We all want to obtain the “best price” for all of the commodities we are buying for our healthcare organization. It’s a matter of pride, due diligence and professionalism for supply chain managers to do so. Yet, we have found that price is actually the smallest element (21%) in the total life cycle cost of the products, services and technologies you are purchasing.
A much bigger cost component that needs to be controlled at your healthcare organization is what we call “Demand Management” or measuring the velocity, intensity and frequency of the products, services and technology utilized over time. As an illustration, if your hospital is buying a catheter tray at or below market pricing, but you are utilizing 10x the catheter trays (volume adjusted) than your peers, are you really saving any money? Obviously, the answer is no: You are spending 10x more than is necessary on these catheter trays, from our experience, 98.6% of the time.
Just as important, our clients are telling us that by having this demand data at their fingertips they are able to spur their physicians and department heads into action. One of our client’s anesthesia trays jumped 21% percent (or $8,297) in frequency, over five quarters, even though their patient days (CMI-adjusted) for this same period were actually down by two-percent.
This undisputable fact, driven by data, enabled our client’s material manager to start an open and collegial dialogue with their anesthesia department to understand, comment and then receive feedback from them on this obvious anomaly. In this situation the anesthesia department quickly discovered the reason for this variance; their staff was throwing out about 20% of their disposable anesthesia trays because the spinal needles were falling out when they opened a new10-pack case of trays due to defective packaging. Happily, this was a no-brainer for the materials manager to solve this problem.
This same material manager meets with his hospital’s department heads on a quarterly basis to review their department’s demand data which he shows them graphically. He credits this practice of not only holding his supply budget in line. It also alerts his department heads that someone is looking at their demand patterns, since he and they know what is measured…happens!
In brief, we all need to strive to have the “best price” on everything we buy, but our job shouldn’t stop there since price is just the tip of the iceberg. Beneath the iceberg is where 79% of your supply cost resides. Only by tracking, trending and visualizing these huge hidden costs can you actually reduce your supply chain expenses to an absolute minimum.
Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® in Healthcare