Most healthcare organizations are struggling with how to more effectively reduce their supply chain expenses now that their price has been tamed. A 98-bed community hospital that we surveyed last week had less than .0098 or $135, 233 in additional price savings to be achieved before their well runs dry. This wasn’t an anomaly, but a fact-of-life in healthcare today.
Price integrity, vigilance and containment are the order of the day for hospitals, systems and IDNs, but if you want to move to the next level of savings it will necessitate employing new strategies, tools, techniques to do so. One of the best tools I know of to do so is Feature-Value Analysis. By this I mean, de-featuring your products, services and technologies before you buy them or shrinking them if the commodity is now in use. This is the surest way to boost your healthcare organizations’ bottom line by as much as 1% to 2%.
Another name for what I’m describing is the “feature-value-cost” approach where you measure the relative value of each feature in relationship to its cost in your customer’s eyes. When I’m training value analysis practitioners on this concept I use an automobile as an illustration to get this idea across to them. I show them the features of a car (radio, power windows, power seats, leather seats, GPS, etc.) and then I place a value (and rank and prioritize) each of these nice to have, but not essential to providing transportation for my students. When I get to the GPS that cost $1,500 no one in my class says they must have this feature. Why, because the relative value of this feature in relationship to its cost is too high in my student’s eyes.
It’s the same with products, services and technology that you are buying. A few years ago, one of our clients performed a Feature-Value Analysis on new hospital electric beds they were buying. They had their nursing staff list, rank and prioritize the features of the beds in relation to their costs. By doing so, this hospital shaved $3,233 off the beds’ original cost with just a few hours work.
I could site hundreds of examples of how our clients have used the “feature-value-cost” approach to reduce their supply cost by 1% to 2%. Moreover, if you go one step further and utilize the total value analysis methodology (called functional analysis) to measure the relative value all of the products, services and technologies’ primary, secondary and aesthetic functions that you are buying, you can up this savings to 3% to 5% .
Transitioning from price to a functionally-driven approach to cost reduction isn’t easy, quick or free-form in nature but it’s one sure way to keep your saving machine humming, now that your price savings are slowly disappearing. Don’t miss this opportunity for sustainable, incremental and continuous improvement in the reduction of your supply chain expenses. Or, you too could risk your well running dry on your savings!
Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® in Healthcare