Sayonara to “stack ’em high, watch ’em fly”

May 24, 2010

Inventory management has been changing at Polaris (WSJ 5/24/10) – they have been dropping their dealers’ inventories for the last four years.  With the old system dealers orders twice per year and were given generous incentives to stock up, in short, trade promotions. The article doesn’t mention some key details, like while dealers  ordered twice per year, dealers probably took deliveries throughout the year.  And, dealers probably ordered at the same time, rather than staggered throughout the year.

The new system has dealers ordering once every two weeks. The match between supply and demand with this new system should be much better. With the old system, each dealer had to guess what they would need over the next six months (assuming Polaris didn’t build in anticipation of the next set of dealer orders). Invariably, they would make some mistakes – ordering too much of some products, not enough of other products. To correct errors, dealers probably swapped inventory during the six month cycle, but that isn’t the most efficient way to move inventory around.

Enter the new system. Now dealers order every two weeks and so their orders will far better reflect what they actually need and what is actually selling. In short, the system should be able to reduce dealer inventories *and* better meet demand, unless demand is picking up across all dealers faster than Polaris can produce.

According to the article, this is a trend in the industry – all firms are moving to shorter order cycles. Why? It may reflect competition among suppliers – this is a great deal for the dealers and so to keep a dealer you need to be more attractive. It also may reflect a calculus that the sales incentive of the channel stuffing strategy is not worth the better supply-to-demand matching of the current system. One thing is for sure, Polaris has certainly made some big changes in how it trades with dealers:


The Golden Hour

May 20, 2010

Sirens and speeding ambulances are the symbols of emergency care. The basic idea is that the sooner we get seriously injured trauma patients to the hospital, the bigger the chance of their survival. The first 60 minutes after an accident are known as the “golden hour”. Getting the patient to the hospital in this golden hour is claimed to be critical. This is intuitive. But, unfortunately, this claim is not really supported by a whole lot of empirical data. In fact, the authors (who are ER physicians) of a recent Slate story discuss the statistical evidence supporting the myth of the golden hour. They discuss a recent study published in the Annals of Emergency Medicine that finds no support for the importance of extra speed (

But why then, are the ambulances driving so fast? From an operations management perspective, two explanations come to mind. First, the fact that an extra couple of minutes do not matter much in predicting patient survival rate does, of course, not imply that the driver can stop at the next Starbucks… Second, there might be an alternative explanation for the speeding ambulance. Let’s call it the NY cab driver syndrome: The faster you drive, the sooner you will be available for the next trip. After all, it is all about productivity.

Fixing health care – payment schemes and standardization

May 1, 2010

There is a lot of talk, as there should be, about fixing health care. Two articles in the NY Times this week discuss this – one describes a bad idea and the other a good one.

The first, (NY Times 4/29/2010) reports on a article just published in the New England Journal of Medicine on the work primary care physicians do.  First, they describe their pay …

Family doctors are paid mainly for each visit by patients to their offices, typically about $70 a visit. In the practice in Philadelphia covered by the study, each full-time doctor had an average of 18 patient visits a day.

Next they describe the work they do…

But each doctor also made 24 telephone calls a day to patients, specialists and others. And every day, each doctor wrote 12 drug prescriptions, read 20 laboratory reports, examined 14 consultation reports from specialists, reviewed 11 X-ray and other imaging reports, and wrote and sent 17 e-mail messages interpreting test results, consulting with other doctors or advising patients.

And now the interesting part…

The study, medical experts say, also suggests the direction of changes needed if family practices are to flourish and more effectively improve the health of patients and contain costs. It starts, they say, with compensating doctors for work other than patient visits.

Along those lines, from the article itself …

our internal compensation system now recognizes telephone calls and e-mails as part of our productivity metric.

In other words, the argument is (i) to care for patients physicians must do much more than just visit with them, (ii) these non-compensated tasks are providing a burden and so (iii) we should consider paying them for those tasks …

At a time when the primary care system is collapsing and U.S. medical-school graduates are avoiding the field, it is urgent that we understand the actual work of primary care and find ways to support it. Our snapshot reveals both the magnitude of the challenge and the need for radical change in practice design and payment structure.

I realize that we need many ideas to fix health care, but this one doesn’t hold water. It may be unfair to characterize the idea as “payment for emails” but that is the spirit of their pitch. As an educator I can sympathize with their woes  – nobody pays me extra to email with students! What a wonderful world that would be… If I were paid to email students, then I could figure out how to write a macro so that my computer sends out emails every five minutes to every student. Cha-Ching! But that is my point – if you can’t monitor quality, you shouldn’t pay for a tasks.  Unless we have people checking that the physicians are sending out legit emails and phone calls, it  doesn’t work to pay them for those tasks. So in the end, if the goal is to make primary care more attractive to medical students, then paying more than $70 per visit may be the better approach. But that just looks like paying physicians more, and so nobody will write that up in the NY Times.

The second article (NY Times 4/30/2010) discusses the aggravation physicians deal with when trying to figure out how to get paid for the care they provide their patients. The problem is that patients have different health care insurers and each insurer has its own complicated policies for what will and what won’t be covered. This leads to lots of confusion and frustration:

With each plan permutation, it becomes more and more difficult for a doctor to know how to provide care that will work with a patient’s particular coverage. One of the doctors who was surveyed in the Health Affairs study wrote: “It’s like going to the gas station to gas up your car and having to change the nozzle on the gas pump because you have a Toyota and the pump was made to fit Fords.”

So why don’t we have gas pumps dedicated to specific vehicles? Because no vehicle manufacturer could gain a competitive advantage by doing so. Whatever benefit of exclusivity would be small compared to the inconvenience it would impose on consumers. But health insurance companies seem to think differently. They appear to view their tangled mess of quasi-infinitely varying coverage plans as a source of competitive advantage. Nevertheless, it seems substantial value would be created by forming a standardized delivery means for these plans. McDonald’s and many other firms understand the value of process standardization and it would be interesting to explore whether this idea could benefit health care. It is disappointing that this idea seems to be absent from the national debate on health care reform