We had to fix this…
A little ingenuity! As we drove back to our hospital, our Chief Engineer agreed to spray paint the desks (and add walnut wooden faux desk tops he had in storage), chairs and file cabinets black. To both our surprise the furniture looked brand new when the Chief Engineer and his crew got finished refurbishing the desks, chairs and file cabinets. When we totaled up the cost to do so, it amount to about $234.00. Even thought we had to spend a few dollars to get the job done, my administrator was more than happy with the results.
So remember, it’s easy to fall into the trap of saying I don’t have enough time, money our people power to get my job done in this “do less with more” healthcare environment we find ourselves in today. It’s also factual that we are only constrained in doing the things that we need or want to be doing by a lack imagination and ingenuity to get the job done.
Isn’t it time we moved beyond this limited “can’t do” thinking and unlock our creative juices to deliver a better product, service or solution to solve the problems that our healthcare organization is facing at this critical time? If you elect to do so, I can assure you that you will find that there is almost no problem, challenge or obstacle too big, complex or insurmountable for you to overcome.
When the Going Get’s Tough — Don’t Fixate on Price
If you are a regular reader of my blog, then you know that I’m predicting a bumpy road ahead for healthcare organizations due to the unintended consequences of the new healthcare reform bill.
If you don’t believe my prediction then you only need to look at Massachusetts’ decision last week to place price controls on all but a few healthcare insurance companies operating in their state — after only three years — of enacting its own statewide healthcare reform legislation.
To me this decision means that these insurance companies will be cutting their reimbursement to their hospital customers almost overnight, because they have no other option if they want to stay in business. I see this same scenario in the other 49 states too in just a few years.
What can we do about this? First off, don’t fixate on price savings if you want to continue to have double-digit savings to counterbalance your hospital’s lost reimbursement that will be coming your way in a few years. This is because if you do fixate on price, it won’t generate enough savings to stem the tide of red ink on your hospital’s financial statements.
On the other hand, progressive healthcare organizations throughout the country are finding another answer to the conundrum. They are maintaining their price stability (i.e. holding their price increases to below the annual rate of inflation) with the help of their national and regional GPOs and their own custom contracts. But instead of stopping their expense management efforts here, they are now seriously focusing on eliminating their utilization misalignments (in use cost) of the millions of dollars of products, services and technologies they are buying annually.
We call this evolution the “Supply Expense Savings Triangle” or the price, standardization, utilization continuum. Once you have attacked your price and standardization savings, there is no where else for you to go but to focus on your utilization misalignments. In doing so, you can save an additional 7% to 15% (overall) in your supply chain expenses to build your cash reserves.
If you would like to read more about this new emerging best practice, I would suggest that you order our new “Healthcare Supply Utilization Revolution” book that we are providing to our “Savings Beyond Price™” blog subscribers at no cost.
In closing, while price savings are important to the competiveness of your healthcare organization, unfortunately they aren’t limitless. In fact, price savings are slowly disappearing at most healthcare organizations today. So if you want to keep your savings humming over the next few belt tightening years you will need new strategies, tactics and techniques beyond price just to stay in place. Utilization management is the answer to this challenge and will generate the next level of savings that you will be looking for when the going gets tough at your hospital, system or IDN. There is no where else to go…
Physician Preference Item Customization is More Important Than Ever
We all realize that our physician preference items (PPI) can represent as much as 40% of our supply spend, but despite our industry’s best efforts, over the last few years to hold our PPI costs down, they are still going up every year — not down.
The reason for this PPI inflationary spiral every year, even though most hospitals have slowed their PPI price increases, is two fold as I see it. The first cause of this PPI cost proliferation is that new technology is being introduced into our healthcare organizations faster than we can measure their efficacy. The second reason is that we aren’t doing a good enough job of “value justifying” what our surgeons are implanting.
What can you do about this? The first solution is very straight forward, every hospital, system or IDN needs to have a technology value analysis committee, with broad and deep physician representation, to evaluate and then select the most effective new technology that makes economic sense. Healthcare organizations that have followed this path have greatly reduced costly mistakes that are made when one or two individuals make — behind closed doors –these decisions on their high-cost/high-impact technology purchases for their healthcare organization.
The second answer to this challenge, and the most important in my opinion, is for you to CUSTOMIZE all of your PPI implants to the exact medical indications of all your patients. I can say this with full authority, since we have observed over the last 10 years that most hospitals are losing millions of dollars a year because their surgeons are selecting the highest cost implants without any regard to what is “medically indicated” for their patients. It’s like buying a thorough bread race horse that you only ride for weekend recreation. What a waste of money!
We can only assume that surgeons who insist on implanting these value mismatches are ignoring their patient’s medical indications by selecting their implants either out of habit, due to a sales rep influences or a lack of knowledge. This situation, we have found, can easily be remedied if a hospital employs a “PPI Medical Indication Checklist” to select the right implant for their patients.
To recap, our PPIs are the fastest growing and largest expense category in our supply spend and need to be controlled in an organized, systematic and scientific manner. Just ratcheting down your price at the pump won’t get the job done efficiently or effectively.
On the other hand, if you employ a filter (value analysis technology committee) to hold back your unnecessary and/or unproven technology expenditures and then customize your PPIs to their exact medically indications you will be going a long way to finally bending the curve on these considered necessary, but ultra expensive medical devices.
Healthcare Expense Reduction: A Systematic Approach
The phrase “Healthcare Expense Reduction” can have many different interpretations. It could mean getting the best price, benchmarking to find the best practice, searching for the best value products, services or technologies or reducing your inventory levels to near zero. However, I would suggest that “Healthcare Expense Reduction” if done correctly needs to be all of these things and much more.
In point of fact, from our empirical experience it requires a systematic approach to reducing your healthcare organization’s supply chain expenses to get it right. This concept is analogous to what the insurance industry calls BLANKET COVERAGE, a single unifying policy that covers any and all of your risk or exposure to unforeseen calamities. This BLANKET COVERAGE idea holds true with “Healthcare Expense Reduction”; To get it right you need to cover all of your supply expense categories of purchase – all at one time.
To get you started on this journey, we have listed seven core elements of a successful “Healthcare Expense Reduction” unifying system. We advocate these core elements for you to obtain the highest return-on-your-investment of time, effort and resources in order to attack ALL of your supply expense savings simultaneously.
You will notice that these seven core elements described herein are actually interconnecting programs which you should have in place which cover the total spectrum of your “Healthcare Expense Reduction” efforts as follows:
1. Utilization Management Program
2. Value Analysis Program
3. Contracts Administration Program
4. PriceCheck™ Program
5. Inventory Management Program
6. Linen Management Program
7. Forms Management Program
As this list suggests for your “Healthcare Expense Reduction” to be effective you need to have complementary and synergistic expense reduction programs in each of your supply chain disciplines, not one-time events. This way you can be assured that you have “Plugged all of the leaks” in your supply expenses before they become mile-high gushers or raging rivers.
This isn’t just a theory, but the actual system that we have employed ourselves over the last 23 years to assist hundreds of healthcare organizations in reducing their supply expenses to absolute minimums, and then to keep their expenses under control — going foreword.
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.
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* “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.
Building a Supply Chain Business Case for Change!
I have found that the best way to get your supply savings ideas (especially those big creative ones) approved by your senior management, customers and stakeholders is to make a formal written business case for change. Why? Because too much is left unsaid, misunderstood or lacking in logic when you try to verbalize your savings ideas on complicated issues that need to be internalized before they are put into practice.
I have followed this same advice in my own career where I have proposed big business changing savings ideas at every healthcare organization I have worked in my supply chain management employment. For instance, I have proposed (in writing) a new supply value analysis program at every healthcare organization that I have worked and NEVER once have my proposals been turned down by senior management, customers or stakeholders.
I once decentralized the centralized buying function that had been in place for 46 years at my multi-hospital system and then replaced it with a GPO model based on a written business case for change that saved my healthcare corporation millions of dollars — almost on day one.
I proposed in writing, and eventually received approval from my board of directors, to move forward with a group purchasing program for their 27 long-term care facilities where I was Vice President of Support Services. This reinvented the way they had done business for decades.
I’m sure you get the idea! Developing a written business case for change in order to introduce, test the waters and then to gain approval on your big and even little supply savings ideas is a powerful instrument for the changes you believe are mission critical to your healthcare organization.
Here’s how it works! This business changing and decision-making instrument begins with a written document that would give the background of the problem or opportunity and description of what you want to accomplish. It would describe how it benefits your organization, how it fits into your organization strategic plan, the risk and rewards, the resources required, the responsibilities and the timing and the operational and financial considerations.
Your business case for change doesn’t need to be elaborate, but it does need to be thorough, concise and well thought out. Most importantly, it needs to be your tool of choice that you employ when you want to “change the way we do things around here”.
