That’s when we started keeping score of our client’s supply chain expenses with actionable key performance indicators (KPIs). We use a measure of their performance (benchmark, target or time frame) that signals to us a change in our client’s purchasing patterns, utilization or demand for all of the products, services and technologies that they were buying.

As an illustration, we now have set an upper limit KPI for all of the client’s products, services and technologies that they are buying in our Utilizer® Dashboard. So when our client’s total cost per KPI go above their upper limit on any of their commodities we and they can see that something has changed in their practices and needs to be immediately addressed.

We also employ single value benchmarks, a range of Activity-Based Costing statistics and literally thousands of demand KPIs to keep score of our client’s supply chain expenses in almost real-time to ensure that our client’s costs are always within acceptable limits.

What does this all mean to you? If you aren’t keeping score of your supply chain expenses utilizing the power of actionable KPIs, you are missing an opportunity to be absolutely and lastingly in control of your supply chain expenses.

We have found, through the school of hard knocks, that you can’t accomplish this feat of conjuring by mere intuition, legacy MMIS systems, spend managers or even the manipulating of your raw statistics.

There is only one way to do so! You will need to reinvent what you are doing now so that you can quantitatively measure with a number, statistics or metric (KPI) every aspect of your supply chain expense activities.  Then and only then, will you be able to rest easy knowing that you are firmly in control of your supply chain expenses….going forward.

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.

That’s what I’m hearing from the marketplace; it doesn’t take a lot of money to incentivize your doctors to save.  All you need to do is to find out what products, equipment, training, technology, staff, etc., that they desire to do their work more effectively and productively, but don’t have these resources now. Then offer to purchase or obtain one or more of these “wish lists” items as an inducement for them to save money for your hospital, system or IDN on a particular initiative that you are proposing, such as, orthopedics, neurosurgery, cardiology, etc. 

The operative words here are that these incentives must effectively and productively improve your hospitals operations.  You don’t want to give away incentives that are just NICE to have but are not required. They must actually be beneficial to your hospital and your physicians to be a win-win scenario for all involved parties.

Naturally, these “Pay for Performance” programs can’t be arbitrary, ill-defined or unverifiable. To the contrary, they must be highly organized, truthfully measured and value-based. For example, you might find that your cardiologists have been requesting a new piece of equipment in their capital budget valued at $28,396, but it has been denied for years.  Your task then is to have your cardiologist agree — in writing — that they will be required to save three times ($85,188) the value of this equipment by assisting you in the evaluation of your hospital’s pacemakers and difibrillator’s cost, product mix, and applicability for this new equipment to be approved for purchase.

Considering you would have a minimum return-on-investment for your hospital of 200% for this hypothetical project, I believe that this is what I would call “savings on the cheap” when you consider doing nothing is costing your hospital hundreds of thousands of dollars a year in lost opportunity costs.

So don’t be apprehensive about incentivizing your physicians to save (it’s a good business practice), since it is one of the best investments you can make with your hospital’s money. Keep in mind, your physicians have no incentive to save money today — unless you give them the incentive to do so!

Savings Beyond Price -Weekly eNewsletter – April 29, 2009

Robert T. Yokl

President & Chief Value Strategist

 

Rethinking Your Supply Chain

Greetings,

“Companies (and healthcare organizations) are searching for the right combination of smart cost cuts, strategic investments to get them through the current recession and position them to succeed when the economy rebounds.  The question everyone is asking: What will be the new normal?” This is the reaction of Jean V. Murphy, a writer for Supply Chain Brain, to the realities of our new economy.

If there was ever a time to rethink your supply chain strategies this is it. No longer can it just be about price which only represents 1%, 2% or 3% savings for your healthcare organization annually. If your hospital, system or IDN wants to remain viable in this new economy, they and you will need to ATTACK all of your supply chain cost – all at the same time.

Because the NEW NORMAL, as Murphy calls it, will still mean reduced demand for your healthcare organizations’ services for many, many years, even if President Obama passes his national healthcare in this congressional session. Nothing happens quickly in Washington!

The only way for your healthcare organization to survive in these turbulent times is for them to doggedly manage and control their fixed and viable costs. Since your supply chain expenses are the second largest viable expenditure for your hospital, system or IDN this is YOUR responsibility.

Case in Point! We are working with a large healthcare system that is speeding up their plans to ratchet down ALL of their supply chain cost (price, utilization, inventory, physician preference items, contracts and logistics) at a breathtaking pace now that they realize what the impact of the NEW NORMAL means to their system. No longer is their corporate office accepting weak excuses from their hospital divisions on why the timing isn’t right for these initiatives, because they recognize that cost is our enemy and we must always be on the attack.

Is this the mind-set you too have with your supply chain cost? If not, why not, since your healthcare organization’s survival depends on it!

 

Your Partner In Savings Beyond Price™,

Robert T Yokl

Chief Value Strategist

Strategic Value Analysis® In Healthcare

Bobpres@strategicva.com

1-800-220-4274

 

P.S.  If you are interested in moving beyond price savings alone you might want to revisit my White Paper, “Building a Savings Factory” to get your saving machine humming again.

 

 

With this said, here’s three new industry ideas that will show you what’s ahead for healthcare supply chain management in the very near future:

1.                  Electronic Payments

Industry is way ahead of healthcare when it comes to paying their vendors electronically with no paper work involved. It generates bigger discounts for customers who agree to make faster payments to their vendors electronically. Everyone wins with this scenario!

2.                  Lifecycle Management (LM)

LM is all about scientifically managing of your products, services and technologies from birth to death (i.e. design, use, operate, maintain, support, sustain, phase-out, retire, recycle or disposal) to ensure maximum return-on-investment for any and all organizations. It’s just common sense to do so!

3.                  Demand Management

Demand management, or utilization management as we call it, is a supply chain operational area that we too have been focusing on for eight years. Its focus is on reducing the in-use cost of the products, services and technologies that any organization is buying by identifying waste and inefficiency in value streams, then eliminating them to realize better bottom line savings.

These are just three new industrial supply chain ideas that healthcare organizations can and should adopt to further enhance their supply chain management activities. They are tried, true and safe and have been proven to be best practices for industry for years. That’s what’s ahead for the healthcare supply chain of the future when and if you are ready to move to the next level of supply chain performance.