We often talk about hospitals, systems, and IDNs that increase their SKUs (stock keeping units) by as much as 13% to 25% in just one quarter. This seems like a dizzying rate of inflation, or what we like to call, hospital supply chain proliferation disease.
Complexity in Hospital Supply Chain
After researching this challenge (e.g., buying and stocking too much stuff), we have come to the conclusion that this problem is due to too much complexity in a hospital’s supply streams. Your customers want the latest gadgets, baubles, and features on their products or multiple products. These products meet the same functions and this makes buying, storing, and counting this stuff too complex for them and us, not to mention, the extraordinary cost of too much complexity for your healthcare organization.
Clearly, supply chain professionals (SCP) need to quantify the cost and quality impact of this complexity on their hospital’s bottom line because too much variation in your products causes too many defects (or errors) and unnecessary costs upstream and downstream. One quality expert says that too much complexity can cost your hospital 15% of its revenues. For instance, we generally find that hospitals have too many and too feature-rich I.V. sets that can be reduced dramatically if supply chain professionals would take the time to quantify and then functionally analyze this product category with their customers.
We don’t have the answer to the question, “What’s the right amount of complexity?” since every healthcare organization is different. We are currently working with a children’s hospital that has very complex product requirements, but even this hospital has reduced the complexity of their products by millions of dollars a year by functionally analyzing their big ticket purchases. Nonetheless, we like to say that you will know when you have the right amount of complexity in your products when you can’t find a product that doesn’t meet the exact functional requirements for your customers.
Functionally Analyze What is Required
A decade or so ago, most hospitals had a printed (on paper) formulary of their product portfolio which was easy to review for duplicates, non-conformance, and extravagances. Now, this seems to be a lost technique to identify and manage your product portfolio. In lieu of this lost document, we would recommend that you do an ABC analysis (run a query of the highest to lowest dollar products you buy annually) and then functionally analyze what is absolutely, positively necessary for your customers to get their jobs done. This is the first step in product portfolio management in order to reduce the complexity of the products you are buying. But not the only step…
Hospital Supply Chain Professionals Can Prevent Product Proliferation Disease
Our goal with product portfolio management is not only to manage the complexity of the products we have already bought, but to close the door tight on the any and all new products that are being requested. Remember this fact: There are very few new products in the marketplace, just variations of similar products that are already on the market. So don’t increase the complexity of your product portfolio unless it is proven with evidence that what you are buying is really new, different, and more efficient or cost effective than what you now have in your product portfolio. That’s how you avoid the product proliferation disease that is epidemic at most hospitals today!