If you have been reading my blog for some time, you have heard me state that price is the smallest element of your products, services, and technologies’ lifecycle cost. The understanding of this theorem is mission critical if you are to maintain your supply expense savings yields at current levels in 2021. To this end, here are four key elements of savings beyond price you need to address to catapult your savings yields in 2021:
1. Waste and Inefficiency (W&I): We have all seen wasteful and inefficient practices at our healthcare organizations, but very few hospitals, systems, or IDNs have systematically set out to eliminate them before they affect their supply expenses. They are generally uncovered by accident, not by design. For instance, one of our clients discovered by accident that his OB nurses were throwing out one of the sterile gloves provided in their OB kits, since they only needed one for a particular procedure. He solved that W&I by only buying one sterile glove for each kit.
2. Over-Standardization: Hospitals, systems, and IDNs universally standardize on one product, service, or technology in their healthcare organization’s formulary. Yet, this one-size-fits-all practice guarantees that you will spend more money than you need to for your products, services, and technologies. Why? Because all of your customers don’t need the same specifications (some need higher/some lower) for their products, services, and technologies. Typically, 80% of your customers will be satisfied with the standardized product, service, or technology that you have selected, while 10% will require a higher specification and 10% a lower specification. The net effect of this tactic is that your overall cost for any category of purchase will be lower than standardizing on one product, service, or technology across your hospital, system, or IDN. It will also greatly improve your new product, service, or technology customer’s acceptance.
3. Misuse and Misapplication: This usually happens when a new product, service, or technology is introduced into a healthcare organization. It is generally caused by poor in service training, a questionable technique, or lack of appropriate policies and procedures. For instance, it isn’t unusual for us to observe that a hospital’s I.V. sets are changed prematurely because it isn’t the hospital’s policy and procedure to employ a time and date label on their I.V. tubing. How can you enforce the 72–96-hour change rate of your policy and procedure when you don’t have time and date labels? If there are no labels, good nurses always err on the side of caution and change the sets which inevitably is too soon. This is not good for the patient and not good for your bottom line.
4. Value Mismatches: Too often we see higher cost products, services, or technologies are purchased when lower cost alternative products, services, or technologies are available for purchase. The job of value analysis is to seek out these lower cost alternatives, like a generic product vs. a brand name. In fact, we have found that hospitals that buy more generic products than their peers have a lower supply cost per patient day.
The reason that we are called a Supply Chain Manager instead of a Purchasing Manager is because we are charged with looking at the total cost of acquisition to disposition of the products, services, and technologies that we are buying, not just their purchase price. This is because purchase price is only the tip of the iceberg of your lifecycle cost. Remember this fact the next time you decide to investigate a product, service, or technology’s cost.
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