When we started SVAH Solutions in 1987 as a supply chain consulting firm, our consultants were walking benchmarks, since they would compare one client’s supply chain practices (good, bad, and preferred) to another. This enabled our consultants to uncover hundreds of best practices that we could share with other clients. This benchmarking process we developed in 1987 became more sophisticated over time and evolved into the four essential pillars for supply chain benchmarking success which we will share with you below:
Four Essential Pillars For Supply Chain Benchmarking Success
1. Develop a Baseline: You need to know where you stand today with your key supply chain expenses, operations, and practices before you can begin to measure your own supply chain organization against peer organizations. For instance, if you want to know if your office supplies’ cost per employee are within acceptable limits, you first need to calculate your own cost per employee for one year. You may have the best price here but there is so much more than the price at the pump.
2. Establish a Reporting System: You need to buy, rent, or establish your own benchmarking reporting system that will capture your current supply chain expenses or operation metrics vs. your peers’ benchmarks for each key performance indicator that you are tracking. This is not something that you can report off of your ERP Purchasing Systems because as much as 20-30% is always changing. You need clean scrubbed data that is continually updated and managed as an effective tool – this is key to remember.
3. Search Out Peer Partners: One of the secrets to success in benchmarking is to partner with peers that have the same or similar operating characteristics as your healthcare organizations, such as, patient days, operating room cases, emergency room visits, lab tests performed, etc. Too often a peer that is selected isn’t a good match and as a consequence the supply chain organization’s benchmarking process is seriously flawed.
4. Develop an Action Plan: Once you have identified gaps or a variance between your supply chain metrics and that of your peers, you need to develop an action plan to determine why there is a difference. For example, one time we identified that one of our client’s disposable bath kit’s cost per patient day were six times higher than their peers. After investigating this variance, it was discovered that this client’s hospital had no patient (in room) bathrooms. In fact, their patients had to visit a central bathroom on each floor for a shower or a bath. That’s why this client’s disposable bath kits were at a much higher cost than their peers. Remember, there is always a reason for an unfavorable variance that needs to be investigated.
On the flip side, we concede that benchmarking has received a bad name over the years because of what we consider substandard benchmarking methodologies. Yet, we have found over three decades that if benchmarking is conducted properly, it can be a window into your supply chain expenses, operations, and practices, especially if you stick to the four essential benchmarking pillars that will guide you to better outcomes in your healthcare supply chain operations.
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