Outsourcing to secure continuity

Last weekend the medical inspection (IGZ) paid the Atrium MC (a large top clinical medical centre in the south of the Netherlands) an unannounced visit. This has resulted in closing of Operating Theaters because the risks of contamination are too high. Malfunctioning air-conditioning is one of the reasons to shut the OT’s. The Atrium MC is forced to build an interim facility with 8 OT’s. This reminded me of the problem more smaller hospitals have with keeping up their facilities up to standard. By using the example of one of our clients, the Ommelander Group (a small regional hospital at the North of the Netherlands) which we helped to outsource its medical maintenance department, I like to show how outsourcing can help to reduce risks and eventually costs.

In its strategic review the Ommelander Group discovered that external landscape was changing rapidly. The environment became more competitive, continuous cost cutting by the central government, innovative technology which can overcome geographic distances and finally the more demanding customer. As a result the Ommelander Group decided amongst others to focus on its “core business”, to outsource or cooperate on back office activities and to reduce risks. Looking at medical maintenance department (being one of the back office activities) we discovered the following developments, risks and consequences:

1. Development: Scarcity of skilled people Risk: discontinuities
2. Development:Increased complex devices Risk: uncontrollable medical devices in the hospital
3. Development: Need for risk assessment Risk: failures and damages to patients and bad reputation
4. Development: Increased requests of IGZ Risk: closing of (parts of) the hospital by IGZ
5. Development: Increased competition Risk: lost sales

The Ommelander Group had foreseen, that due to these developments, they could not secure a highly (ICT)skilled staff 24/7. Hence the board decided to outsource the medical maintenance function although the costs for the hospital were (initially) higher and they might become more dependent of their contractor. These developments and risks are generic and applicable for most Dutch hospitals. Hence hospitals should always keep in mind that outcourcing could secure their continuity.

Finally I would like to underline that in the case of the Atrium MC other more complex developments were the reason to close the OT’s. Outsourcing of their medical maintenance would not have solved the problems Atrium MC is facing today.

Cost saving requires Leadership!

Dutch hospitals could save 200 million Euros by good procurement

The headline of my newspaper (de Volkskrant, 2nd February 2010) surprised me. After the take-over of a hospital (formerly known as the Ijsselmeerziekenhuizen) by a private owned company, it made profit over its first year. Anybody familiar with the healthcare in the Netherlands would not have believed you. I wonder what kind of bet you could make at the bookmakers three years ago. Is this a miracle or the result of a normal business approach by an entrepreneur?

A closer look into the article tells us that 300 employees have voluntarily left the hospital. Based upon the annual report 2008, this is a reduction of more than 25%. Moreover 55 managers and 10 doctors were fired. An interesting remark made by Loek Winter (CEO MC Lelystad, as the hospital is called today) is the savings realized by good procurement. Although savings on personnel are significant, the MC Lelystad must have shown similar results on procurement to make profit again. I consider this to be easily achievable. Probably strong leadership is shown by Loek Winter as it involves switching from a supplier to a new cheaper one. In hospitals these kind of changes are not made easily.

What are the opportunities for hospitals if leadership is shown? Based upon the last 25 spend-analyses of Dutch hospitals carried out by Coppa, a cost saving of 10% on average was considered to be achievable. Coppa always looks at the risks which may influence the probability of achieving savings. Strong leadership is one of these factors which influences the possible saving. I made new analyses of the savings, but I made the calculation taking into account that all hospitals were lead by strong leaders. In my dreamed landscape more aggressive strategies including standardization, outsourcing, e-auction, and single sourcing are common practice. Each hospital could realize a cost reduction ranging from 20% to 25% within one year.

I woke up and realized that most hospitals are not in the ‘luxurious’ position like the MC Lelystad to be in the middle of a crisis which makes it easier to make bold decisions. What a shame that hospitals do not realize all possible cost savings on procurement. Is there another way to realize these savings without making bold decisions? Another survey carried out by Coppa in 2009 reveals price differences between the Netherlands and Germany ranging from 30-60% on identical medical devices and supplies. As of the 1st of February 2010 Inkoopconsortium.nl is able to import these products from Germany. Inkoopconsortium.nl has calculated that all Dutch hospitals could save 200 million Euros by sourcing via Inkoopconsortium.nl. Inkoopconsortium.nl claims to deliver the same products from the same suppliers. No difficult changes or decisions have to be made. Savings can be realized within three months. Are you stuck in the middle of a dream or are you going to discover your potential savings?

Supply chain at risk

Managing Supply Chain Risks

Managing supply chain risks is key to keep shareholders satisfied. Not knowing what risks in your supply chain may harm your turnover. So managing supply risks should be the first priority for supply chain managers in 2010. A Supplier which cannot supply key components is not called an act of God. In my blog you can read the preliminary results of a survey on managing supply chain risks carried out in the high-tech and process industry.