February 20

The Right Way: Sustainable Targeted Cost Savings

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We can’t count the number of times a hospital supply chain manager has told us that his or her goal is to save 3, 5 or even 10 million dollars in supply chain savings as a one-time event. However, as HealthLeaders media so wisely says, “One-time slashes are not a long-term solution, you need smart, sustainable plans for spending less” to be successful in the long-term.

Smart – Sustainable=Less Spending

One reason this approach to cost cutting doesn’t work over the long-term is that you think you have cut your costs permanently, but these same costs creep back into your supply operations in about a year or two (if not sooner). How do we know this to be a fact? We have frequently seen hospitals hire consultants or form teams to cut their costs in specific categories of purchase (e.g., purchase services, telecommunications, food services, etc.) only to see these same costs sneak back into their hospital’s cost centers over time because no monitoring systems were put into place to prevent this from happening.

To the contrary, it has become quite clear that successful healthcare supply chain leaders are cutting millions from their supply chain budgets permanently, not randomly, by targeting their cuts based on hard data and then monitoring to be sure the savings stick.

The two recognized ways to target your best savings opportunities are as follows:

  • Benchmark with your peers to see why you are different in your major cost drivers (e.g., orthopedics, cardio, custom packs, gowns, etc.) by activity-based costs.
  • Employ historical benchmarks (average of 12 or more months running average activity-based costs) to determine your best savings opportunities. Note: We have found this benchmarking model to be universally accepted by clinicians as real, obtainable, and trustworthy.

Improve Your Value Analysis and Cost Management Teams

Another reason that you need to target your savings opportunities is that your value analysis or other cost management teams don’t have time for “dry holes.” Meaning, your team members could work for months on a study and then find out to their frustration that there is no or very little savings to be achieved. This isn’t a good way to build confidence in your cost management program.

By the way, it’s been our experience that benchmarking (traditional or historical) enables our clients’ project managers to save money (with certainty) on 98% of their cost management studies. Isn’t this the same “hit rate,” you too, would like on your cost management projects?


Tags

activity based costs, benchmark, benchmarking, best savings opportunities, cost cutting, cost management, costs, custom packs, gowns, healthcare, healthcare supply chain leaders, hospital, hospitals, orthopedics, peers, savings, savings opportunities, supply chain, value analysis


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