ROI can be found, mined rather easily to whet your appetite

by Allen Esses, MS

I believe we have finally moved away from discussing the relevance and need for data standards to a new question of What is the Return on Investment (ROI) of implementing GS1 data standards in my hospital? In essence, "Where’s the beef?" Frankly, both questions should elicit the same answer.

I delved into this with some experts from GS1, other members in the GS1 Standards Workgroups and 1SYNC (a certified data pool), and I am pleasantly surprised at what I found.

First, the ROI for data standards is actually extremely well-documented but is under-publicized within healthcare because the business examples are from non-healthcare industries, such as food and retail. As healthcare professionals we don’t regularly read trade magazines and studies from other industries; therefore, we aren’t aware of the documented real-world ROI examples.

Secondly, those industries went through the same sequence of events, starting with a proof of concept study projecting the benefits, adopting standards and joining the Global Data Synchronization Network, followed by a groundbreaking ROI study.

The food industry published their proof of concept study in 2003, began adoption, and published their groundbreaking ROI study in 2006 (Synchronization - The Next Generation of Business Partnering, How Leading Companies are Delivering Actual Results). The 2006 report, conducted by Accenture, concluded about the initial ROI projections that "those projections were correct, and were in fact conservative." Participating food companies, such as Wegmans Food Markets, The Coca-Cola Company, General Mills, The Hershey Company, The J.M. Smucker Company, Nestle, PepsiCo Inc., and The Proctor & Gamble Company documented the following real savings:

• Wegmans eliminated $1 million of labor and inventory carrying costs from its distribution carrying costs, $3.5 million in freight costs, and $163,000 from store operations

• A manufacturer corrected a weight error on one item and saved $2.2 million on transportation costs

• Automating new product introduction saved a company $288,000 in administrative costs

• A manufacturer who was consistently being hit with $300,000 to $500,000 in annual fines from retailers for inaccuracies adopted GDSN and reduced the number of manual touches on product information. As a result, the annual fine number is approaching $0.

• At another company, shaving five minutes off the order inspection process yields an annual savings of 59,000 FTE hours.

• Another manufacturer was able to avoid the cost of hiring additional full time employees to process new items — saving 33 percent in administrative costs.

A similar sequence of events occurred in the retail world, where the business case was first introduced in 2002 followed by adoption, and then an ROI study in 2005 (Source: Capgemini; Global Data Synchronization at Work in the Real World, 2005. Note: The study had formulas to calculate hard dollar savings, however, only AEON elected to publish their results translated to dollars):

• Retailer AEON reduced their item management costs by $2 million

• Johnson & Johnson virtually eliminated data integrity related out-of-stocks at Walmart in the U.S.

• Before standards, 37 percent of Gillette products in trading partner databases represented discontinued products but after standards they were 100 percent aligned

• Before standards, Procter & Gamble and retailer La Fragua had 3.6 percent of orders related to obsolete products, but after standards that fell to 0.78 percent

• Retailer Albert Heijn, generated an improvement in data accuracy with four trading partners that resulted in a 30 percent productivity improvement in their data management department

Some hospitals’ materials management professionals have a healthy skepticism when extrapolating supply chain success in other industries to their own. This view was explored by Rob Handfield, Ph.D., from the Supply Chain Resource Cooperative at North Carolina State University (http://scm.ncsu.edu/blog/page/4/, June 8, 2010) and stems from the belief we are dealing with patient care and the "management – physician" divide. I understand and used to share that same concern. This healthy skepticism is partly what launched the Department of Defense/Veterans Administration standards pilot project in 2007. Those results solidly proved that the same GS1 data standards used in other industries truly work in the healthcare supply chain as well (Source: Conclusions from DoD Healthcare GDSN Pilot Phase, 2007):

• GDSN is capable of meeting the data needs of US healthcare

• GDSN data could be implemented today using existing business systems

The 2007 DoD/VA pilot reflects the same proof of concept work accomplished by retail in 2002 and in the food industry in 2003. In fact, because of the DoD pilot, healthcare followed the retail and food roadmap and assembled a group of early adopters. The Early Adoption report moved us from proof of concept to health systems using the GDSN in a live production environment. (Source: GDSN in Healthcare: Experience of Early Adopters in the United States, 2009).

Due to healthcare’s continued involvement with GS1 data standards since the 2007 DoD/VA pilot we know GS1 data is available. We at DataPros for Healthcare delved into three specific questions that we have been told are important to healthcare materials management professionals.

Here is what we found out.

Methodology (figure 1): In April 2011, we received a list of the 3,275 manufacturers across all industries who publish GTINs via the GDSN (database 1). We mapped that to our proprietary database of 7,004 healthcare manufacturers that are known to sell products to hospitals (database 2). The result was 220 are actively publishing their GTINs to the GDSN.

Methodology: In April 2011, we received the list of published GTINs for each of the 220 healthcare manufacturers which are known to sell products to hospitals. Adding them together resulted in over 1.1 million GTINs.

Methodology: In April 2011, we analyzed hospital supply chain files to determine the percent of expenses covered by these 220 healthcare manufacturers currently publishing GTINs via the GDSN (Figure 2).

This is just the beginning. These numbers will only continue to increase. Consider these recent announcements:

• Johnson & Johnson announced that all of their medical devices will be available with GTINs by the 2012 Sunrise date

• Cook Medical Devices began the standardization process 10 years ago and announced plans to upload 25,000 products to the GDSN

We all know numbers and ROI are important. The answers to the questions posed are important because they distinguish between the promise of the idea of data standards and their practical application to our business. So when Clara asked the question, "Where’s the beef?" Wendy’s really asked customers to examine what they are getting and asked them to be savvy burger consumers.

For more information, visit DataPros for Healthcare at dphinc.com.