I just received a customer progress update on all of our
engagements from my son Robert W. (who is also my VP of
Operations), and one interesting note popped up
regarding a 2+ year client of ours. They communicated to
him that they had just about “wrung the towel dry”
on their supply savings at their 119-bed hospital. This
is after employing our Strategic Value Analysis® System
for about two years. Is this great news? Or isn’t
it?
Here’s the rest of the story!
This client, because of their tireless and
vigorous adherence to our supply and technology
assessment value analysis system, has saved over $1.2
million dollars in supply and technology savings in
about 18 months. In fact, just last week this hospital’s
technology value team saved over $200,000 on a purchase
of IV pumps by utilizing our Value Analysis Funneling®
Model.
It is
important to note that two years ago this same hospital
thought they had “wrung the towel dry” before we
came on the scene and taught them to think differently
and do differently to keep their savings flowing!
So, has this client “wrung the towel dry” of
supply savings?
The answer is no!
They
are close, but they don’t yet get a cigar for their
efforts. We are now completing this client’s Strategic
Value Analysis® Savings Plan for 2006, which will
include new savings targets in pricing, laboratory,
physician preference items, and medical/surgical
supplies to keep their value analysis savings rolling
along for another year.
It takes about three to five years before any hospital can
say that they have “TOTALLY
WRUNG THE TOWEL DRY” with their supply
savings. Even when they do, their value analysis work
doesn’t stop there. Value analysis is a cost management
system to manage and control your hospital’s supply
savings – evermore. Therefore, even when you “hit
the wall” on big savings, there is still small
savings to be achieved for many years.
More importantly, it’s your value team’s job to insure that
new products, services or technologies are value
justified so your hospital doesn’t “bloat” their
supply budgets all over again with unwanted and
unnecessary expenditures. This easily could happen if
your value teams become bored, uninterested, disengaged,
or worse yet -- your management abandons your value
analysis program because of benign neglect.
So when you think you have “wrung the towel dry” in supply
savings at your hospital – think again!
Your Partner in Supply Chain Savings,
Is
Your Money Going Down the Drain Because Your Hospital Is
Ignoring 19% to 39% Of Your Supply Related Expenses That
No GPO Is Focusing On?
“Depending On The Size Of Your Hospital, You Are Missing
The Opportunity To Save 11% to 15% On These Supply
Related Expenses”
I just
made a presentation to a hospital CEO and his material
manager regarding an opportunity to save 7% or
$1.9 million, on his supply related expenses (supplies
and purchase services combined). The CEO caught me by
surprise when he said that “his purchase services
weren’t a material management responsibility”. I
then asked him “who, then, is responsible for the 19%
to 39% of your supply related expenses at your
hospital?” He said, “I
don’t know.”
I
pointed out that even his Hospital Financial Management
Association defines “service spend” as part of a
hospital’s supply budget, but this CFO wasn’t buying my
explanation. Unfortunately, this is the situation at
most hospitals. Hospitals are ignoring 19% to 39%
of their supply related expenses (supplies and purchase
services combined) that no GPO is focusing on.
Who’s Responsible For Your
Service Spend?
I have
classified 23 service spend categories, from
temporary labor to training, that a hospital’s material
management department should be responsible for
administratively. My question to you is, who is
really responsible for your hospital’s service
spend?
If you
are honest with yourself, the answer to this question is
“NOBODY”. Historically, hospitals have
decentralized this function and delegated it to their
department heads and managers. Most hospitals don’t even
have a central file to maintain these contracts. Just
the other day, a material manager at a large IDN told me
that his legal department didn’t even keep copies of the
service contracts once they had OK’d them for execution.
This just blew his mind, since he didn’t have
these contracts on file either.
DEFINITION:
Purchase Services – a contract for work
performed, of any kind, for any period, for any purpose,
by an outside contractor, service or individual.
So it
is now time for supply chain managers to step up to the
plate and take responsibility for managing and
controlling their purchase service contracts. This was
one of my first priorities when I was on board as
a new material manager at a hospital, system or IDN, and
it should be yours too. Depending on the size of your
hospital, you are missing the opportunity to save 11%
to 15% on your supply related expenses.
Purchase Services Are A Localized Activity
Purchase service contracts, unlike supply contracts,
which are volume driven, are a localized activity
because they are generally customized to your hospital’s
unique requirements. Therefore, they aren’t being
focused on by your GPOs. They must be bid,
negotiated, managed, monitored and administered
locally in consultation with your department heads
and managers.
As you
can see, this is what supply chain managers do every day
(bid, negotiate, manage, monitored and administer)
supply contracts, so why should it be any different with
a purchase service contract? This is your area of
responsibility too. Don’t shirk from this
responsibility. Welcome it, since you will become more
valuable to your hospital.
When I
was a material manager, I also used this power position
as a way to build strong and lasting
relationships with every department head and manager in
my corporation, and my executive management. Since
everyone in my corporation had contracts, they had to
come to me at some point to get them executed, renewed
or revised. I was able to leverage these
relationships to negotiate other things that I wanted
and needed for my supply chain department from a
position of strength.
Value
Analysis Will Squeeze Dollars Out Of Your Purchase
Service Contracts
While
taking responsibility for your purchase services is one
thing, squeezing dollars out of these contracts
is another. I have found that value analysis is an
extraordinary tool to make these savings happen for
you. It all starts with “a blank piece of paper” when
you are contemplating or renewing a purchase service
contract.
Ask
this powerful question:
what do we absolutely,
positively require to meet the functions (or
purposes) of this contract? By asking this question, you
will immediately find that you don’t need
everything that is being proposed or that you have now
in your contract. Then you need to ask this second
powerful question: what are our other
alternatives and the cost to meet these
functions?
These
two questions alone, if applied religiously, will save
your hospital 11% to 15% on your purchase
services. If you become a black belt in value analysis
(after extensive training and coaching) like I have, you
can save 19%, 21% or even 26% on your purchase
services over the life of your contracts without
breaking a sweat. It’s your choice how much you want to
save for your hospital. Nibble a little bit at a time
or a save a whole lot of cash -- now!
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