Being Smart About Standardization
Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® in Healthcare
In most supply chain circles the word standardization is synonymous with savings, or is it? It’s been our experience that standardization will save your healthcare organization money up to a point, but then it will cost you money – big time!
I can make this bold and controversial statement since we have seen this occurring numerous times with hospitals we have worked with over the last 24-years. I.V. sets are a prime example of this value mismatch. Based on our observations, hospitals are standardized to one manufacturer of IV sets house-wide which is a good thing. Yet, these same hospitals tend to take this philosophy one step further by standardizing (or one size fits all) on one primary I.V. set throughout their healthcare organization at an average cost of $5.60 per unit. Whereas a customized (or made to order) approach of providing the right I.V. set to their customers would only cost $3.71 per unit, since all hospital departments don’t need the same functions or features. This is a savings of a whopping $1.89 per unit (34%)! For a typical 200-bed hospital this equated to $36,000 a year in savings.
To give you another simple example where over-standardizing is occurring in hospitals is in their use of the IV Start Kits, which now often includes a costly IV securement device. We see the value in IV securement devices, but they were designed for long term IV placement — only. The rub here is that we now are seeing hospitals standardizing on one IV Start Kit with an IV securement device for the entire hospital, even in their outpatient surgery departments, that isn’t functionally or medically necessary. From a cost standpoint these IV Start Kits with an IV securement device cost in range from $3.00 to $4.50 vs. an IV Start Kit W/O a securement device that can range from $0.65 to $1.25 per unit. We estimate that this common standardization practice is costing hospitals unnecessarily up to an 80% more on 20% of their IV Start Kit with securement device purchases.
Now don’t get me wrong, I’m not against smart standardization by manufacturer where rebates, incentives and GPO compliance do matter, but not inside your product lines where customization vs. standardization is the key to extra incremental savings for you.
This is a new philosophy that is hard to grasp at first, until you actually study and evaluate the functional (primary, secondary and aesthetic) requirements of every product, service and technology you are buying. You will then quickly recognize that one size product, service or technology doesn’t fit all of your customer’s requirements. Some customers will require more functions and features to satisfy their work essentials, while others will need much less. That is why customization vs. standardization saves dollars and makes good business sense!