Strategic Value Analysis In Healthcare
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Strategic Value Analysis In Healthcare |
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STRATEGIC VALUE ANALYSIS NEWSLETTER |
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Home Weekly Strategic Value Analysis Newsletter ValueNet Central TM Value Analysis Software Articles and White Papers
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VALUE MANAGEMENT STRATEGIES & TACTICS For Week of September 5, 2002
Optimizing Your Financial Supply Chain
“ Supply Chain Managers Positive Impact on a Healthcare Organization’s Profitability can be in the Range of 3% to 5% Annually
Robert T. Yokl, President, The HCP Group, Ltd.
A recent HCIA-Sachs' study showed that the average hospital’s profitability in the U.S. is 1.9%. Which means that most hospitals are barely squeaking by year after year and many are on the brink of financial disaster if they can’t find ways to increase their profitability in the future. What can supply chain managers do about this trend? More than you ever realized! Over 53% of a healthcare organizations’ physical supply assets are in its internal physical supply chain. The average hospital’s supply cost is 18% of revenues and purchase services is 25% of revenues – for a total of 43%. In addition, inventories and fixed-assets could add as much as 50% (as a percent of revenues) to a healthcare physical supply chain, which can or should be the responsibility of supply chain management. With this knowledge, supply chain managers’ positive impact on a healthcare organization’s profitability can be in the range of 3% to 5% on any given year by optimizing your organization’s financial supply chain. Here’s how.
How Can Supply Change Managers Impact Profitability?
The financial supply chain is affected positively or negatively by how effectively a healthcare organization manages and utilizes their cost of capital, operating expenses, inventories, and fixed-assets. Specifically, (as defined by the Institute of Supply Management) we are talking about, “the flows of cash from firm to firm, incurred expenses, investments, and costs of processes involved in the creation and eventual delivery of goods and services.” In simple terms, ISM states “the financial supply chain is the flows and uses of cash throughout the physical supply chain.” Some elements that are included in the financial supply chain are: transaction cost, price/cost margins, total cost evaluations, payments to vendors, discount opportunities, payment options, inventory holding cost, and fixed-asset return on investment. By optimizing these elements of your hospital or system’s financial supply chain you can reduce the cost of capital, increase your return on investment and lower your operating cost to substantially improve your healthcare organization’s profitability.
How Do You Optimize Your Financial Supply Chain?
Optimizing your hospital or system’s financial supply chain simply means finding new ways to maximize the use of your organization’s money, time and assets more effectively and efficiently. By effectively I mean doing the right things; by efficiently I mean doing the right things well.
For example, nationally, hospitals are incurring millions of dollars of unnecessary inventory holding cost (interest + insurance + lost opportunity cost + depreciation + deterioration + obsolescence + handling cost = inventory holding cost) in the range of 10% to 15% annually, because their storeroom and departmental inventories are being managed poorly or not managed at all. If Supply Chain Managers are doing the right thing, managing all hospital inventories and managing them well by managing them scientifically, these inventory savings would go right to your hospital’s bottom line on an incremental basis.
The value in optimizing your financial supply chain is that you will get better overall financial and supply chain performance. Conversely, if it is left alone your operating costs will increase, inventory costs will escalate, transaction costs will rise, payments to vendors will stretch out, and fixed-assets will deteriorate, leaving your hospital to barely squeak by year after year and risk financial disaster.
“ HCP’s Advanced Technologies Change The Culture Of Healthcare Organizations, So that They Can Drive Out All Waste And Inefficiency in Their Supply/Value Chain."
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