All of healthcare is under more pressure than ever to keep costs down and thrive…despite near constant business change. Flexibility in Supply Chain Management (SCM) is about having the ability to allow your hospital organization to respond rapidly to changing business landscapes and customer (department) demands to continue to achieve your SCM Return-On-Investment (ROI). Your SCM solution must be built upon a continuous improvement model that allows you to easily adapt your SCM Key Performance Indicator (KPI) objectives long after implementation and with minimal disruption.
Here is a model to help you achieve your SCM ROI that constantly covers endless savings opportunities.
Too many hospitals are “Winging It” when it comes to find cost savings, whereas, best practice hospitals have a defined methodology that their SCM members follow religiously on each and every analysis study that they perform. By adding this discipline to their SCM program, best-practice hospitals are realizing 5 percent to 10 percent savings annually in addition to greater quality gains.
Teaming up for success with your department heads allows you hospitals to leverage cost saving opportunities. Your department heads and managers own their budget, you don’t. They set the specifications for the products, services and technologies that they use, you don’t. Therefore, it’s also their job to make savings happen for your healthcare organizations, if you organize them into cost saving teams to do so.
SCM teams get the job done faster and better by involving customers, stakeholders and experts who understand their products, services and technologies much better than a committee member or members collectively can or should.
Finding cost saving is an art and a science with a history that requires hours of classroom and just-in-time training to truly become proficient in this discipline. Healthcare organizations that are making this ERP investment in training their teams are receiving a minimum of 40:1 ROI for their efforts.
Cost saving analysis is the study of function and the search for alternatives, not price. SCM analysis goes beyond price to identify the true requirements of your customers and meets those requirements at the lowest possible cost. Best-practice hospitals understand the important differentiations are saving on average 25 percent on each commodity group they focus upon.
Attack your utilization misalignments as aggressively as you attack the prices you pay for materials. Utilization misalignments (or the wasteful and inefficient consumption of your products, services and technologies) will provide you with acres of diamonds just waiting to be mined. But first you must attack these utilization misalignments as aggressively as you have been attacking your prices. Especially, since utilization misalignments is where 60+ percent of your new supply savings reside, not in price. This means you need to have a system to audit your prices you pay and a system to monitor, identify, and methodically eliminate your utilization misalignments, so you can attack both these savings opportunities at the same time.
SCM analysis begins and ends with the customer at best-practice hospitals. However, spelling out just what products, services and technologies will meet our customer’s exact requirements is the real challenge. This challenge is being met through utilizing techniques, such as, the SCM Analytics. This process helps to truly understand a customer’s exact requirements, and then positions customers for the change(s) that you will be proposing to them with your SCM value justifications.
Don’t ignore the 30 percent to 50 percent of your purchase related expenses. Depending on the size of your hospital, you could be losing 10 percent to 15 percent savings on your purchase services contracts because no one is really in charge of this purchasing category.
Typically, this category of purchase is left to your clinical department heads and manager’s purview, discretion and whims. This is a big mistake and is very costly to your healthcare organization! So make it your job to take full charge of these huge purchasing expenditures (equal to or greater than your material spend) and you will find savings you never dreamed of right in your own back yard.
The No. 1 challenge for SCM practitioners in healthcare today is obtaining buy-in from their clinicians on product, service and technology changes that they are recommending. Yet best-practice hospitals have solved this challenge by having their clinicians customize the product, service and technology they are purchasing, as opposed to standardizing on products, services and technologies they won’t accept or buy-into.
Strategic planning driven:
Partner with your vendors to discover new savings ideas. Your vendors can bring you more great and endless savings ideas than you can implement in any given year, if you challenge them to do so. This is far better than beating them on the head for more price concessions on the products and services you are buying from them.
Those that focus their SCM programs to their group purchasing organization contracts and requisition driven offerings become best-practice hospitals by strategically planning their ROI target candidates and target their savings. This results in strategic planning driven by value analysis programs that can result in savings of 10 to 15 times more than GPO and requisition driven value analysis programs alone.
Observe a lot by watching how your products are used. Yogi Berra (the great baseball Hall of Fame catcher) once said that “you can observe a lot just by watching” what people do. I found this “Yogiism” to also be true with supply chain management. You can find a lot of savings by just watching how your customers are utilizing their products, services and technologies. Our experience has been that you can save 25 percent on the commodities you purchase by doing so.
Best-practice hospitals track their savings and quality gains through agreed upon metrics and milestones with their executive management team in order to enforce discipline and ensure that outcome-based goals are met and/or exceeded.
Real-time data, in an organized, structured and cleansed format provides a best-practice foundation. These data mines provide gold nuggets that surface data driven opportunities.
Data empowered SCM teams are free to concentrate on never-ending benchmarking at the commodity level. Most healthcare organizations do global benchmarking (at 30,000 feet) to measure the effectiveness of their supply chain, but none that we know of (unless they are our clients) benchmark at the commodity level endlessly. This is one of the best ways to uncover supply chain savings at any hospital, system or integrated delivery network (IDN), if you do it incessantly!
Doing it with data to uncover unfavorable trends gets you the predicated ROI. Data in and of itself is useless, unless you utilize financial, purchasing and utilization data to seek out unfavorable trends and patterns. For example, one of our clients found, through data-mining, that they were buying 10 times the number of diabetes tests than they had patients that required them. Ultimately, leading to the discovery that they were being stolen, not used at all.
Look outside your own organization to find savings. We are always looking for new savings ideas inside and outside the healthcare industry, because we don’t have all the answers either. You should do the same, by attending other industries conferences, workshops and forums. This also means reading trade magazines outside our industry, such as, Business Week, Purchasing Week, Harvard Business Review, Fortune, etc. to glean new savings ideas.
Best-practice hospitals capture all value documentation in a centralized electronic database to be shared with all internal and external collaboration partners, as opposed to reinventing the wheel year after year.