We recently conducted a webinar for our value analysis/supply chain community on the benefits of integrating supply utilization management (SUM) into their value analysis program because we believe there is nowhere else to go to achieve double-digit supply chain expense savings. Here are some highlights from this webinar.
Value Analysis is Evolving Right Before Your Eyes
Over the last 76 years value analysis has evolved from a purely manufacturing technique to a universally applied strategy to save money and improve quality in all industries worldwide and has saved billions of dollars for organizations who champion its use. VA is now evolving in healthcare since our new cost and quality challenges require new ways of doing business. In short, our old VA methods need to be updated or they won’t get us where we want to go over the next few years.
In fact, a poll was taken during this webinar that showed that 50% of the attendees’ hospitals, systems, or IDNs have either started addressing or have systems in place to capture supply utilization savings on an ongoing basis. So supply utilization management isn’t just a theory any longer. It’s quickly becoming mainstream.
If It’s Not Broken, Why Fix It?
You might think, “If it’s not broken, why fix it? We are still saving money with our VA program, so why do we need to integrate supply utilization management into our value analysis program?” The answer is that a product, service, or technology’s lifecycle cost has a beginning, middle, and end. Value analysis can evaluate the need and appropriateness of a commodity at the beginning of its lifecycle, but the majority of healthcare organizations’ VA don’t look at the utilization of the commodity in its mid-life where your biggest savings opportunities reside.
We like to use the example of a new IV pump to get this point across. If an IV pump costs your hospital $2,000 or $3,000 initially, but its IV supplies over its five-year life cost $500,000 dollars, where should you be spending your energies to save money; at the beginning, middle, or end of the commodity’s lifecycle? Naturally, it should be in the middle of the product’s lifecycle (or how it is utilized by your clinicians).
Misunderstandings About Supply Utilization Management
As important as it is to understand what supply utilization is, it’s just as important to understand what supply utilization management is not. Specifically, it’s not:
- Contracting
- Best Price
- Best Value
- Inventory Management
- Spend Management
- Comparison Shopping
- GPO Contract Evaluations
By definition, supply utilization management is, “The management and control of products, services, and technologies’ consumption, application, and use to ensure that they are being employed in the most efficient and cost effective manner.” If you aren’t doing this in VA, then you aren’t executing supply utilization management.
Understanding the Relationship Gap Between SUM and VA
The VA approaches employed today (focus on price/contracting, evidenced-based solutions, and standardization) are not built to alert, manage, and control supply utilization costs over the short or long term. This is where the gap between supply utilization management and value analysis exists today. No longer can we stumble upon our utilization misalignments; we now need to target these savings by adding supply utilization management tools, techniques, and systems to our value analysis model to close this gap.
This reminds me of when I was a corporate director of materials management for an IDN and was reviewing the usage of cautery pencils for one of our managed hospitals. I noticed that this hospital was using 10,000 reusable pencils annually when they only had 5,000 operating cases a year. When I had our resident materials manager investigate this phenomenon she found that the OR thought these pencils were disposable. That’s how most of us stumble on our supply utilization misalignments. Wouldn’t it be great if we could identify all of our SUMs – all at one time?
Don’t Lose Sight of the Big Picture
While most supply chain/value analysis managers focus their time on new price and standardization savings, these savings only represent 2% to 3% in new annualized savings. Value analysis on the other hand can contribute another 16% savings to this mix, but our studies show that supply utilization management represents 78% of all of the new savings available to a healthcare organization.
Now that it is getting harder and harder to find price and standardization savings of any kind at your healthcare organization, pivot to make sure your VA teams spend 80% of their time on supply utilization management. This way, you are in alignment on what your senior management is looking for; more savings in FY 2017 than you generated in FY 2016.