Understanding your healthcare organization and that of your competitors
How do you know if your people, products, and processes are world class or just so-so? How do you know if there is more savings available in your supply chain expenses? How do you know when you have squeezed the last dollar out of a specific supply chain expense category? This is the essence and foundation of benchmarking: Understanding your healthcare organization and that of your competitors.
All improvements, of any kind, come about through the awareness that there is a better way to do things. This mindfulness can be manifested through observation, prior experience, or benchmarking. However, since our observations and experience is always limited to where we have worked before this leaves a lot of gaps in our knowledge about what has proven to work best in any situation.
This is where benchmarking (i.e., the search for best practices) comes into play. It fills our knowledge gaps by measuring how our competitors are managing their people, products, and processes much better than we are doing. For instance, we are observing that hospitals with the lowest per patient day for examination gloves have returned to vinyl gloves as their best practice. Do you know this is an emerging best practice?
I can assure you that if you aren’t benchmarking your examination glove usage per patient day (and all other commodities that you purchase) against your competitors’ cost per patient day, you wouldn’t be aware of this fact. By the way, benchmarking isn’t just comparing metrics with your competitors, it is thoroughly understanding the current practice that your benchmark partner is employing to manage their costs.
Being the best-of-the-best in all phases of your supply chain operations requires you to proactively benchmark almost everything you do. By this I mean that all of your cost drivers (people, products, and processes) need to be monitored and controlled continuously. This might seem like an impossible challenge, but now can be easily accomplished with the power of technology.
For instance, using our technology, we benchmark 294 categories of purchases for our clients on a quarterly basis, along with their pricing and inventory turns. We then create a dashboard where our client can monitor and then control their supply chain expenses.
We also trend and track all purchases, quarter over quarter, year over year, to identify unfavorable utilization patterns that should be investigated. Just recently, we discovered that one of our client’s patient bathing system’s usage per patient day (CMI adjusted) had jumped 39.7% over a two year period, representing a negative change of 126k in increased cost on just this one commodity. Just think of how many commodities you purchase in which the usage has escalated over time, without you knowing it! This is a best practice you too should think about, if you want to be best-in-class in your supply chain operations and your value analysis studies.
Know Your Operations
To effectively benchmark, you need to know your supply chain operations and then assign a metric or measurement to your current process or product to enable you to compare it to a competitor’s metric.
A good example of this concept is the office supplies you are buying. It’s been our experience that most hospitals don’t store office supplies in their storeroom. Instead, they have their department heads requisition directly from their office supply vendor (usually electronically) on an as needed basis. If this is your situation too, then we now understand how you buy your office supplies at your hospital which is the first step in developing a benchmark.
Next, you need to develop a metric to measure the cost implications of your current office supply process if that is your benchmarking goal. We have used the metric FTE/Annual supply expenses for this purpose for the last 17 years with great success. Let’s hypothetically say that your FTE/Annual supply expense is $135 per FTE. Now, you have a metric to measure against your competitors’ cost.
Know Your Competitors
Now that you understand how your hospital buys office supplies and have developed a metric to measure your performance, you need to search out benchmarking partners (at least three at a minimum) to help you search for best-in-class office supply buying practices.
One of the secrets of this process is to search out organizations you believe from your research are on top of their game. Your office supply vendor should be able to introduce you to some of their customers who fit this definition. They might not all be hospital partners; however, this is a good thing since many of the best ideas we now employ in healthcare have come from other industries.
Once you have selected and have an agreement with your benchmark partners, which should include sharing the findings of your benchmarking study, you now need to develop a questionnaire. The questionnaire would confirm the method employed by your benchmark partners to buy office supplies, their FTE count, and annual office supply expenses. You also need to ask your partners what they include in their office supply expenses (e.g., furniture, toner, paper, etc.) so you can compare apples to apples.
The examples given herein were for clarification purposes only, since benchmarking is an art, not a science. You need to practice it over and over again to really get good at it. It’s like learning any new skill – the more you practice, the better you get.
The whole purpose of benchmarking is to reach superior performance or a point in time where you feel you are the best-in-class in some operational area. Then move on to new areas of benchmarking, especially if an area has been problematic, costly, or challenging for you or your hospital.