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!
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
Certified Value Analysis Leadership Workshop - Early Bird Special
- Added Many More Value Analysis, Utilization and Supply Savings Case Studies
- More Focused Training on Utilization Management and Benchmarking for Value Analysis Professionals
- Focus the Training to Be More Hands on with Real Time Actionable Results
- Share with you the Latest Strategies, Tools and Methods to Save More in Less Time with Less Effort
- Further Enhanced our Value Analysis Leader Web Software (included in the workshop)
- New Utilization Benchmarking Section
- More Savings Ideas to the Savings Idea and Best Practice Database
- More Members Only Webinars
Tip of the Week Article: What Value Analysis Is and What It is Not!
It’s About Commitment, Discipline and Focus!
What’s value analysis all about? It’s about commitment, discipline and focus and finding lower cost alternatives to what you are doing now! If you are missing even one of these success components you can’t and won’t have consistent, sustainable and substantial savings results.
VA is all about having your senior management commit to making savings happen for your supply value analysis program or it will slowly, but surely sputter, fizzle and die.
VA is all about having discipline (practices and methods to enforce acceptable behavior) from the top, right down to your value team level or you will be going every which way — but forward.
Value analysis is NOT about GPOs, capitation, standardization or custom contracts, but is all about utilization management: wasteful and inefficient consumption, misuse, misapplication and mismatches. If you are focusing all or most of your efforts on the price side of the supply equation, you are missing 79% of your hidden savings opportunities.
To bring these points home here’s is an example: we once were retained by a hospital CEO who intuitively understood that saving money was ALL about commitment, discipline and focusing on finding lower cost alternatives to what his hospital was doing. With our help, he organized, and operationalized his hospital’s multi-phased savings initiative. He then became the chief cheer leader for his management team and hospital staff, encouraging his staff at every opportunity to dig deeper and broader then ever before to search out and find those hidden savings. Well, as you could have guessed, within a year his hospital saved over $6.5 million.
There is no magic to this success formula; just the commitment, discipline and focus to make savings happen the old fashion way: Hard Work!
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 25 days left to save on our early bird rate of $1,192.00! click here to learn more
P.P.S. Hove you checked-out our new and improved Savings Beyond Price™ blog where I talk this week about the “Supply Chain Hall of Fame Honors Nine Superstars”.? Can you guess who the honorees are? If not, I have listed them for your review. and I hope some comments. Visit the Blog Here
