We assume from our research that just about every healthcare supply chain/value analysis professional understands that supply utilization management should be at the heart of their supply cost containment efforts. This is because utilization management ties together all the key elements (contract compliance, product, service or technology variation, and conforming customer behavior) that should be top of the mind of all supply chain/value analysis managers now that value-based purchasing is more in vogue than ever before. This is where your new supply chain expense savings reside, not in price, inventory, or standardization tactics!
The New Mindset: Understanding the Law of Diminishing Returns
Progressive supply chain/value analysis managers understand the implications of “The Law of Diminishing Returns” on their price, inventory, and standardization savings. This means that the more you increase your time, resources, and effort to obtain new and better pricing, inventory levels, or standardization, you will eventually realize that the gain isn’t worth the effort for the meager savings you are realizing.
This is the state we are in in healthcare today where price, inventory, and standardization savings are at the lowest they have been in decades. And, if you factor in your price increases every year, you will discover that you aren’t saving any money on price, inventory, or standardization in any given year. However, everyone isn’t getting this message!
Hospital Supply Utilization Savings Is the Road Less Traveled
Even though this revelation (The Law of Diminishing Returns) raises its ugly head from time to time in our Optimized Value Blog articles, the Healthcare Value Analysis and Utilization Magazine, and Hospital Purchasing News, we must admit that supply utilization is the road less traveled by most supply chain organizations.
Yet, this topic is given much lip service by our national and regional GPOs, in our supply chain periodicals, and touted by our trade associations as the up and coming best practice. So, I must ask you, when are we as a profession going to hear straight talk from our opinion leaders about how our price, inventory, and standardization savings are scanty (1% to 3% of total supply budget) compared to our supply utilization savings (7% to 15% of total supply budget)? Or, is this subject going to continue to be the healthcare supply chain’s dirty little secret?