When Does Something Become a No-Brainer?
I just read an article about how all of our nation’s hospitals aren’t reprocessing the numerous medical devices that have been approved as safe by the FDA to do so – even though you can save 50% of your medical devices’ original cost. Wouldn’t you think this was a “no-brainer” for all hospitals? Here’s the rest of the story!
The reason given in the article on why all hospitals haven’t jumped on the reprocessing bandwagon is that they think it will be too time-consuming to do so because of the numerous internal changes in behavior that would be needed to achieve this savings.
So maybe this reprocessing idea isn’t a “No-Brainer” after all or is it? But how would you know unless you tried it? This is the key for knowing when something is a “No-Brainer” or not. Experiment to find the real answers instead of tuning out the sales rep because his or her “its easy” message seems to implausible to believe.
Nothing good happens unless you are willing to experiment with a pilot study to determine the financial, quality and service fitness of any proposed new product, service or technology. This way, you will know with certainty when something becomes a “No-Brainer” for your healthcare organization — or not.
A Time for Action…Not Rumination!
Your management will be asking you to ratchet down your supply expenses even further this year due to the high cost of energy which affects almost everything your hospital buys. And still another reason is the slowing economy that could have an effect on your hospital’s revenues.
These challenging times call for action…not rumination. As leadership guru John C. Maxell tells us “The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails” to catch a favorable wind. This is the attitude you need to keep your supply chain ship righted in these turbulent times.
Here are some questions I would like you to ponder to keep your boat afloat in this perfect storm. Are you adjusting the way you do business to weather this squall? Are you looking beyond price to uncover new savings for your healthcare organization? Are you re-specifying everything you buy to trim your sails?
The reason I’m asking you these three questions is that price savings alone won’t keep you from running aground. Only by attacking your utilization misalignments and value mismatches can you right your ship, and get wind in your sails. If you continue to pursue price savings alone you won’t have enough fuel to ignite your savings fire.
I see more and more supply chain professionals becoming believers in this new way of doing business, since they now realize that price isn’t king any longer. Isn’t it time you take massive action to alter your course and right your supply chain ship before the winds become too strong to change course?
The Supply Chain Energy Predicament!
I know that we are all feeling the pain at the gas pump. I just spent $74.41 today to fill up my own SUV. That’s more than I used to pay every two weeks — just a few months ago. But this isn’t the worst effect of the energy predicament we will be facing as supply chain professionals and as consumers over the next few decades. Yes, I said decades!
The reality is that a healthcare organization’s consumption of petroleum-based products, from needles and syringes to plastic bags, represents 86% of everything you buy. This figure doesn’t even factor in the higher energy cost your hospital will be paying to heat, light and cool your buildings and run your equipment. I can’t think of another industry that has this high an energy footprint. Can you?
What can we do about it? First, we must realize that your manufactures and suppliers won’t be able to hold their prices to you beyond their current GPO or local contract obligations. This could mean a 6%, 8%, 12% or more spikes in your prices, over the next 12 months. You then need to prepare your CFO for this eventuality by providing him or her with your estimated price increases in each commodity group you buy. This way he or she can plan ahead for this contingency.
Next, you will need to vigorously attack your utilization misalignments, because your CFO will desperately need these savings ($11,000 to $30,000 per occupied bed) to offset the price increases you will be experiencing over the next few years.
Lastly, you’ll need to re-specify all of your products, services and technologies you buy to find lower cost alternatives, since this is the ONLY way you will be able lower the cost of the commodities you are buying today.
What I’m suggesting herein will be like climbing a mountain for you, but I see no other choice for healthcare organizations if they want to survive in this energy predicament we find ourselves in now.
Don’t wait to put these recommendations in effect, given that what I have described to you is a “perfect storm” that could sweep your hospital away in these turbulent times. It also could be a very rewarding time for supply chain managers who want to sit elbow to elbow with their management team to solve this problem, and at the same time, gain tremendous recognition and gratitude by doing so!
Your Partner In Savings Beyond Price™,
Bob Yokl
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
P.S. You heard my predictions about the future of supply chain management in this week’s column, but did you know that we could make your life easier in these turbulent times if you have our “Utilizer™ Dashboard” to pinpoint your savings opportunities. Learn more here!
How Are You Selecting Your Value Analysis Projects?
First of all, don’t confuse new or renewal GPO contracts as being value analysis projects, because they are not. This is contract management in its purest sense, which is a whole other discipline that has its own rules and models.
What I’m talking about here is the way in which you selecting your VA projects, which can unearth millions of dollars of savings in your value streams. For the best results, you should establish criteria for the selection of your VA projects. Here are five criteria I would suggest you start with:
1. Dollar Threshold: No VA project should be undertaken on a product, service or technology that has less than a $25,000 annual spend. The reason: Your ROI would be very small, if at all!
2. Projected Timeline: If your VA project will take more than 90-days to complete it might be better to break the project into smaller projects. Projects that have long timelines tend to go off track. Keep your projects in bit size pieces!
3. Probability of Success: If you only have a 50% probability of success in implementing a project (e.g. orthopedic implant study) then delay the project until you have an 80% success factor.
4. Project Alignment: If your VA project is not supported by your management then I would delay it for another day. Why fight city hall – you rarely win!
5. Solution Clarity: If you already know the solution to a problem (e.g. defective material) then don’t initiate a VA project — just fix the problem. It will save you a lot of time and effort by doing so.
These are just a few ideas to get you on the road to selecting the best VA Projects using criteria vs. gut feel with the greatest possible ROIs.
Your Partner In Innovative Savings,
Bob Yokl
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
P.S. My staff thinks I’m crazy to offer our e-newsletter subscribers a 30-day “test drive” on our Utilizer™ Dashboard and you only pay if it works! But I’m so convinced that once you try it you won’t want to live without it that I have turned a deaf ear to my staff’s objections to bring you this outrageous “pay if it works” guarantee. Email me to learn more about this special offer - bobpres@strategicva.com
P.P.S. Don’t forget to check out my new blog article “A Lean Way of Thinking! This will give you a new way of thinking about your workload.
Building Your Toolkit!
I spoke last week at the North Carolina Association of Materials Managers Annual conference on the topic “Value Analysis 2.0: New Rules, Systems and Models for Long-Lasting Savings Success”, which gave me an even more in-depth insight into the challenges that supply chain professionals are facing today.
I also had lunch with a few MMs and value analysis managers at the conference who wanted to know how they could uncover the big and robust utilization savings that I talked about in my presentation. This is when I realized that supply chain professionals aren’t building their toolkits with the precise tools to prepare them for the future of supply chain expense management, i.e. utilization management.
This is because the old tools that healthcare organizations have been employing (MMIS, ERP, and spend managers) for years won’t get this new work accomplished. That’s why we now need to embrace the new art and science of value analytics to search out our utilization misalignments and eliminate them. By doing so supply chain professionals can save 3%, 7% or even 12% in our supply expenses – beyond price.
If you would like to know more about this new and emerging discipline I would suggest that you download my new special report “Utilization Management: The Future of Supply Expense Management” that will show you what you need to do to build your toolkit to meet this challenges in the 21st century.
Your Partner In Innovative Savings,
Bob Yokl
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
P.S. This is the last call (deadline May 31st) for applicants for our Certified Value Analysis Leadership Training program at our early bird rate of $1,192 ($211 discount). If you have been thinking about applying to this one of a kind program this is the time to do it. Otherwise, you will miss this discount period! Learn More
P.P.S. Don’t forget to check out my new blog article “Are You Really Practicing Value Analysis or Doing Something Else” (Revisited). This is where I talk about how I have found that value analysis coordinators, managers and directors aren’t practicing value analysis either. – to their disadvantage! Read Here
Just How Good Is Your Supply Chain Radar?
Just How Good Is Your Supply Chain Radar?
A recent client I was working with on a Supply Chain Scorecard Program and then subsequently a Strategic Value Analysis® Program vehemently disagreed with many of the metrics and benchmarks that SVAH utilized to identify savings opportunities for their organization in all of their products and commodity areas. Now keep in mind, I was dealing with the VP of Operating Room Services who up to this point had run their product standardization and evaluation committee (for 7-years prior) before we were engaged by their system to perform our supply chain savings services. No matter what product and/or commodity group I showed on their savings opportunity scorecard he would disagree that I did not have my facts correct or that the benchmark metrics were outright wrong.
Is it conceivable to think that you can know where all of your savings opportunities are before they inflict damage to your bottom line?
Do you want be proactive instead of reactive?
For example, we were being challenged on their IV Set usage per case mix adjusted patient day, whereby the metrics showed a savings opportunity of $155,000 on an $850,000 annual spend, an 18% savings opportunity!Interestingly enough, this hospital just completed their own analysis by their product evaluation committee on their IV Sets and concluded that everything was in-line and that they were optimized on their costs and quality (I did not see any supporting data other than discussions from committee meeting minutes that could support their findings). I held firm, I knew my numbers were good and I had over 301 hospitals in my database to back me up that I was in the “Savings Zone,” whether my client wanted to believe me or not.
As it occurred we continued to work together and set up their supply value analysis program which of course IV sets was at the top of the list. Now the unique thing about our company is that we have seen IV Set studies at 50 different hospitals and health systems, so we get to bring all the best practices, questions and strategies to the table for our clients. Here is what we found out with this particular IV Set Study/Analysis.
- The Good News! They had the best price – they were part of a large IDN and had a direct manufacturer agreement, no price savings could be achieved. We compared them to our best price database and they ranked in the top 95th percentile.
- Not labeling was costing them thousands - All the departments were not date/time labeling their IV Sets correctly or at all to let other nurses know when an IV Set was set up on the patient, therefore they would automatically change the set (often too soon) on the patient to insure quality. The best practice is to change the set between 72-hours and 96-hours. Because they were not labeling correctly a good Nurse would change the set so not to endanger the patient by leaving the IV Set on too long. $25,000 to $35,000 in utilization savings!
- They had been sold a wrong bill of goods – 11-months prior to SVAH’s engagement, the hospital’s product evaluation committee had approved the implementation of an IV Set locking device that cost $5.00 (in addition to the IV Set cost) to be utilized solely on central intravenous lines for an annual added expenditure of $5,000. This made sense to all and would add to the quality of care for patients with the central lines. What happened was, the product was then misused on every IV Set throughout the entire hospital which added $120,000 in added cost as opposed to $5,000. $115,000 overrun! (They did not know this overrun situation was happening because they had no system to monitor their commodity costs) The hospital then re-evaluated and found that the product was not required at all, they returned to using sterile tape! $120,000 in savings.
- There is more! - the client opted not to pursue this product category until a later date because of the major changes that the two opportunities above would make to their nursing staff, but they will then revisit this product line to look at the value/function of the products being utilized. There could be thousands more here!
Up to this point, my client did not have the tools or knowledge base that SVAH brought to the table that would uncover these hidden/invisible savings opportunities in their hospital’s supply chain. My client did not believe that there was that much savings on this particular commodity grouping but was only working with what they knew from their product evaluation committee and existing supply intelligence told them. It was not on his radar screen!
Your Partner In Innovative Savings,
Bob Yokl
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
P.S. If you are looking to establish, enhance, re-energize and dramatically improve your value analysis program (or you have hit the wall on savings) then our Certified Value Analysis Leader Program to be held on June 24-26 is the ticket for you. And, as a bonus, you will receive a one-year subscription to our new Value Analysis Resource Web at “no cost” to you. Note: Only 17 days left to save on our early bird rate of $1,192.00! click here to learn more
It’s About Time
It’s About Time!
The 2008 Hospital Financial Managers’ Supply Chain Survey documents that one of the top areas where both MMs and CFOs agree is that there are “tremendous” savings opportunities is contract management.
Yet, our own surveys show that MMs spend the least amount of their time and effort in this area of their responsibility, an area where 7% to 15% in new savings can be achieved. How can we reconcile these two assessments?
It’s my opinion both of these analyses are correct! I can make this statement because when I talk to MMs about their contracts (supplies, and purchase services) they tell me that they know that there are big savings in their contracts, but they don’t have the time, point of reference or tactics to ratchet down these huge costs any further.
Considering that most hospitals’ purchase services are equal to or greater than their supply expenses, this is a vast unexplored area where there is a lot of ripe fruit to be picked. Now how can we get this fruit harvested?
The answer: First, automate your contract administration function so you can have the time to save. Second, benchmark your contracts so that you know where to save. Third, perform value analysis studies on your contracts so that you can wring the towel dry on savings. Lastly, set performance standards for your contractors so that you can be assured that you are getting what you paid for.
With this said, isn’t it about time we ALL start focusing on the 50% to 55% of our supply spend that we have been overlooking for years.
Your Partner In Innovative Savings,
Bob Yokl
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
P.S. If you are looking to establish, enhance, re-energize and dramatically improve your value analysis program (or you have hit the wall on savings) then our Certified Value Analysis Leader Program to be held on June 24-26 is the ticket for you. And, as a bonus, you will receive a one-year subscription to our new Value Analysis Resource Web at “no cost” to you.
New Podcast: 80/20 Rule for Healthcare Supply Chain Savings
This podcast is geared towards helping you align your efforts and focus towards the supply chain savings opportunities that will give you the best bang for your buck as far as effort to return on investment. We will highlight the major functions of supply chain savings and detail out all the major supply chain savings areas and why and where you need to focus your efforts for the highest supply chain savings return possible.
Is Standardization Working Against You?
I have preached for years that “standardization is a self-defeating paradigm” for healthcare organizations that want to achieve the lowest total cost for the products, services and technologies they are buying. Now, we are documenting even more proof that the overused standardization model is producing even more unintended consequences than I first thought.
The truth is no one size fits all products, services and technology purchases. If you try to standardize on everything you buy you will limit your customers’ choices, and thereby, compel them to use over-specified or under-specified supplies and equipment which don’t meet their exact specifications. Believe it or not some of the blame for this observable fact can be laid at the feet of your GPO because you are rewarded for over-standardization by the terms of their offerings.
As an illustration, we just completed a 360 Degree Supply Savings Analysis for a client where we found that they had standardized on a $7.10 I.V. set for ALL of their patients. This practice was costing this hospital $54,334 annually in unnecessary and unwanted IV set cost since this was the only IV set that was available for their clinicians to use.
A much better way to decide on what I.V. sets this client should have been buying was for them to develop customized specifications for each of their value groups (segmentation of the customers by their critical to quality requirements) that use this product. With the result, that this client would have ended up with five or six IV sets vs. one only and this would have met each of their value groups’ exact CTQ requirements thus saving $54,334 annually on their IV set purchases.
The lesson of this story is that this client did have the best price on the IV set they were buying, however their standardization policy was working against them when it came to having the lowest total cost in this commodity group. Is you standardization policy working against you as well?
er In Savings Beyond Price™
Your Partner In Savings Beyond Price™
Robert T. Yokl
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
P.S. One of the new power tools that are available to you and your c-suite to give them and you a window into your supply chain operations is our Utilizer™ Dashboard. This new tool will show you and your c-suite members all their supply chain costs in one database along with actionable targets for savings. Why not make it easier on yourself by having this tool at your disposable to effortlessly cost justify your initiatives vs. fighting your c-suite for every dollar you request to improve your supply chain operations. Check out our “test drive” to see how we do it!
It’s Only Money Right?
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