Strategic Value Analysis In Healthcare

I am constantly asked by supply chain professionals, “How do I get my executive management’s attention to act on the savings opportunities that need to be addressed at my hospital (or system)?” My answer is always the same…I tell them they must develop a supply value analysis plan to get executive management’s attention, get them focused on “big” savings opportunities and obtain buy-in to move forward with the new or refined supply value analysis program.

The first step in the development of your supply value analysis plan is a “spend analysis” to get your executive management focused on big savings opportunities, not the smaller, short term weeds that are growing in your vineyard. In my lead article this week, “Why a Spend Analysis is the First Step in the Development of Your Supply Value Analysis Plan” I will show you the little known secrets about how you should go about performing a spend analysis without breaking a sweat. You can get your executive management to feel the pain of losing “big savings” opportunities that you bring to the forefront with your spend analysis.

Remember, you have everything to win (save) and nothing to lose (spend) with our Award Winning Strategic Value Analysis® System as your weapon of choice in your battle to manage and control your supply chain expenses.

If You Want To Have Executive Management See The Big Picture, You Need To Get Their Attention With A Spend Analysis As An Integral Part Of Your Supply Value Analysis Plan!

We have all heard the saying that a picture is worth a thousand words. Well, you need to apply this truism in the development of your Supply Value Analysis Plan to ensure your executive management sees the “big picture” of why action is needed now. The best way to accomplish this feat is through a comprehensive Spend Analysis to show executive management where money is being spent and how it could be spent more efficiently through Value Analysis.

Spend Analysis Definition: The classification (or organizing into groups) of all purchases (products, services and technologies) for one fiscal or calendar year by commodity groups and annualized purchases to establish priorities, identify inconsistencies and uncover duplications and waste and inefficiencies in supply chain.

For example, I once performed a spend analysis for a national healthcare food service company and found that their number one annual expenditure was coffee. The second, eggs and the third, meats. This finding was a big surprise to both the client and SVAH as the client was sure that meat purchases were the number one annual expense. This discovery (along with ten other targeted commodities identified in the spend analysis) showed the way to the development of a supply value analysis plan for this company that generated hundreds of thousands of dollars of savings. We have performed literally hundreds of spend analyses in two decades with the same constructive savings results.

A Spend Analysis secret you need to know:

You might think that performing a spend analysis would be easy to undertake with all the computer processing capabilities at our hospitals, systems and IDNs. In reality, it is difficult for most healthcare organizations to embark on because their purchasing data is flawed, incomplete, jumbled, missing or worse yet not maintained in an organized manner.

That’s the bad news!

The good news is...You can perform a useful and meaningful Spend Analysis, even if, you have the challenges I mentioned above by using the 80/20 rule.

The 80/20 rule states, “80% of your annual expenditures are in 20% of your items”. This means that you only need to run a descending dollar report from your MMIS system to find the 20% of the items that represent 80% of your annual spend (roughly a two-three page report). You can forget the rest of your annual purchases because they are not material (an accounting term meaning it is not worth the effort to pursue any further) for a useful and meaningful Spend Analysis

Now that you have the top 20% of your commodities identified from your Spend Analysis, what do you do with this information? You put it in a “picture” for your executive management. This picture is the critical first step in the development of your supply value analysis plan. When this purchasing data is presented in a graphic format, you will get your executive management’s attention as to the magnitude and scope of your hospital’s expenditures.

Otherwise, they will never see the “big picture” of how important it is to ACT NOW to make savings happen for you healthcare organization. Words can be misunderstood, misconstrued and misinterpreted, but data on a few PowerPoint slides speaks loud and clear leaving little to interpretation.

I attended your “Supply Chain Benchmarking for Peak Performance” tele-seminar in August and I have a question now on the case mix adjustment formula you spoke of. Specifically, how does the formula work. L. S.

As you may remember from the tele-seminar the “case mix adjusted formula” is used to give weight or intensity to procedures, cases, tests, activities, etc. you are benchmarking. Without this weight or intensity factored, you would weigh all your hospital’s procedures, cases, tests, activities, etc. as being equal for both your hospital and your benchmark partner’s hospital. This is not the case.

That is why we use the “case mix adjusted formula” to give our benchmarks a relative weight to measure the intensity of an activity. For example, if you were benchmarking your operating room supply cost you would use this formula:

The “overall hospital case mix index” number can be easily obtained from your finance department. If you are serious about getting it right the first time, I recommend that you purchase my “Ultimate Value Analysis System” which will provide you with my value analysis team leader and team member selection guide and how to identify the best value analysis candidates at www.strategicvalueanalsis.com/ultimatevalueanalysis.htm.

P.S. If anyone else has a burning question that you would like me to answer, please call or e-mail me and I would be delighted to answer.

Vending Machines Should Be Your Business - You Could Be Losing 76% to 87% In Revenues

If You Are Looking for New Revenues, Owning Your Own Vending Machines Could Be The Answer

Vending machines have become omnipresent in hospitals to supplement cafeteria and snack bar services on days, evenings and night shifts. Universally, hospitals have hired contractors to provide this service and receive a small percentage of the revenues in return for permitting the vendor to provide this service. So why aren’t more hospitals providing this service themselves and generating 76% to 87% more profits than contracting for this service?

The concept is quite simple! Instead of contracting for vending services, your food service department (good area for volunteers to take over too) can fill all of your vending machines with fresh food, soda and snacks and keep all of the revenues for yourself. You can rent or buy the vending machines you need from your present vendor and have them serviced by them too. And you keep 100% of the profits for your own hospital.

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