Elevate your benchmarking for greater accuracy, reliability, and insight.
A recent survey by CAPS Research (co-sponsored by Arizona State University) of supply chain leaders indicated that there is a shift in benchmarking for greater accuracy, reliability, and insight because: (1) Analysis and summary of important metrics is regularly pulled up the hierarchical structure for review by executives, and is appearing more frequently in the C-suite, (2) Data has made a significant move toward a more prominent and visible place through the entire organization, and (3) Business (including healthcare) climate volatility is putting immense pressure on supply chain management to provide richer, longer-term views of operational efficiencies, internal customer alliances, and supplier relationships. So what does this mean for your own supply chain expense and operational benchmarking efforts?
Elevate Your Benchmarking
Up to this point in time, supply chain benchmarking has been limited almost exclusively to price at most healthcare organizations. While price benchmarking is a good starting point to understand the principles and practices of benchmarking, to stay relevant, you need to elevate your benchmarking beyond price. This is what your senior management is looking for; more efficiencies in your supply chain operations to contribute to their bottom-line. These new layers of benchmarks will require even greater accuracy, reliability, and insight so that they are credible and actionable. The first layer of new benchmarks you need to develop is supply utilization. This is without a doubt the most important benchmark you can employ, next to price, to increase your savings yields by 7% to 15%. Why is this important? Based on our research, most healthcare organizations have less than one percent in new savings left to be achieved for most hospitals, systems and IDN’s.
Just the other day, we performed a PriceCheck for a new client of ours and found that they only have .05% in new savings to rein in before they have no new price savings whatsoever. On the other hand, we identified 11% in new supply utilization savings for this client to keep their savings machine humming. I’m sure you can relate to this story.
It is now mission critical that supply chain professionals develop metrics to enable them and their value analysis team(s) to “dive deep” inside their supply chain expenses to begin new conversations with their department heads and managers. For instance, if you are running $1.90 per CMI patient day on your isolation gown utilization and your peers are averaging $1.33, this gives you an opportunity to talk to your nursing personnel about why your hospital is different. Also, shadow your isolation gown customers to understand their current policies, nuances, and practices. By following this path, it won’t take you long to determine the reason for this utilization misalignment. This is what we are talking about when we say “dive deep” into your supply chain expenses. This can’t be done by sitting behind your desk; it requires a proactive approach to root out these unnecessary and unwanted costs.
In this era of healthcare reform, it’s becoming even more critical to identify your peers’ best practices and best-in-class indicators to dramatically improve your supply chain expense management performance. Remember, the classic definition of benchmarking is the search for best practices.
This is why we advise our clients on best-in-class practices we have observed when they are investigating any particular commodity group. If our clients are investigating their I.V. sets’ consumption irregularities based on their unfavorable metrics, we always make our clients cognizant of the fact that 87% of the time their time labels practice (i.e., not labeling at all) is the culprit. This makes our client’s savings job much easier, and yours too, when you have a best practice check list to guide you on everything you buy.
How can you acquire this same information? When you have identified a peer hospital that has a lower in-use cost than your hospital, like our example of isolation gowns, make sure you understand in depth how your peer hospital is making this happen. In our isolation gown case study, we have discovered that this hospital uses reusable cloth isolation gowns vs. disposable to achieve their low cost of $1.33. This usually is the reason why your costs are much higher. Once you share this information with your isolation gown customers, it shouldn’t be too hard to initiate a pilot study to determine if this is your problem.
Road Less Traveled
What we have described here isn’t what the typical hospital, system or IDN is doing today. It is the road less traveled by most supply chain organizations. Yet, it is the future of supply chain expense benchmarking. No longer will price benchmarking alone keep your savings machine humming. Only by elevating your benchmarking with new layers of data, metrics, and a best practice library will you be able to move to the next level of savings performance. More importantly, it will make it easier for you to justify or sell your customers on the need for change — now!