Savings Beyond Price -Weekly eNewsletter – September 19, 2008

Robert T. Yokl

President & Chief Value Strategist

 

Greetings!

Thinking Lean

Believe it our not, studies have shown that in excess of 60% of the supply chain activities you perform every day add no value to either your internal or external customers. Simply put, they wouldn’t pay for them if they knew what the cost was to serve them.  Does this surprise you?        

Well it shouldn’t! I know of supply chain professionals that have been doing the same things every day, the same way, for 20 years who haven’t questioned why they are doing it. Nor, have they analyzed if their activities and processes can be leaned even further to reduce their cost-to-serve to their customers.

A good example of this un-lean thinking is that some hospitals are still stocking office supplies, x-ray film, paper towels and lab supplies in their warehouses when it adds no value to their customers to do so. These commodities should be delivered directly to their home departments by your suppliers to dramatically reduce your handling cost.

Value analysis is another area where lean thinking is absent in my judgment. I have seen as many as 35 members attend a value analysis committee meeting, which I would consider a mob, where little or no real work was accomplished.  Does having 35 members add value to your value analysis process?  By the way, we have found that 10 people is the ideal number of team members that you should have on your value teams.  

The lesson to be learned here is that we should all be THINKING LEAN (what would the customer pay for if they knew its cost) in everything we do, and then always be searching out new ways to reduce the cost-to-serve our customers.

THINKING LEAN is really a simple concept to learn and apply. If you want to save big by introducing practical ideas, methods and techniques the thinking lean concept will cut your costs to serve your customers one activity or process at a time.
 

Your Partner In Savings Beyond Price™,

Robert T Yokl

Chief Value Strategist

Strategic Value Analysis® In Healthcare

Bobpres@strategicva.com

800-220-4274

 

P..S. I’m happy to announce the release of our new Utilizer™ Dashboard Contract Driver module that will make your contract management job a whole lot easier. I consider it a way for you to have ultimate control over all of your contracts.

 

P.P.S. Don’t forget to check out my new blog article “4 Tactics to Combat Complacency with the Status Quo” This blog is all about progressing beyond just price savings, and moving on to the next generation of savings productivity. 

 

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!

 

 

First of all, Lean Management and Six Sigma are two different, but complementary methodologies, linked together into a unifying process called LEAN Six Sigma. LEAN Six Sigma has helped thousands of companies and hundreds of healthcare organizations dramatically improve their quality and increase their bottom line. What makes Lean management and Six Sigma different from TQM/CQI is their highly disciplined approach, their focus on waste and inefficiencies in the supply chain, speed and reducing the wide variances in products, services and processes employed and then controlling them – forevermore!

The healthcare supply chains are an ideal application for the Lean management or Six Sigma principles because they are transaction-based functions.  For example, one big lesson we have learned from Toyota, the creators of Lean Management, is that purchasing departments can have as much as 50% non-value-added activities (i.e. activities customers wouldn’t pay for if they knew about them) that can be reduced by as much as a third by employing the Lean Management methodology. In this age of doing more with less we in supply chain management need to embrace these proven concepts so that we can optimize our resources just to keep pace with the changing healthcare marketplace.

Just as important, Lean Management and Six Sigma offers supply chain managers a disciplined, standardized, repeatable, and measurable system to reduce their cost and improve their quality.  Its tenets can be applied to any initiative that a supply chain manager is asked to undertake (inventory management, PPIs, standardization, utilization, etc.)  These concepts are really a magic bullet for supply chain managers to have even faster, better and more consistent supply chain operations.

I believe that the reason that more supply chain managers haven’t adopted these concepts is their belief that it will take too much of their time for them to learn, manage and sustain these new ways of doing things. In reality these concepts will actually save thousands of hours of year in reduced time, effort and expenses for supply chain managers.  Education is the answer to moving material managers from a passive to an active role in adopting these new ways to managing their complex multi-million dollar supply chains.

That’s it for the short excerpt from my HPN interview, but it shouldn’t be the end of our dialog on this important topic. I would like to hear your ideas on this subject matter as well so we can get all supply chain professionals on the LEAN Six Sigma train.  

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Here’s what this phenomenon looks like! The change initiative, whether it’s value analysis, Lean Management or Six Sigma, had a full head of steam over its few years of its existence, then fizzles, sputters and quietly dies a slow but unnoticed death. Then everyone forgets, after a few years have gone by, that your organization ever had such a change initiative in place.

What were these organizations thinking when they spend weeks or even months to conceive, champion and launch these change initiatives in the first place?  My guess is that these hospitals, systems and IDNs were thinking that somehow or someway these change initiatives had a life of their own and didn’t need to be nurtured, re-tooled, re-invented and re-energized from time to time to sustain their momentum.

Nothing lasts forever if it isn’t given a new coat of paint, thorough clean-up and reinforced when it is weakened by the ravages of time. We see this observable fact with our Lean Value Analysis Programs.  If our clients don’t provide the on-going leadership, discipline, maintenance, coaching and training to sustain their value teams’ efforts, then this mission critical change initiative will inevitably die on the vine.

From our experience, a well-planned change initiative has, at its core, transformation elements like balanced scorecards, annual training, planned team member turn-over and twelve-month retreats to keep the cobwebs from forming. 

Otherwise, it is nearly impossible to keep the thrust, energy and impetus of your change initiative at a high level of performance without investing the requisite time and life force to fine-tune the human side of your change management equation. Partner 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!