“We have been working with KPIs and benchmarking with our clients for years and see the major benefits.”
Everyone has their gut feelings on where they stand with their major and minor spend categories. Most use some semblance of spend reporting tools to ascertain whether their costs are running too high or too low. Most are confident that they are getting the best price and if they are not, they also know why, whether it be volume or standardization related. Price fixation is not a bad thing, but it is not the only thing that can affect cost in organizations. Where do we go from here then since most of you already know this?
Time to Deploy Your Hidden Superpower!
To take your supply chain program to a whole new level beyond price, you need to supercharge your view of your supply chain by implementing key performance indicators with historical, system-wide, and cohort benchmarking. The advantage it will give you to know exactly where you stand is more powerful than you could ever imagine because you know the full range of where your costs can and should be for any given major or minor product category.
For instance, we were working on some benchmarking for a five-hospital system and their system benchmark for pacemakers was 25% higher than their peer comparable hospitals and health systems. Disbelief followed but that is just part of the process as it was the first knee-jerk reaction from the Perioperative Directors whom we shared the KPIs/benchmarks with. They also got to view the blinded numbers and manufacture/product mix. Turns out, they were standardized to two vendors, but they were utilizing higher cost pacemakers in two out of the three pacemaker categories. Not every case requires a high-end implant. The majority of their peers had realized this and only allowed the high-end pacemakers on specific cases that required the feature-rich pacemaker’s functionality.
Yes, You May Be Different but Not That Much Different
Interestingly, the physicians were very intrigued by the numbers as they had no idea that they were running that high over their peers in their region and nationally. The good news was that their VP of Supply Chain was able to work with their Cardiologists and reset their volumes and their cap pricing to match the new benchmarks within their two vendor contracts to achieve the 25% savings. Plus, they are continuing to monitor this category as there is always new technology that tends to push price points and costs higher.
Everyone Wins with KPIs and Benchmarking
Any Supply Chain Executive that was on top of their pacemaker/CRM pricing would have balked at a 25% savings after the rigorous negotiations that go on just about every two years for these high-end implants and for most other products. It really did not have anything to do with pricing per se but instead it was about product selection and not managing that selection when something like a cohort benchmark makes you aware of it. This is the Superpower effect that KPIs and cohort benchmarking will give you.
Seeing Your Superpower Play Out
With the pacemaker/CRM case study, the Supply Chain Executive was able to watch all of his general pacemaker, ICD, and quad average cost per implant reduce to not only 25% but an additional 8% for a total of 33% overall. This is truly a superpower, but you have to be benchmarking and setting your KPIs today on cost per cath lab, surgical procedure, lab, imaging, etc. You can then sit back and be strategic about what needs to be addressed and what does not. Now you can confirm things like that contract for a new surgical energy RF ablation instrument which is supposed to reduce costs by 12%, or that value analysis change of wound care dressings for a savings of 18%. All confirmed to an exact measure!
Nothing Scary About KPIs and Benchmarks
Most organizations that want to know exactly where they stand with their own history as well as comparing it to cohort benchmarks will have the ability to focus on the things that matter most when it comes to cost, quality, and outcomes. It is very powerful knowing that you are giving your value analysis teams solid savings projects to work on, or that the new contract you’re working on needs to eke out an additional 12% more to get you to cohort best practice levels. We have been working with these KPIs and benchmarks with our clients for years and see the major benefits that they are seeing. You, too, should up your game to give you and your supply chain team a special superpower with never-ending benefits!
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