“There is power in knowledge and there is no better knowledge than supply chain benchmarking for your hospital or health system.”
Benchmarking is a great tool that we have been using for 25 years in the healthcare supply chain world. There is no better tool that can do so many things for supply chain and value analysis programs. Most healthcare organizations benchmark operational areas such as inventory and logistics-related key performance indicators, as well as globally on procedural areas, but no further. There are so many more areas to drill down into that can tell you much more about your supply chain organization.
Look no further then all your categories of supply and purchased services that you should be benchmarking from all different angles that will let you know with certainty all of the great, good, not-so-good, and bad things going on in your supply chain.
Why Benchmarking and KPIs are Crucial Tools
Why You Need to Know Where You Stand – Most healthcare organizations follow the script of standardization to aggregate volume to gain better tier pricing through their custom and/or group purchasing contracts. There is nothing wrong with this but that is only looking at one element in the total cost of ownership of the products you buy every day. Where do you stand on Suture Cost Per Surgery Case, Balloon Catheter Per Cath Lab Case, or IV Set Cost Per Patient Day? I could go on with the categories, as you have over 750 major categories in products alone. You need to know where you stand in each category as you may be over-consuming, wasting, or have feature-rich products that other hospitals don’t use. From a strategic standpoint, you will need and want to know this moving forward.
Strategically Set Realistic Goals – Most supply chain contract negotiations just want to “try to save as much as possible” on their new and renewal contracts. This is just okay, as you want to have more definitive goals when entering into negotiations for a new contract. If your benchmarking told you that you were running $92K over where you should be in a category of purchase, that is gold for you and your contract administrator to go after. Benchmarking can also tell you if you are best-in-cohort by $35K in a particular category so that you know not to waste time working on it.
Easily Find Bonafide Savings Opportunities – Finding savings beyond price is a challenge for supply chain and value analysis professionals but with the right benchmarking system you can easily identify major and minor savings opportunities. As mentioned above, when you know where you stand in any and all categories you can strategically plan and go after the savings that you find. For instance, we had one large health system that was running over in a simple category of IV catheters which was a $600K annual savings opportunity. They did not realize this was happening until we pointed out where they ranked in their cohort benchmarks. Once they knew this, they strategically analyzed their usage and products and achieved over $900K in savings that they never would have gotten without their benchmarks. That is only one category.
You Won’t Spin Your Wheels – There are so many categories of products and services and only so much time to work on these areas. When you do select an area for a value analysis or supply chain initiative for cost savings, the worst thing that can happen is that you engage in a long analysis only to come up with little or no savings. Benchmarking is the solution to not have this ever happen again. I cannot tell you how many times client health systems actively go after categories thinking, “We spend $2.2 million in this category so there must be a savings opportunity,” only to find out that they are best in cohort. Total spend is not a good indicator for any savings opportunity as we live in a patient volume centric environment and should thus measure/benchmark in that relation. For example, I had a client that spent $1 million in reference lab testing but it turns out that they were one of the best in their cohort benchmark wise and historically were down by 26% overall from the previous two years. They would have gone ahead and spun their wheels trying to get blood from a stone when the savings wasn’t there. Benchmarking tells all!
You’re Not Getting Credit for the Good – The good news is that when you actively benchmark your over 750 product categories and your 500 plus purchased services you will find that you are at or even below cohort best practice areas in many of them. This is good news to know for you, your department heads and managers, as well as your C-Suite who are always thinking that you could do better in this category or that category. My experience tells me that there is a lot of good news to be reported that is unfortunately not.
There is No Better Knowledge Than Supply Chain Benchmarking
As someone who has spent most of their supply chain and value analysis career benchmarking at all levels, I can tell you that there are endless opportunities available to you when you engage your hospital and/or health system in benchmarking. Can I think of a downside to benchmarking? No, since there is power in knowledge and there is no better knowledge than supply chain benchmarking for your health system in 2024 and beyond!
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