Published: Feb 07 2020

Parts Procurement Process Improvements to Drive ROI

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What's in this episode?

In Season 1, Episode 6, Al Gresch, Mike Zimmer and special guest John Malmberg, Director of Business Development at PartsSource, the leading clinical engineering procurement platform for top-performing hospitals, discuss improving the parts procurement process to create greater efficiencies and reduce costs.

Full transcript:

Welcome to the Healthcare Chats podcast where your hosts, Al Gresch and Mike Zimmer will bring you insights to take your HTM and HFM from the basement to the board room. Healthcare Chats podcast starts now.

Mike Zimmer: Hi everybody. This is Mike Zimmer, joined by John Malmberg and Alan Gresch for a new episode of our Healthcare Chats podcast. But today we're coming to you live from CMIA in sunny, beautiful San Diego, California. I said sunny, but it's kind of foggy outside in all honesty. A great conference we saw and sat in on a bunch of really engaging presentations, one of which was given by my colleague that's right here, Al. Made some great contacts, connections with other thought leaders in the industry. So, Al, I mean walk us through a little bit, at a really high level, what your session was about and how that kind of brought us all together today.

Al Gresch: Yeah, so my session was on data integrity and the impact of machine learning. And so, I talked at length about why having good data integrity is important, but also led into some of the things that you can do with good data. And one of the things that I did when... in a couple of organizations that I was in was identified what my technicians were doing and how they were spending their time. If you think about what's going on in the industry relative to people retiring and the availability of staff, it's important that we start looking at things a little bit differently and start doing things a little bit differently. And one of those things was parts management or parts procurement. So, I talked with the group about some of the things that we did there. What a tremendous impact that had on our organization.

Mike Zimmer: And that's all about increasing or maximizing the amount of wrench time that these extremely valuable assets that you have on set, on your team.

Al Gresch: What's their core competency?

Mike Zimmer: Exactly. What were they hired to do? Right? And so, with that in mind, John, we struck up a conversation and that is exactly how you've geared it as well. How do we increase the amount of time where technicians can do what they're hired to do? So, for those out there watching this that don't know who you are, could you intro yourself here a little bit?

John Malmberg: Yeah, so I'm John Malmberg, I'm with PartsSource and a lot of what we do is focused on what Al's presenting on what we were discussing is just really taking advantage of technology and process improvement to ensure that you're really maximizing your workforce, your staff, and also getting good quality to be able to drive better outcomes for patient care.

Mike Zimmer: Right.

John Malmberg: So, you really focused on that. I think all of us, that's what we're all in this for.

Al Gresch: Yeah, on the quality front and it's tied back to core competency as well. There are a lot of technicians in our industry who fancy themselves, great shoppers, for alternative parts. The problem with that is how much time are they spending doing that and is it the best use of their time? I did a time study at one point where for a month I had our technicians document every minute that they spent doing the parts process, sourcing parts, ordering parts, following up on part orders, doing repair exchanges, every piece of that and after a month I aggregated the data and found that technicians were spending an hour per technician per day on the parts process.

Al Gresch: I've spoken to other industry leaders who tell me that's a very conservative number.

Al Gresch: Okay. I had 80 technicians at the time, so that's 80 hours per day that were being allocated toward the parts procurement process and that just made no sense to me, right? So we looked at a different way of doing things and streamline the process such that the only thing the technician had to do was identify the part and put it on the work order and request it and he got what he needed. Okay? When in fact, after the program had been in place for a time when my technicians expressed that it was like when he was a kid and he threw his laundry down the laundry chute and it just magically appeared back in his drawer, clean and folded.

And if you think about, again, going back to the topic of core competency, what are they trained to do? Fix equipment and fix customers, right? Every minute that they spend doing anything other than that is just not a good use of their time, not a good use of the organization's money, right? And on the quality side of things, if the technicians are doing the shopping, typically they will look for the lowest transactional cost on that part and not what the real value is for that part. Well think about it, if you get the wrong part, if you get a late part, if you get a DOA part, essentially, you're doing the repair twice, right? What value did that bring? So, John, you, I would like to press, you hired somebody in your organization from Premier to run your quality program. Tell us a little bit about that.

John Malmberg: Yeah, so to your point, right, so we did, we brought in Jina Tweed. She's specifically focused around quality and, and to your point, ensuring that you're getting a quality part, right, is going to one, help an organization be able to keep that equipment up and running so that they can be ready for the clinicians still out there working and two, also going to drive better outcomes from patients. And what we find is a lot of organizations have difficulty tracking or actively managing that quality. It takes a lot of effort, takes a lot of resources in order to do so. So that's where some of the difficulty lies and if they have the capabilities or the process to track and manage that actively, they can really use that to make some good data-driven decisions.

John Malmberg: And once you do find something that is of quality that you can actually implement a formulary similar to the clinical side of things where we know that really works to drive better outcomes, then you can actually take that and apply that in the HTM space as well. And we've watched that be very effective with a lot of organizations that have some really good programs in place. So, I think it's really critical in this day and age where they're being asked to be more efficient and do more with less.

Mike Zimmer: Yeah. And this comes up in a bunch of the conversations that we have but gone are the days of anyone team functioning in a silo within a healthcare organization. There's just so much interoperability across every possible functional group and every decision that's made could potentially impact or will or should potentially impact an outcome for a patient. And so, what I'm really fascinated about is when a technician elects to spend some of their time chasing down a part. So that's saying yes to doing that task, but that's at the same time, it's saying no to doing something else. And there's a real opportunity cost to that. And that goes back into the core competency thing, but there's a little bit of a layer there because if they spent that hour or what have you, chasing that part down, they're not out fixing the customer or fixing equipment. Well, they think they're fixing the equipment, but they're not, in fact, doing that.

Al Gresch: Yeah, it was one of the things that I talked about in my session, where one of the metrics that we looked at was annual device hours per technician, right? And you think about if you're where most people are, which is at around a thousand annual device hours per technician, think about how much work you can get done at that level versus if you were, well where we eventually got to be over 1500 annual device hours per technician, right? And I'm not saying do it with less people, I'm saying do it with different people. So, I hired some parts procurement specialists to do that work and offload that that load from the technicians, take away as much administrative stuff from them as I could. And like we talked about, allow them to do the things that are their core competency, fixing equipment, fixing the customer. John, I'm interested, what kind of results have you seen? I mean, we had the economies of scale to do what we did. A lot of organizations don't, right?

John Malmberg: Yeah. I've seen this in action multiple times, and we see organizations where they're at today and then we see some of the really high functioning organizations. And to your point, and I think you in your time study you on average, you are seeing anywhere from 60 to 90 minutes being spent. If you start to do the math and look at how much time across an organization where you have anywhere from 50 to over 100 technicians, the ability to impact that all comes back to some of the process improvement and technology, but then too if you could put an hour back in your technicians day, what are you going to be able to accomplish as an organization? It's a game-changer, right? I mean it makes a huge difference because now they're able to go and tackle, things where they were short-staffed and secondly they're also able to start to venture into areas that could be bigger cost-saving measures, whether it be taking on ultrasound, taking on imaging, right?

John Malmberg: Where they got highly skilled technicians that have the capability to do this. Right now, they're just strapped for time. Therein lies that 80 to 90 minutes. That's what we found is typically it's about 80 to 90 minutes per order and if you had the ability to have a place where you could shorten that time and make an impact on that, we've seen results go down to where it's taken it down to anywhere from five to seven minutes per order versus that 90 minutes and then that's a huge impact on the organization for helping them do what their core competencies, what you're paying them to do, taking advantage of their skillset, but then two the cost savings in that time is a big impact on your organization as well.

Mike Zimmer: Yeah, that's it. Real quick, Al, so that builds into other conversations we've had. What do you think that's going to do for the overall temper or tone of the team that you're building? So, you're freeing up this time so that they can now devote their energies to other things that will just increase the overall maturity of the organization and really allow them to lead any seat, which is something that we talked about. It's fascinating to me how these seemingly minor changes, right? So, adding 60 minutes into somebody's day could have this ripple effect out across not just these people's individual organizations, but across the industry.

Al Gresch: Yeah. It was a great call, Mike, because it was one of the side benefits that we actually found is, we didn't do it with the express intent of increasing employee engagement, but that's exactly what it did, right? And I asked the audience yesterday, think about it again, going back to the core competency, what is it your technicians love to do, right? Things they love to do is fix equipment, work with customers, right? What do they hate to do? The administrative stuff, right? And so as you start to offload these administrative activities from them, you get more productivity, but you also increase employee engagement because they get to do the stuff that they love to do and as time goes on and it gets harder to recruit.

Al Gresch: You have a much better chance of getting people that want to work for you because they don't have to do all that administrative stuff. And to John's point, the time that they free up, they now have greater opportunities to take on more complex types of equipment and that's engaging to them.

Mike Zimmer: And that benefits their leadership because they now have a team that's coming to them with ideas on how to move forward as an organization.

John Malmberg: Yeah, when you free up their time in that fashion, but then two give them the tools to empower them, right? It puts them in a position where they have one that you say job satisfaction, but then two, they really have the ability to go out and make a bigger difference within the organization.

Al Gresch: So, John we use this figure quite a bit in our business because it should be an impetus to create greater efficiencies and reduce costs. But the average operating margin in not-for-profit hospitals in the U.S. today has 1.6% which is razor-thin. Right? And so literally anything that you can do to reduce your costs, and I always use the figure for every million dollars that you can reduce the bottom line spend, your organization, if they were at a 2% margin, would have to generate $50 million in new revenue to achieve that same bottom-line impact. So, what kind of results have you seen relative to cost savings in helping your customers achieve some of those cost savings targets?

John Malmberg: Yeah, so I mean those are alarming numbers, right? It's almost scary and so organizations are really being asked to do more with less. They have to figure out a way to be more efficient. And so, it all comes down to I guess a three-prong scenario that we find has been effective and a lot of top organizations have been able to take advantage of, which is obviously the cost containment is big, but enabled to get that cost containment comes with an actively managed quality database, being able to use that data and understand and know that you're getting a quality part and then secondly, do it in a cost-effective manner and you're getting a good cost on that. And then three, taking advantage of technology to be able to ensure that it's moving through the process in an efficient way.

John Malmberg: And then the backend of that is then creating a formulary to say, all right, we know now that we have a good quality part and it's a repeatable process so we can continue to do that. And then that creates a more efficient way of doing a part repair and drives costs containment. So now you're able to achieve what we found is roughly anywhere from 10 to 20% savings across the board when it comes to the procurement process. And that's significant when you're talking about being all in the healthcare organization that typically is dealing with anywhere from seven to 800 suppliers and spending over a million-plus dollars every year on parts.

Al Gresch: So not only are you saving on the time that it takes to go through the part procurement process, you're saving money on top of it.

John Malmberg: Right. Yeah.

Al Gresch: Cool.

Mike Zimmer: Yeah. I imagine it almost becomes just this self-perpetuating feedback loop about process improvement. So, you realize the outcome from your formulary, and you use that information to better inform what went into the creation of that, right?

John Malmberg: Yeah and it's something that's been proven out on the clinical side, right, with the patient, now we're able to apply that in the HTM space. I think it's something that's applicable anywhere for the most part, but it makes a lot of sense, it's been proven and too, I think for all of us, right, to be able to affect, and we've heard that here at the conference to be able to affect and help drive a better patient experience and a better outcome. I mean, that's what I think all of us at heart are in this to drive a better outcome for patients and whether it be indirect or direct.

Mike Zimmer: Awesome.

Al Gresch: Yeah. One of the things I want to call out too is everybody talks about the positive impact on patient care, but your CEO is actually a physician. Right?

John Malmberg: Right.

Al Gresch: So, it does matter.

John Malmberg: Yeah, so it does and I know we talked about it and I've had multiple conversations here and I think that a lot of presentations that we've heard have all talked about how everyone here at CMIA, technicians and how big of an impact they have on patient care. It's one organization I feel that within a hospital that touches every aspect of a hospital and really does have, because of the equipment that they work on, a direct impact on the patient.

Mike Zimmer: Yeah. So, you, John, you spoke a little bit about the creation of the formulary. Now if we were to step back, what is, I assume what the foundational component of that is just rock-solid data because otherwise now it's not going to produce any sort of significant result. Everything that you lay over the top of that. So, I imagine that standardization is a key part of the approach there.

John Malmberg: Right, so and that's again, a difficult thing for a lot of organizations to do today is to be able to capture that data. It's something that they struggle with. If you are able to capture that data and do so where you have kind of a less than static but more of a real-time capture that data and be able to make decisions based on that, then you were able to drive that standardization. To say, okay, we found that the data suggests that we should go this direction, or we should make this decision and then ties back into to be able to create a formulary, right?

Mike Zimmer: Right.

John Malmberg: Repeatable results, if you're able to do that, right, you drive better outcomes both in a cost setting as well as a quality setting, ultimately with the patient.

Mike Zimmer: And it's tempting to throw technology at a standardization problem because we want the very solutions that we use to do that for us. But now you had a data integrity policy in place at the organization you worked at. So, talk to us a little bit about that because it's important to set the right tone in order to build from there.

Al Gresch: Yeah, and I talked about it in my session that having good data integrity is critical and as you're going through the data cleanup process, you really have to have a data integrity policy in place so that everyone understands the rules of engagement and you stop the garbage from going into the database before you start cleanup or you'll never have clean data, right? And so, the policy that I created, it had started out with a policy statement and an acknowledgment statement that all of my technicians were required to sign, and it was an indication that we take this very, very seriously. One of the paragraphs in the policy statement was a failure to comply with this policy will result in disciplinary action up to and including termination. So, it's a condition of employment and you really have to set that tone out of the gate.

Al Gresch: But then the policy covered literally every aspect in every field in the database, talked about the definition of how that is used, talked about what the data structure for that particular field needed to be. And so, we were able to achieve a very high level of data integrity and maintain it using that policy. And I also talked in the session about what kinds of steps it takes to move up that maturity curve from being just the PM break/fix organization to one that performs at an extremely high level, does things very cost-effectively get heavily involved in doing total life cycle management. And the second step, which you alluded to was the standardization of policies and procedures across your organization. And this particularly important with regards to parts acquisition, right? The organization that I was working at when we developed that policy spanned significant geography and I could have had a technician working on CTs in, in the Northernmost hospital found a really good source for a high voltage tank for that CT and the guy working at the Southernmost hospital may know nothing about that.

Al Gresch: So, you know, it's having that centralization standardization, so you get the same outcome, the same positive outcome and the same quality across the board.

John Malmberg: Yeah. No, I think that again, because we work with so many organizations and you get in touch and see what they're doing, what their processes are, and the best practices and the highest functioning organizations that we see are taking advantages of centralization, standardization, implementation of capturing data, and then implementing formulary so that they can make sure that everybody is doing it the same way, right? So, they can get repeatable results.

Al Gresch: Excellent.

Mike Zimmer: Awesome.

Al Gresch: This has been a great discussion, John. I really appreciate you joining us this morning and hopefully, our listeners can take some good information from this and start moving down that path to reaching a higher level of performance.

John Malmberg: Yeah, absolutely.

Al Gresch: Appreciate it. Thanks, man.

John Malmberg: Thank you.

Mike Zimmer: Thanks, John.

John Malmberg: Yep.

Mike Zimmer: All right, everybody, that's it.

Al Gresch: That's a wrap.

Show Notes

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