Whether or not you’ve seen the movie Moneyball, you’ve probably heard enough about it to know that it’s not just a story about baseball. The reviews point out the clever way the movie exposes how breaking old thinking and applying new metrics can generate better results.
Moneyball is about applied statistics. In the film, a statistician convinces the manager of the Oakland A’s (Billy Beane) to build his roster based on how well the players statistically fit together, as a group, to a model designed to maximize run production. Oakland is a small market team, so the primary constraint on the model was the team’s limited budget for salaries. Suffice it to say, Mr. Beane’s decision didn’t turn out to be wise for just the Oakland A’s — he established a best practice that was quickly adopted throughout the league. His decision was a game changer.
There are parallels between Moneyball and a Supply Chain Management (SCM) in healthcare. The Billy Beane’s of SCM use an analytics platform that is powered by an optimization engine to gain their competitive advantage. And like Billy Beane, they’re in high demand.
Unlike Moneyball’s statistical approach, SCM analytics are powered by a type of “combinatorial” optimization that is tailor made for the SCM professional. This technology helps you allocate your business optimally and/or build your supplier contract portfolio(s) to fit an operating model designed to ensure that your objective is maximized. Very simply put, you load the model with your options, define your objective, add your constraints and hit optimize. If that sounds like an MS Excel problem to you, then you’re not appreciating the complexity of a model that can accommodate unlimited inputs and constraints. Put another way, load the “real world,” including all of its ugly conditions, define your objective(s), hit the optimization button and voila –your answer.
You do it iteratively by incrementally adding constraints to your model so that you can quantify the real differences between each possible answer you choose to explore. By the way, this is a “fill in the blanks” exercise via the model’s interface, so don’t get worried. For example, if you’re sitting with physicians and administrators reviewing the outcome of a competitive bid for hip and knee implants, you could lead the discussion by interrogating the model for them (e.g. what if we split the business between Stryker, Zimmer and Smith & Nephew but give no one more than 50% of our market share; what if we give all of our business to Stryker or to one of the others; what if we force award 20% of our business to that new vendor that tested so well in our clinical evaluation and let the chips fall where they may with the others –provided everyone gets at least 15%?). Get the idea? You can “what if” these models to death with the other members of your VAT (Value Analysis Team) –in real time– and drive a fact-based consensus. And what you will have done is establish yourself as the category expert who has mastered a tool that is a point solution or is directly applicable to:
- Scenario Planning
- Award Determination Analysis
- Decision Support
- Strategic Planning
- Contingency Planning
- Negotiation Support
- Trade-off Analysis
- Change Management
Future posts will break down the various features and benefits of sourcing optimization. We’ll talk about how the technology powers up sourcing and other supply chain management disciplines — like demand planning and inventory management. For now, consider this post a friendly kick in the tail. Take the lead. Take the steps required to become conversant on the topic by inviting in several vendors for demonstrations.
Sourcing optimization (a.k.a. collaborative sourcing, high-definition sourcing) is a best SCM practice in other industries for a reason. Does it translate to health care? The betting line suggests that it will soon be regarded as the best practice for sourcing PPI. If your organization is committed to direct contracting via competitive bidding, we strongly suggest you investigate.
Be the Billy Beane of your organization!
–Tom Finn
