Supply LifeCycle Cost Management TM

As this issue of HVAM suggests, the new healthcare economy is all about saving time, controlling costs, improving quality, and expanding the scope (population management) of your healthcare organization’s services. It is our opinion that the best way for supply chain professionals to meet these multifaceted challenges is to embrace the concept of Supply LifeCycle Cost Management™. 

This LifeCycle concept encompasses the management and control of the beginning (value analysis), the middle (utilization management), and the end of a product, service, or technology’s useful life (economic and ecological disposal). This concept is important in the new healthcare economy since our goal now is to lower the total cost of our patients’ stay, visit, or procedure (while maintaining quality service), not to focus only on the price of the commodities we are buying. 

Price is the smallest cost element in the LifeCycle equation. If you look at the LifeCycle cost of an I.V. pump over five years, you will find that the pump itself costs a few hundred dollars to purchase, the pump sets themselves cost hundreds of thousands of dollars over five years, and the disposal cost of the pump at the end of its useful life is minimal.

Where is the highest cost in this LifeCycle case study? It’s in the in-use or utilization cost of the I.V. sets over five years. This proves my point that the future of supply chain management is not to search out a better price (GPOs can do that for you), but to double your efforts to identify lower cost alternative products, services, and technologies through your value analysis process. Then, manage and control how your commodities are utilized and finally limit the cost of disposal after its useful life.

Another way to put this is that it is now mission critical for you and your staff to manage and control the total costs of the products, services, and technologies you are purchasing. Why? Because this is how a large percentage of your healthcare organization’s revenues are being contracted for (i.e., fixed contract cost), and this practice will only grow in the future. You need to look holistically at where your LifeCycle costs reside and then whittle away at these costs until they are much lower than the fixed costs for any of your healthcare organization’s services.

A new day is dawning for supply chain professionals! It’s a time when you can make a major contribution to your healthcare organization’s bottom line. You can move from a service department to a revenue contribution department, if you decide to embrace the LifeCycle concept I just discussed. Those who decide to ignore this message will find themselves at a distinct disadvantage, since only the profit contributors, as I see it, will be left standing in the new healthcare economy we live and work in.