What you need to know before you hire an expense reduction consultant.
Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. - Sun Tzu (Chinese General, circa 500 BC , “The Art of War”)
One of the more frustrating times in the life of a consultant occurs when you follow after a competitor into an engagement: when you believe that the competitor has done a disservice to the client. When viewing the work of one of your peers it is poor form to point out what you believe to be incompetence or sloppy work. By definition competitors compete, so pointing out the shortcomings of another firm can appear to be tasteless and aggressive marketing behavior. Often you’re forced to frame your observations in a manner that while being appropriate to the client’s condition, allows them to contrast and compare your work to your competitor’s product, i.e. lets them draw their own conclusions with help. Unfortunately the prior damage done by some firms can make this a difficult task.
The peers for whom I have the greatest respect are supply chain professionals based in industries other than healthcare, where expectations of supply chain performance are very high and related decision making is performed within a strategic framework that engages most if not all of the senior management team. However, as a specialist in healthcare supply chain I am often dismayed, though not surprised, at the level of ignorance of the discipline by healthcare’s senior level managers - few have any training in the field - and how easily consultants with little formal training themselves exploit that ignorance. More often than not I see “final reports” that contain little more than a litany of tactics that cannot by themselves deliver any long-term results. Many times these clients have spent millions of dollars for essentially short term (2-4 years) financial swings.
There are a few points that every senior executive in healthcare should know before they hire their next expense reduction consultant. Knowing these points should raise your level of expectations and improve your chances of achieving long-term results.
Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. - Sun Tzu (Chinese General, circa 500 BC , “The Art of War”)
One of the more frustrating times in the life of a consultant occurs when you follow after a competitor into an engagement: when you believe that the competitor has done a disservice to the client. When viewing the work of one of your peers it is poor form to point out what you believe to be incompetence or sloppy work. By definition competitors compete, so pointing out the shortcomings of another firm can appear to be tasteless and aggressive marketing behavior. Often you’re forced to frame your observations in a manner that while being appropriate to the client’s condition, allows them to contrast and compare your work to your competitor’s product, i.e. lets them draw their own conclusions with help. Unfortunately the prior damage done by some firms can make this a difficult task.
The peers for whom I have the greatest respect are supply chain professionals based in industries other than healthcare, where expectations of supply chain performance are very high and related decision making is performed within a strategic framework that engages most if not all of the senior management team. However, as a specialist in healthcare supply chain I am often dismayed, though not surprised, at the level of ignorance of the discipline by healthcare’s senior level managers - few have any training in the field - and how easily consultants with little formal training themselves exploit that ignorance. More often than not I see “final reports” that contain little more than a litany of tactics that cannot by themselves deliver any long-term results. Many times these clients have spent millions of dollars for essentially short term (2-4 years) financial swings.
There are a few points that every senior executive in healthcare should know before they hire their next expense reduction consultant. Knowing these points should raise your level of expectations and improve your chances of achieving long-term results.
1. As the lead-in to this article implies, there are supply chain strategies and supply chain tactics. Every senior manager needs to know the difference. Irionically, most do understand the difference in strategic vs. tactical nuances when it comes to matters such as marketing and building plans, but somehow lose their focus in other matters. For example, focusing on low unit pricing is a tactic, not a strategy. There are other ways, often more successful ways, to contract for bottom line results. Organizations need to conduct a formal supply chain strategic planning session at least annually to confirm and adjust their strategy and outline planned tactics. Key stakeholders should participate and afterwards be able to articulate the strategy and tactics for their organization’s supply chain. The initial meeting may be an all day affair. There is a lot to consider. This day will pay many dividends. Supply chain strategies should reflect and support an organization's overall strategic plan. Tactics to achieve intermediate goals may vary, but they must be created in support of a long-term or global strategy.
2. High supply expense is not a problem, it is a symptom. Allowing a consultant to renegotiate existing contracts to lower unit prices may mask the symptom in the short-term, but does nothing for the problem.
Fixing bad prices can be analogous to taking aspirin for a headache when you have a brain tumor. The fundamental questions that must be addressed are how did bad prices occur in the first place, and what assurances are there that they won’t begin to return as soon as the consultant is gone? Cure the problem.
3. Supply Chain is not a department. It is a management function and an ongoing process.
The best analogy that I can offer is the area of Human Resources. HR is both a department and a management function. HR pre-qualifies candidates for hiring, but the department manager participates in final selection. Neither side operates in a silo. Teamwork is assumed. HR develops policies that guide the rest of the organization in matters of employee relations. But, the actual contact with the employees is usually the responsibility of the individual managers and supervisors. Sometimes the rules change and HR has to make sure that every manager is up to date. Supply Chain should be operating on a similar platform: offering system-wide guidance, expertise and vision to all stakeholders. And all managers are stakeholders. Processes that are solely driven by a Supply Chain Department usually don’t work, or are marginally effective at best. Unless all managers are involved, including the senior team, supply chain performance will be mediocre.
4. Measurement against some national benchmarks is great, but not good enough.
Unfortunate side effects of measuring against benchmarks can be “we’re average – we’re OK” or “Heck. We’re so far off that mark we’ll never get there. Something must be wrong with the data”. In either case the benchmark has not helped. However, if you’re not working towards measurable goals and objectives your supply chain performance will not be particularly good. It is recommended that organizations start with a benchmark, but then measure against themselves working towards continuous improvement. Every supply decision that is made should be made within the context of how it affects whatever unit you’re measuring.
One set of benchmarks is never enough. There are multiple facets to a supply chain. Market intelligence needs to be developed that addresses every facet. Knowing that your supply expense per admission is higher than some other organization’s is useless information unless you grasp the underlying causal agents. Are your unit prices out of line? What is your length of stay compared to your peers? How does the cost per day compare? How do you compare to peers in specific procedures and departments?
5. Someone will control your supply chain. Will it be you or your suppliers, or you and your suppliers? Unless formal and rigorous processes are in place the suppliers win sole control by default. As a group, medical salespeople are better trained, organized and more specialized than most healthcare professionals. Many organizations put up a single mid-level supply chain manager with a sign-in sheet in the lobby against an army of highly trained marketing professionals: each with a special focus. Guess who wins? An adversarial attitude towards suppliers presupposes that someone has to lose.
I would expect a supply chain improvement engagement to deal with this last issue head on. Few do. Why? This is the ugliest and toughest aspect to fix with no immediate dollars that can be attributed directly to it. Yet, dealing with this is probably the largest single cost control with long term implications that can be implemented.
Knowing what to expect from an effective supply chain improvement engagement can go a long way in assuring that your organization will achieve the desired results. Organizations that have historically made poor decisions in the supply chain arena need to be careful to not make another poor choice when they decide to fix the problem.
Download this article
