Moving From Fuzzy Supply Chain Benchmarks to Actionable Results
There is a level of uncertainty in the healthcare supply chain circles regarding what benchmarks are the best for measuring your supply chain effectiveness and efficiency, now that you need to live by and be judged by those numbers. What’s the correct answer to this challenge?
Let’s first start by looking at the history of supply chain benchmarking systems. Predominantly, these are global supply chain benchmarking systems that have been utilized by supply chain professionals for 10 to 12 years. These systems focus on the overall global performance of supply chain organizations, such as, supply expense as a percent of net operating revenue or supply cost per procedure/test for respective hospital departments.
These are the preponderance of benchmarking systems that are in the marketplace today. I’m not saying that these are not somewhat effective but from the prospective of the supply chain manager are they good enough to obtain actionable results?
With this said, I think the word that best describes these systems’ metrics would be “ambiguous” at best. Yes, I’m saying they are uncertain, hazy, unclear, and vague. For example, if your surgical service cost per procedure is $122 over your peer hospital’s benchmarks and you are running 4,233 procedures per year your opportunities in surgery supply savings will be calculated at $516,426 per year. But this result still leaves any supply chain manager asking these big questions:
- Where’s the surgery services actual savings hidden?
- Is it Physician Preference? Clinical Preference? Waste? Misuse?
- What specific products are causing this variance?
- Where do I get started attacking these identified savings?
The answers to these questions are just the beginning of what I call the “time trap” that could take months, maybe even years to actually uncover these globally identified savings opportunities.
Yes, your intuition could point you to the “usual suspects”, such as, implants, sutures, custom packs, endomechanicals, etc. However, we have found that the surgery suite is much more complicated, difficult and denser in supplies than you might think. Accordingly, you may expend ALL of your time and resources in this area of your supply chain operations and then not yield the maximum return-on-investment you are looking for.
The most certain way I know to uncover where your supply savings actually reside in any category of purchase, and to avoid the ‘time trap” I just talked about, is to develop deeper and broader supply expense metrics at the SKU (stockkeeping unit) to lead the way to your savings. For instance, a good metric that we have been employing for some years to determine the reasonableness of the cost of custom packs is: Total Custom Pack Cost/ Procedures CMI Adjusted. This metric has been a reliable benchmark for us when compared to a client’s peer group to determine if their custom pack cost is out of line. This is much better than guessing if this is the reason why our client’s total surgical services expenses have been “red flagged” as being extremely high.
In the final analysis, supply chain benchmarks can be useful, constructive and very definitive in your search for supply savings, but only if they give you the answers to just about all of the questions that you might think of in your benchmarking exercise. This can’t be done at the 30,000 feet level. This information only can be deciphered at the ground level which will require you to greatly ENLARGE your benchmarking range, choice and depth. That’s the only correct answer to this challenge!
Filed Under: Benchmarking • Best Practices • savingsblog • Supply Chain • Utilization Management
