Too often when a product, service, or technology is purchased, it is considered a completed transaction by your contract managers once they have obtained the best price, and then it is quickly forgotten. You might not realize it, but this is the #1 reason why you would have higher per patient day supply costs than your competition. Remember, price is the smallest element of your lifecycle cost equation. To this end, your optimal lifecycle cost drivers reside in the following six things that happen when the products, services, and technologies you are buying are put into the hands of your customers:
1. Usage Patterns Change Almost Overnight: It might be because of poor in-service training, increased or decreased census, or a procedural change that alters the patterns of your supply utilization. This simple fact can increase or decrease your running cost by as much as 17% to 37%.
2. Users Use the Wrong Product for the Wrong Patient Care Function: How many times are nitrile gloves used by your environmental staff or dietary staff? How many ports do you need on PICC catheters? Do you need an MRI friendly feature on all of your pacemakers? These are just a sampling of the questions that need to be asked by your value analysis teams to eliminate all unnecessary and unwanted functions and features on the products, services, and technologies in your supply streams.
3. Users Ignore Current Policies or Best Practices: Instead of changing an IV set every 72 to 96 hours during a patient stay, as is a hospital’s policy, we have seen nurses change IV sets daily due to many factors. This can increase your IV cost per patient day by as much as 55%. This can easily be prevented while meeting your nursing policy and patient care requirements exactly.
4. Products Have Quality Issues or Failures: We have seen point of service testing devices for diabetes that are defective (i.e., three test strips needed to obtain a good reading), costing three times more per test than required that goes unnoticed. Just think about your healthcare organization having 100 of these quality issues or failures all at one time. What would the effect be on your bottom line?
5. Wasteful or Inefficient Practices Are Employed: We generally identify over 100 utilization misalignments when we assess a healthcare organization’s supply utilization patterns. The value of these savings generally represents one million dollars per 100 occupied beds. You can do the math for your healthcare organization. It could be as simple as old glove box holders that are tilted the wrong way and are dropping (wasting) gloves. No one thinks this is a problem, but it is systemic throughout the organization’s nursing units. This could quickly add up to over 10% to 17% consumption increases that are invisible because no one is tracking these waste issues. Supply chain routinely contracts for gloves and many times changes occur, but it is rare that you think about the effect the changes have on use patterns.
6. Vendors Upsell Their Product Lines to Customers: We have repeatedly observed that when a product, like electrodes, under contract has a quality issue, the manufacturer’s default position is to upsell the customer on a higher price product (e.g., electrode) in their manufacturer’s product line. This has a two-fold negative effect! The first is that your cost per unit will increase because of an off-contract purchase. The second is that your sales representative would have circumvented your contract compliance safeguards.
I’m going to repeat myself when I say that too many supply chain professionals are focused on unit price in the short term, when they should focus on their lifecycle cost in the long term as these six examples demonstrate. This is where your new and better supply chain expense savings reside because anything can happen (and usually does) when the products, services, or technologies you buy are put into the hands of your customers.
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