Robert Yokl — Price in the New Healthcare Economy

All supply chain professionals are looking for ways in the new healthcare economy to stem the tide of the impending red ink on their healthcare organization’s bottom line.  Most are doing so by squeezing the last dollars out of their supply chain expenses by aggressively attacking price. While price savings is an important factor, there is even more savings to be achieved by focusing your cost reduction efforts on how your department heads and managers are employing the products, services and technologies they are buying.

 

By way of example, we are now working with a hospital that has obtained an excellent price on their paper and toner, but we have determined that they are over utilizing the pounds of copy paper and toner per worker by $17,936 annually. This utilization misalignment* is being caused by a low worker-to-printer/fax ratio and not networking their computers to high speed copiers, which is the lowest cost option for reducing any organization’s copier and toner cost. We have actually made this same worker-to-printer/fax ratio adjustment in my own office, so I know from personal experience that this strategy actually works in practice as well.

Coca-Cola, who has employed this same strategy, is projecting savings of $11 million over the next five years. This is being accomplished by swapping out 6,000 printers and fax machines from 16 different vendors, for 3,800 new machines from one vendor, including high-speed laser printers that will be shared by up to seven people.  It’s been our experience that healthcare organizations don’t need to buy all new printers and fax machines as Coca-Cola is doing to make this big leap forward in savings, but it does make sense to right size all of your printers and fax machines with one vendor if you want to take full advantage of this cost savings strategy.

My point here is for every dollar you are now saving on your supply expenses related to price, there is still 29 percent to 47 percent more to be saved beyond price in utilization savings per commodity group. We have proved this salient fact with every client we have worked with over the last 10 years. The client I just talked about will save 27 percent in paper and toner utilization that is ready to be harvested. So don’t stop with the best price savings when searching for new ways to reduce your supply chain cost if you want to truly wring the towel dry on your non-labor expenses.

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 By Robert T. Yokl, Chief Value Strategist, Strategic Value Analysis® in Healthcare, www.strategicva.com

* If you would like to learn more about the best practices in utilization management you can order my new book “Healthcare Supply Utilization Revolution” at no cost to you at www.strategicva.com.