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Standardization can be defined as the extent to which hospitals are making use of the same products, services and processes. Due to the sheer number of suppliers and products available in the market combined with a diverse array of end-user preferences, hospital leaders often find they have a variety of similar products and services being used across the organization.
Standardization delivers the following benefits to an organization:
1) Supplier Fragmentation: The use of multiple suppliers providing similar products and services may be a strong indicator for standardization opportunities. A closer review may reveal differences in both pricing and quality amongst the suppliers.
Client Example: Pathstone worked with a large health system that used multiple suppliers for over the phone interpretive services. By consolidating its supplier base through a competitive bid process, the client was able to leverage the health system buying power to negotiate market competitive prices and save over 25% in annual costs.
2) Product Fragmentation: The use of multiple products or services that fulfill a similar need can be another indicator of potential standardization opportunities. Different end-user preferences are a key contributing factor to product fragmentation, which can lead to varying price points for similar products and services. A thorough review of purchase orders or supplier invoice data can be a good starting point to understand the degree of product fragmentation.
Client Example: Pathstone recently reviewed print services for a client and discovered over 40 different copier models being used across the organization, resulting in variable device leases and cost per page rates. A deeper analysis showed over half of the devices had similar functionality but were billed at different rates. By standardizing devices, the client was able to achieve significant savings.
3) Incomplete Category Definition: An incomplete understanding of a total product or service category due to extensive fragmentation can lead to missed opportunities to take advantage of key supplier relationships. If there is a narrow view of a category and its scope, it can significantly restrict the hospital’s leverage in negotiating key supplier contracts.
Client Example: Revisiting our previous example, the key driver behind the client’s fragmented supplier base was its decision to allocate business based on the type of interpretive services, such as in-person, over the phone and video interpretation services. Pathstone worked collaboratively with the client to identify suppliers with capabilities for all types of services, thereby generating more leverage for negotiations with existing and new suppliers.
4) Varying Service Levels: Disparate service level expectations across departments or facilities may also suggest opportunities to achieve cost or service efficiencies. This is often an overlooked identifier but can drive more consistent service delivery at a lower cost overall.
Client Example: In the same example as mentioned above, Pathstone discovered varying break/fix Service Level Agreements (SLAs) for the copiers across departments, resulting in inconsistent service and higher staffing costs due to the vendor’s inability to implement standardized practices. By standardizing and aligning break/fix SLAs with actual needs, the client was able to not only reduce costs but also improve service levels by optimizing staff deployment based on the “density” of areas (the volume and devices at a certain location).
This article was authored by Joseph Jang. Joseph is a management consultant with expertise in healthcare supply chain, non-labor cost reduction and performance improvement at Pathstone Partners.
