Back Talk

Becoming a supply savings rainmaker

8 rules for uncovering endless savings opportunities

by Robert T. Yokl

Almost every day
I hear from supply chain professionals that tell me that their supply savings initiatives have stalled, fizzled, or worse yet, are on “life support.” Their question to me is how can they find new supply savings, since they have picked all of the “ripe” fruit from their vineyard? I then tell them about “The eight rules for uncovering endless savings opportunities,” that I would like to share with you now.

Rule #1:
Never-ending benchmarking at the commodity level

Most healthcare organizations do global benchmarking (at 30,000 feet) to measure the effectiveness of their supply chain, but none that we know of (unless they are our clients) benchmark at the commodity level endlessly. This is one of the best ways to uncover supply chain savings at any hospital, system or integrated delivery network (IDN), if you do it incessantly!

Rule #2:
Doing it with data to uncover
unfavorable trends

Data in and of itself is useless, unless you utilize financial, purchasing and utilization data to seek out unfavorable trends and patterns. For example, one of our clients found, through datamining, that they were buying 10 times the number of diabetes tests than they had patients that required them. Ultimately, leading to the discovery that they were being stolen, not used at all.

Rule #3:
Partner with your vendors to discover new savings ideas

Your vendors can bring you more great and endless savings ideas than you can implement in any given year, if you challenge them to do so. This is far better than beating them on the head for more price concessions on the products and services you are buying from them.

Rule #4:
Teaming up for success with your department heads

As you have heard me state numerous times, your department heads and managers own their budget, you don’t. They set the specifications for the products, services and technologies that they use, you don’t. Therefore, it’s also their job to make savings happen for your healthcare organizations, if you organize them into value teams to do so.

Rule #5:
Observe a lot by watching how your products are used

Yogi Berra (the great baseball Hall of Fame catcher) once said that “you can observe a lot just by watching” what people do. I found this “Yogiism” to also be true with supply chain management. You can find a lot of savings by just watching how your customers are utilizing their products, services and technologies. Our experience has been that you can save 26 percent on the commodities you purchase by doing so.

Rule #6:
Look outside your own organization to find savings

I’m always looking for new savings ideas inside and outside the healthcare industry, because I don’t have all the answers either. You should do the same, by attending other industries conferences, workshops and forums. This also means reading trade magazines outside our industry, such as, Business Week, Purchasing Week, Harvard Business Review, Fortune, etc. to glean new savings ideas.

Rule #7:
Attack your utilization misalignments as aggressively
as you attack the prices you pay for materials

Utilization misalignments (or the wasteful and inefficient consumption of your products, services and technologies) will provide you with acres of diamonds just waiting to be mined. But first you must attack these utilization misalignments as aggressively as you have been attacking your prices. Especially, since utilization misalignments is where 67 percent of your new supply savings reside, not in price. This means you need to have a system to audit your prices you pay and a system to monitor, identify, and methodically eliminate your utilization misalignments, so you can attack both these savings opportunities at the same time.

Rule #8:
Don’t ignore the 29 percent to 49 percent of your purchase related expenses

Depending on the size of your hospital you could be losing 11 percent to 16 percent savings on your purchase services contracts because no one is really in charge of this purchasing category. Typically, this category of purchase is left to your department heads and manager’s purview, discretion and whims. This is a big mistake and is very costly to your healthcare organization! So make it your job to take full charge of these huge purchasing expenditures (equal to or greater than your material spend) and you will find savings you never dreamed of right in your own back yard.

These eight rules, when combined,
will give you endless savings ideas that will keep your savings funnel filled to the brim with new savings initiatives. This is also how you can become a supply savings “rainmaker;” never needing to worry about your vineyard going to seed or not bearing ripe, mature and fully grown fruit again. HPN

About the Author:
Robert T. Yokl is president and Chief Value Strategist of Strategic Value Analysis In Healthcare, which is the leading healthcare authority in supply and process value analysis. Yokl has more than 30 years of experience as a healthcare materials manager and supply chain consultant. For more information, visit www.strategicvalueanalysis.com. For questions
or comments e-mail Yokl at bobpres@strategic valueanalysis.com.