Every house has at least one. You usually find it in the basement, or on the first floor or garage if you don’t have a basement. It’s so inconspicuous that you might not know where it is.
Until it breaks down. One day you might be taking a shower and suddenly you get hit with an onslaught of frigid water. You let out a shriek, reach down to turn off the shower, grab a towel, dry off and stumble toward wherever you think it is…
… the water heater.
When you finally find it and take a good look at it, you discover that it was manufactured in 1978. The bottom is rusted out and you find yourself dreading the call to the plumber because you know that he is going to charge you and arm and a leg to disconnect it, drag it across the floor, leaving a trail of rust-colored sludge in its wake, then go to a big box store to select a replacement, install it and leave you with a second bill larger than the first.
You clench your teeth, close your eyes and write the checks.
Two months later, you start to see something. Your gas or electric bills (depending on what kind of water heater you bought) are noticeably smaller than before. In less than a year you recoup your investment in both the plumber and the water heater.
The savings had been there all along, but you waited until the heater broke before taking action.
Why? Because until it broke, the old, inefficient water wasn’t causing any problems.
Until it broke, you didn’t even know it was there.
So suppose you’re a healthcare Supply Chain Leader in 2020…
… Your IDN has watched as the interruption of elective procedures coupled with the geometrically exploding consumption of Personal Protective Equipment (PPE) had a double direction effect on profitability- revenues way down, expenses way up. Senior leadership is panicking. Mandates are forthcoming- get expenses down.
NOW!
And oh yeah- Senior leadership doesn’t want you running out of PPE any time soon, so they summarily direct you to make sure you maintain a three month supply of 25 key SKUs at all times- without any understanding of our limited space, or the complexities of stock rotation.*
So you sigh, sit down, throw your hands up in despair and wrack your brain to come up with a strategy. Historically, the strategy has always been the same- get better pricing or reduce FTEs. The problem with the first part of that approach is this: If you get a 10% price improvement on an item, but the demand goes up by 300%, guess what?
Expenses are going to increase, not decrease. Add to that the fact that you have been ordered to keep three months’ worth on hand, and cash flow is going to take a gigantic hit as well. You are already strapped for human resources. You actually need to add bodies, not reduce them.
What are you going to do?
That’s when you remember your cold shower at home and the opportunity it presented. Perhaps there is a similar opportunity in your supply chain- something that you have overlooked and taken for granted for so long that you have never even suspected that there was money to be saved.
As you think about the water heater opportunity, you realize that it was a three-step process:
Right now, you are at Step one: Something has happened. The Coronavirus pandemic has placed an extreme strain on the profitability of your healthcare organization and you have been tasked to take costs out of your operation ASAP. You have tried everything you can think of to immediately impact operational costs. You have tasked your contracting folks to “get better deals”. You have looked to see where you might be able to identify other opportunities, and you know intuitively that there must be places that either you haven’t looked or that you do not possess the skill sets to review effectively.
The shower hasn’t turned cold, but you know you need to contact a plumber.
Step two: Find an Expert. Many supply chain leaders find themselves at a loss when they are asked to step outside their realm of comfortability. By that, I mean outside of the functions they themselves are most routinely involved in. In healthcare, those functions most generally involve interactions with clinicians, not logisticians. A large part of your time is spent trying to identify what products to buy and from whom. Sourcing and Contracting are important. You work with Value Analysis teams comprised largely of end users. You work with Group Purchasing Organizations and Regional Purchasing Coalitions to ensure that you are getting the best possible prices you can. You employ specialty buyers to address the Physician Preference Items (PPI)- those things that are often clinician-specific and represent both a high cost and a low opportunity to standardize on. You spend your time trying to satisfy end-users and avoid getting yelled at. At a macro level, you focus on inventory management both in the storeroom as well as at the point of use. You may have addressed your distribution costs by “going stockless” with a major distributor who will let you pare down your inventory to a small safety stock level, take your orders daily, put them in totes, deliver them to your dock for your staff to take to the point of use. In return for the convenience, you pay a mark-up on the lines pulled and delivered.
The more you look at the opportunities that may be out there, the more you begin to believe that your “water heater” may be your distribution/fulfillment process- one that begins when an order for a SKU is sent- either from the point of use to the storeroom of from Purchasing to the supplier or distributor.
You research experts in the process and search for the best
That’s where St. Onge comes in. From our inception in 1983, the St. Onge Company has aspired to serve our clients’ best interests by creating highly effective solutions which exceed expectations.
Through our design process, we perform an intensive level of due diligence to learn our clients needs. Site tours, detailed interviews and data drive the models and simulations we use to develop a thorough understanding of our client’s day-to-day activity from an efficiency perspective. This process validates our understanding of the client’s issues and provides the foundation for developing the relationships required to create innovative solutions.
St. Onge Company has grown steadily and developed a client list that includes many Fortune 500 companies and several world-renowned institutions. We have completed approximately 5,000 assignments for over 1,000 clients located through- out the United States, Canada, Mexico, the United Kingdom, Europe, the Middle East, the Far East, China and South America.
Our past projects cover a wide variety of Institutional, Commercial and Industrial applications for clients such as Johns Hopkins Hospital, Dana Farber Cancer Institute, MD Anderson Cancer Center, Rush University Medical Center, Duke University Medical Center, St. Jude Children’s Research Hospital and King Saud Abdul Aziz Hospital, as well as with their architecture firms. For these clients, we have developed a strong familiarity with the challenging logistics and related real-time issues associated with hospital operations, including campus supply chain strategies, materials management master plans, departmental optimization, facility designs and information systems to plan, direct and coordinate the movement of materials. Some of these solutions are highly automated; all are highly effective.
If you find yourself at Step Two, please contact St. Onge. Our experts stand ready to take a look at your operation and find the opportunities you may have overlooked. You can reach me at fcrans@stonge.com or call me at 563-503-1847.
*More on that in a future article.
Next up: Where the opportunities are and how to measure them.
–Fred Crans, St. Onge Company
