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.
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.
New No Cost Webinar – Value Analytics The New Science of Savings
Value Analytics
The New Science of Savings
Learn the advanced methods and strategies to analyze your utilization trends, patterns and variations in your supply spend categories so you can move to the next level of savings performance beyond price.
Webinar Overview
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Are You Flying Blind?
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Why Value Analytics?
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What is Value Analytics?
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A Road Map for Success
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5 Key Elements for Precision
Thursday,
November 12th – 1:00pm Eastern
All
Registered Attendee’s Will Receive a Copy of the Webinar Slides and
Audio Replay at No Cost to You!
Strategic Supply Chain Webinar Series Leader – Robert T. Yokl,
President/Chief Value Strategist
and Robert W. Yokl, VP of Operations, Strategic Value Analysis in Healthcare
Webinar May Be FREE But The Information is Priceless
Creating the Future of Supply Chain Management
The biggest risk today, as I see it for supply chain professionals, is running out of savings. Yes, I know that some hospitals, systems and IDNs are still finding some low hanging fruit to keep their savings rolling, but those days are numbered. It’s not a growth strategy!
A good way to look at this emerging trend is check out what other industries are doing when they HIT the wall on savings. Over the last 5 years or so manufacturing, energy, financial, airline industries, etc., have been attacking the in-use cost of their products, services and technologies. Why? Because their price savings have disappear!
The tactic industry uses to drive out all of their waste and inefficiency in their value streams is called demand management or as we like to call it in healthcare — utilization management. This approach has saved billions of dollars without hurting their customer’s quality.
In brief, the demand management (i.e. utilization) methodology focuses its efforts not primary on suppliers or price, but on how products, services and technologies are deployed in an organization. Are there wasteful and inefficient practices, are they being misused or misapplied and are there lower cost alternatives to meet these stated functions at a lower cost? Its not uncommon for companies to cut 7 to 15 percent off their expense budgets and the savings can begin in as little as three months.
Extensive Industry research confirms the future of supply chain management isn’t about suppliers or price, it’s about your CONSUMPTION, where 79% of all of your new savings reside. Since most healthcare supply chain best practices (e.g. spend managers, just-in-time, ERP systems, etc.) are adopted from other industries, this is one trend that you don’t want to overlook, ignore or disregard because … it’s the future of supply chain management! This isn’t a prediction, but a fact!
So if you want to start creating the future of supply chain management at your own healthcare organization you need to start today by focusing on your own products, services and technology consumption. That’s where other industries are finding a GOLD MINE of savings, not just by bidding, negotiation or joining a new GPO to obtain a better price.
Five Myths Vs Facts
Savings Beyond Price -Weekly eNewsletter – June 10, 2009
Robert T. Yokl
President & Chief Value Strategist
Five Myths vs. Facts!
Greetings,
Over time we all develop a belief system that is based on our life experiences, biases, and traditions but are these viewpoints myths or are they facts? These collective perspectives or assumptions that we gather over time can relate to our supply chain world as well as our life!
From a supply chain perspective if these beliefs and assumptions aren’t tested, inspected and examined vigorously we could be overlooking big breakthroughs in our supply chain management. Here are five myths versus facts that you should be reexamining in order for you to remove any performance gaps in your supply chain operations:
1. Benchmarking Doesn’t Work
I can’t count the times a MM has told me that they believe that benchmarking doesn’t work because it is inexact science or we are different. By holding this belief, these MMs are missing the opportunity to save millions of dollars annually.
To the contrary, benchmarking is an art and science that has been proven in every industry, including healthcare, to be the best methodology to identify gaps in an organization’s performance. This leads us to search out best practices to fill those gaps that are costing us thousands, maybe even millions of dollars annually.
2. Price Savings are Forever
I hope everyone understands that “nothing is forever”, but too many MMs believe that this truism doesn’t apply to price savings when the facts inform us differently. With few exceptions, hospitals, systems and IDNs are just holding the line on inflation (3.9% for 2008) with their price savings, not beating it. This fact would lead me to believe that MMs should be searching out other sources of savings if they want to beat the inflation rate each and every year.
3. Utilization Management isn’t a Priority
Considering that price savings are slowly disappearing, what better source of new savings (7% to 15%) could there be than utilization (in-use cost)? How then can MMs IGNORE these big savings opportunities by stating that it isn’t a priority? Shouldn’t the highest level of savings available at a healthcare organization, with the best ROIs, be an uppermost priority to every supply chain manager?
4. Value Analysis is all About GPO Contracts
Every time we visit with a value analysis team we find them evaluating their new GPO contracts, with very little emphasis on the waste and inefficiency in their supply chain.
Value analysis ISN’T about GPO contracts; it’s all about functional analysis, which has nothing to do with GPO contracts. When will we get these two disparate supply chain activities designations right?
5. Purchases Services isn’t in our Scope
I was just told again last week by a value analysis manager that he doesn’t believe that purchase services should be in the scope of his supply value analysis program. Then I asked him who did he think should be functionally analyzing these contracts?
The way I see it your department heads won’t, your supply chain department is too busy, and your administration doesn’t even have these multi-year million dollar purchases on their radar screen. That’s why purchase service contracts MUST, in my opinion, be in the scope of your supply chain department and evaluated by your value analysis teams. To do less is to relinquish hundreds of thousands of dollars of savings annually.
These five myths vs. the facts should raise your consciousness to the possibility that all commonly held beliefs and assumptions aren’t always factually true. That’s why you need to challenge not only your own beliefs and assumptions, but those held by others in your healthcare organization that might not pass the test of time.
Your Partner In Savings Beyond Price™,
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
1-800-220-4274
P.S. Don’t forget to sign up for this ONE-TIME-ONLY “How to Create, Manage and Maintain High Performance Value Analysis Teams” NO COST webinar on June 17th (Eastern) at 1:00pm (Eastern). This webinar is exclusively designed for those hospitals, systems and IDNs who are seriously looking for new and better strategies, tactics and techniques to take your supply value analysis program to the next level of savings performance.
Don’t Wait: The Train is Leaving the Station
As I mentioned in my column in early April, a recent survey by Novation reported that 44% of the healthcare organizations they surveyed have decided to focus on utilization management as their new path to savings for their hospital, system or IDN. Are you one of the 44%?
To me this Novation survey means don’t wait the train is leaving the station on utilization management. It’s the fastest growing new discipline in supply chain management. That’s why you too need to be on this fast moving train.
Every decade or so a new idea, innovation or invention is discovered, revealed or uncovered in healthcare supply chain management that literary changes the game as we know it. By definition, a game changing event changes the rules or is a variation on old rules which makes it into an entirely a NEW GAME. Take my word for it Utilization management is one of these game changing events.
We have been engaged for nine years now in intensive utilization research and comprehensive utilization studies. We have been retained by hundreds of clients in real world utilization management projects that have generated 7% to 15% in new supply chain savings – beyond price. That’s why I can make these seemingly bold statements about this new discipline.
If you are looking for even more information about this emerging best practice, I would suggest that you download my special report, “Utilization Management: The Future of Supply Chain Management”, before the train leaves the station.
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!
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
