Category Archives: Healthcare

Key Takeaways from the UL Product MindSet Study, Part I

Yesterday’s post conveyed some Interesting Facts and Figures from the UL Product MindSet, a recently released study that quantitatively surveyed 1,195 manufacturers and 1,235 consumers across a range of export and import markets in high-tech, building materials, food, and household chemicals. From these findings we will attempt to interpret where global manufacturing is going — and needs to go.

1. Global Manufacturing is going to continue to rise.

Not only did the top 10 export markets produce approximately 9.489 Trillion in exports in 2010, not only did growth rise an average of 13% in developed economies and 17% in emerging economies, and not only did manufacturing supply chains continue to increase to the point that an average product required 35 different global contract manufacturers, but 50% of manufacturers are still projecting, and endeavouring to increase, sourcing from additional countries. The reality is that many large multinationals, despite the increases in transportation costs brought on by the rising cost of oil, are still finding ways to make global sourcing profitable (and won’t leave the bandwagon until it breaks down to the point that it is irreparable).

2. Global Manufacturing, like Global Trade, is a Two-Way Street.

If one looks at the top exporters and top importers list, 9 of the top ten 10 countries on each list match. If an organization is going to manufacturer and trade globally, then the organization has to walk both sides of the fence and master both the importing and exporting game.

3. Going Global for Healthcare is Making More Sense by the Day

Not only is healthcare often cheaper and better in developing countries like China and India (where they have four times as many geniuses as the US), but when one considers that most of the medical devices and medications are coming from there anyway, and that the rich industrial centres have doctors that have training and equipment that rivals the training and equipment available to leading doctors in North America (and Europe), maybe an individual should go to India and pay out of pocket rather than risking his or her health (as he or she waits for 6 months to get treatment) and his or her financial solvency (as he or she waits to see if his or her co-pay coverage will kick-in or not). And if he has heart issues, the world-class Narayana Hrudayalaya Hospital in India probably beats the hospital down the street.

4. Selling Globally Is Starting To Make More Sense Than Selling At Home

China and India have four times the consumers, and China in particular is spending more on high-tech (and luxury) items than the US. And the general commitment to saving and financial solvency in Asia (as compared to the general commitment to borrowing from tomorrow to enjoy today that is prevalent in North America) means that that they have the money to spend if there is a product they want.

Come back tomorrow where we share our fifth, and final, takeaway from the Interesting Facts and Figures from the UL Product MindSet.

How Can the NHS Find 50% More Savings?

A recent article over on the BBC News site notes that NHS hospitals [have been] told to seek 50% more savings by a regulator. A number of factors are being blamed for the target, including greater-than-expected inflation, but regardless of the reason, if the NHS doesn’t find savings of at least 6% to 7% a year, it could be in trouble, as it needs to make up to Twenty Billion Pounds of efficiency savings by 2015 to reinvest in care.

So how can the NHS find more savings without sacrificing services, with wait times that are already at a 3-year high, even further?

The obvious answers are:

  • streamline the supply chain and
  • improved GPO performance for prescription and specialized equipment buys

but the real answer is probably:

  • stop buying like a government agency!

I’m not as familiar with the UK buying rules as I am with the Canadian buying rules, but many jurisdictions within North America, the UK, and Australia / New Zealand have the following rules that do nothing but increase cost, decrease efficiency, and put quality of product and service in jeopardy:

  • bids over some random amount must be public and go to the lowest bidder,
  • you must be on a standing offer before you can bid, and/or
  • past performance cannot be used as a determining factor in the award decision.

Let’s take these one by one:

Bids over some random amount must be public and go to the lowest bidder.
Whoever thought this was fair and/or efficient is a moron. While it makes sense to allow any vendor who can competently provide the service to bid, letting every vendor, and his little dog too, bid is ludicrous. What happens is you get consulting organizations with no appropriate skills whatsoever putting in bids in the hope of getting more work, who, if they get the bid, will then flail madly to hire whomever is available to throw on the project. Half of these people will be unsuited for the job and they’ll have no experience working at a team. Furthermore, many organizations that subsist on government projects have mastered the art of the “change order”. They’ll agree to do “X” where “X” sounds like it is what you want, but really isn’t, and then to get what you really want, because of the tight contract, you’ll have to pay a ridiculous amount in change order fees, and the result is that the net cost will be more than the highest bid, and significantly more than the lowest bid from a competent, honest, vendor.

You must be on a standing offer before you can bid.
This generally takes a lot of time and effort, and is not a good use of time for most private organizations as standing offers only allow you to get no-bid work for an amount not worth it for the effort, or bid for projects you might not get. Proper procurement practice should be to put out a call for participation specific to a project, and then qualify organizations who can bid, not force an inefficient process that wastes nothing but time and money.

Past performance cannot be used as a determining factor.
This is my favorite. Whomever thought this was fair is a complete idiot. How is it fair to penalize competent vendors again and again by allowing an incompetent vendor to repeatedly bid, and, if the low-bid rule is in place, win projects that everyone knows the vendor cannot do at that price point. All that happens is that millions of dollars of public money gets wasted. How is that fair?

So if the NHS really needs to increase savings drastically, my advice would be to identify any buying practices that were inspired by government procurement, and not the private sector, and axe them.

A Great Case Study on Spend Analytics in Healthcare

Health Leaders Media recently ran a great study on Spend Analytics that is a must read for any (health care) organization that doubts the savings opportunities that a good spend analysis tool can discover. In elevating the spend analysis function, the author clarifies that when it comes to effective capital management at your hospital, a spend analysis is the under-utilized tool that can transform your bottom line and bolster the strategic vision of the hospital.

The case study, about the Mount Sinai Medical Center in Miami Beach, FL, demonstrated how the project management office was able to employ spend analytics to quickly transform a an operating loss of 15.7 Million (in 2008) into a net surplus of 14.5 M (in 2009). What was a negative operating margin of 3.2% quickly became a positive operating margin of 2.95% for a total improvement of 6.15% in operating margin, which is very significant in a trouble economy. Plus, continued use led to even better results in 2010,when the hospital posted a 9.3% operating EBITDA margin.

For more details, see the case study on elevating the spend analysis function, but the message is clear. Spend analysis saves.

Health Care Costs, Working Capital Improvement and Supply Management in the Same Sentence?

Today’s guest post is from Sudy Bharadwaj, ex-analyst extraordinaire of the Aberdeen Group, former VP of MindFlow, former CMO of Informance, and, most recently, a star at Inovis.

A previous post showed that top performing companies among the US-headquartered 1000 companies, as measured by Days Working Capital (DWC) improvement, focus on all three sub-metrics of DWC:

  • DSO – Days Sales Outstanding
  • DIO – Days Inventory Out Standing
  • DPO – Days Payables Outstanding

The data, as compiled, analyzed and reported by CFO Magazine(c)also performs an analysis on the above metrics by industry sector. The top culprits, or bottom three performers, as per Table 1, were in Healthcare Equipment and Supplies, Biotechnology, and Life Sciences Tools and Services. Two other sectors, Pharmaceuticals and Health Care Technology were in the bottom third percentile of all 59 industry sectors (GICS Industry Level). All these industries can be classified as health related industries (HRI).

Table 1: Days Working Capital by Industry Sector

Causes

While many enterprises are different, thus requiring customized initiatives to improve working capital performance, a detailed look into the three sub-metrics yields the fact that HRI sub-sectors (other than pharmaceuticals) fall in the bottom third percentile of all industries in DPO, Table 2.

Table 2: Days Payables Outstanding by Industry Sector

To sum it up, HRI organizations, on average, pay suppliers much quicker than the average of all sectors — in some cases more than twice as fast as the overall average. The question can be asked: “why do these organizations pay their suppliers/sub-contractors so quickly”? Based on the very nature of HRI — highly proprietary and cutting edge products, and based on reviewing detailed SEC filings, the following conclusions can be made:

  • Some strategic materials are sole sourced,
  • Outsourced R&D (including clinical trials) and,
  • A reliance on favorable fluctuations in the strength of the US dollar

One can surmise that suppliers to HRI are very strategic and hold strong leverage to their HRI customers.

All point to the fact that this sector, perhaps like no other requires strong and senior-level attention to supply management initiatives.

Conclusion

One can conclude that in HRI, the suppliers hold the leverage in these relationships, which means it is paramount for HRI organizations to proactively approach supply-management in a collaborative manner that encourages mutual benefit. Of the various known strategies, two come to mind:

Leverage early-payment discounts: This strategy may already be occurring. HRI finance teams must perform a cost-benefit analysis to determine if taking advantage of early-payment discounts yields stronger returns vs. freeing up working capital.

Supply-Chain Finance: Potentially the best strategy since neither organization’s working capital is adversely affected. Again, a cost-benefit analysis must be performed to determine if any new finance charges yield stronger returns.

In general, enterprises in the HRI sector may wish to address the question:

How Do We Improve Each Other’s Working Capital Without Adversely Affecting Other Financials?

Thanks, Sudy.

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Should the US Insource It’s Nutrition and Health Care from India?

I loathe saying it, but I think the US should import India’s bright entrepreneurs and their organizations to manage it’s healthcare and nutritional programs.

In the US, 31% (or 1 out of 3) of people are obese (which is defined as 30 pounds or more above a healthy weight range) and 65% of people (or 2 out of 3) are either overweight (at least 10 pounds above a healthy weight range) or obese. Current projections put obesity at 40% (or 2 out of 5) within 5 years. And these statistics are almost as bad for children as they are for adults! (And you can’t blame TV and lack of physical activity. Nutrition and diet has a greater effect on weight than exercise, which has a greater effect on overall health and stamina. The problem is that the average American consumes too much sugar. The Bitter Truth is that variants of bad sugar are in everything these days.)

Part of the problem is the US school lunch program, and its insufficient funding, which leads to purchases of cheaper, junk foods (including processed chicken nuggets, etc.) in place of more expensive, healthier foods. And while the Improving Nutrition for America’s Children Act seems like a good start, you just know that most of the additional funding will get eaten up in administration costs. (And even if this doesn’t happen, I have to agree with Gordon Jenkins that the funding being allocated just isn’t enough.)

Then there’s the state of healthcare in the US, which is dismal if you don’t have pricey private insurance, and still over priced if you do. In fact, despite the fact that the USA leads in GDP, and should lead in healthcare innovation, the World Health Organization has it’s health care system ranked at 37! To put this in perspective, Costa Rica is 36, Saudi Arabia is 26, and Oman is 8 — which are not countries your average American would think of as ranking high in health care.

In comparison, India has the 1,000 bed Narayana Hrudayalaya Hospital with a team of 40+ cardiologists who perform about 600 operations a week for an average charge of $2,000 — at a success rate that rivals the best American hospitals. By employing Henry Ford’s management principles to create a combination of economies of scale and specialization, Devi Shetty has developed a system that can drastically reduce the cost of surgery. If the principles were applied to other areas of medicine, imagine the efficiencies, cost savings, and success rates that could be achieved. (After all, now that hospitals are starting to use before-and-after surgical checklists, success rates are soaring and infection rates plummeting.)

And while that’s impressive, what Akshaya Patra is managing to do is even more stunning! For a mere $28 each, they are managing to provide over 1.2 Million children in school with a healthy lunch (which might be the only complete meal they get that day) every day for the entire school year. By leveraging appropriate technology in cooking and delivery, local markets, and designing for scalability, the public/private/NGO partnership is achieving economies of scale that have not been achieved before — and proving that a healthy student is a successful student. The increased quality of the lunches provided have led to increased enrolment, better health, and improved performance (that is 13.8% better, on average, for boys and 34.2% better, on average, for girls).

Compared to India’s success, the US looks like a third world country. Maybe the US should be insourcing from India.

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