In Praise of the Stop Watch

One of my favorite stories about trying to calculate the true costs of service differentiation involves the fast-moving consumer goods manufacturer Unilever. The supply chain organization noticed that customer buying behaviors were rapidly changing due to the increasing maturity of ecommerce and omnichannel. Customers were requesting more frequent deliveries in smaller order quantities and often with unique packaging requirements.

Initially, supply chain peanut butter spread the cost of this increased complexity across distribution and logistics operations, which gave them no understanding of the impact these behaviors were having on profitability.

Enter the engineers with their stop watches. For each unique service request, they calculated the time operators would take to fulfill it. This allowed them to make more accurate cost allocations, to drive process improvements, but most importantly, create a menu of service offerings that supply chain could bring to its commercial team for discussion with the end customer.

Cost to Serve in Healthcare

I was thinking of this example when reading a recent Wall Street Journal article on efforts to understand the cost of a total knee replacement at Gundersen Health System out of La Crosse WI.

Gundersen recognized that its pricing for knee replacement procedures was entirely divorced from the cost to provide that procedure. I realize this is common in healthcare, but it is no way economically “normal.” Any company in a competitive market that priced a product unrelated to its cost would fail. Gundersen wasn’t facing new competitive forces, yet leadership wanted greater clarity on the cost of these procedures.

Enter the head of the OR with a stop watch.

She, along with other leaders, spent 18 months getting very precise on what parts of the process took the most time, what personnel was impacted, and why a particular step took as long as it did. This allowed Gundersen’s surgical and operations team to see the procedure from an end to end perspective.

This end to end process understanding gave them the opportunity to use different resources during different parts of the process, to eliminate post-surgical wait times for patients, understand how space was being utilized, as well as question supply decisions.

Learning to Love the Business of Healthcare

I don’t want you to think I’m a stop watch tyrant. Timing tasks employees do on a daily basis is kind of disconcerting for most people. I, for instance, don’t really want someone sitting next to me with a stop watch calculating how long it takes to write this column. Why? Because it adds pressure I would rather avoid.

However, the stop watch is an extremely useful tool when it comes to understanding a process from end to end. It can help team members “think” in processes as opposed to silos, a fundamental supply chain skill.

Most clinicians would be aghast at comparing the work they do to assembly operations at an automotive factory. Yet what do auto supply chains do really well? Reduce variation, reduce process waste, improve throughput, reduce excess inventory, and determine a cost profile that allows the company to be competitive.

The greatness of this model is that the organization that has the strongest supply chain wins in the market. Gundersen was able to get a very clear understanding of its cost of care for knee replacements, and they were able to remove process waste, improve the supply selection process, and reduce the cost per procedure.

And it allowed them to work with patient groups to lower the price per procedure. Does this cut into their margins? Perhaps. But they should see additional revenue as organizations that lack the robust process and cost understanding lose business.

Of course, organizations who go down this path will reach a point of diminishing returns. Shaving ½ a second off of a process only matters if you are a competitive skier or swimmer. In healthcare, though, most organizations have plenty of room to grow before reaching this point.

This is the real value of the supply chain mindset—a holistic view of processes. The surgical and operations team became enthusiastic about the end to end “business” of healthcare. And it is no surprise that the woman who brought this vision and practice to Gundersen was promoted to Vice President of Operations.

As always, we welcome your comments and suggestions.