In this episode, I want to take a minute and talk about of couple that I think have stories worth sharing. These are clients that I think have accomplished some important and impactful things in the prior year. I hope it’s inspiring. I hope that you can get inspired from these stories. The clients I am going to talk about have overcome challenging scenarios and helped their organization meet their goals. They helped their organization be successful.
The first company I want to talk about is a durable medical equipment company, a DME. And what this company does is supply hospitals and even individual doctor’s offices with the equipment that they need.They do so by taking inventory items that this company purchases and putting them at the facility inside a storage closet. They’re going to put this equipment in the facility’s closet so that when a patient comes in and they need a knee brace, a wheelchair, or anything else, it is available. The doctor or the nurse can go into this closet and get the equipment that’s needed. And the patient doesn’t have to wait around. The doctor doesn’t have to take on the cost of paying for the equipment upfront.
To start off with, in 2020 this company ran a loss of around three million dollars annually. In 2021, they were able to turn that around to a small gain. Which is incredible, I think. They really focused on improving the processes that are needed to run this company at a profit. They looked at all the main contributors to losses, all the things that weren’t going right, and figured out what they needed to do. I’m going to talk about a couple of them that we at LeapFrogBI were involved with. And I’m sure there’s more, but these are a couple of the contributors that LeapFrogBI was involved with to that turnaround.
First, let’s look at inventory. As I mentioned, this company is taking assets that they’ve purchased and putting them in basically mini-warehouses, small warehouses, and a large quantity of them. The inventory challenge here is real. It’s one thing to deal with inventory on the traditional basis where you’re buying product, putting your inventory in warehouse, and then maybe moving it to your stores or individual store. But when you’re moving that inventory to a third party’s location, there’s another complication.
To make that even more complicated, we’re talking about healthcare payers. There’s some very real requirements or constraints that need to be followed. For inventory, the issue was shrink. How do we prevent shrink in this scenario? The first thing that this company did was they looked at trying to just simply quantify shrink. To understand shrink in this case, you have a manual count at one point in time and then in the future, you do another manual count. And then you look at, manual count at point A and then manual count at point B. Then you have a difference. You can take that and say, how much did we sell? How much was returned? And all those numbers would work out to say, what your end count should have been. This is what my end count was, and here’s the difference.
Now I’ve got X amount of shrink as an example. Well, it even gets more complicated here because you have a process order as well. Some of these orders obviously are going to take months in some cases to collect on. It also can take time to just get the paperwork from the facility into the whole revenue cycle management process, which we’re going to talk about in a minute. So that delay means you’ve got to act, you’ve got to also be very careful about accounting for those purchases.
I guess, you can just call it a purchase of a product that maybe paperwork hasn’t been received on yet, it’s still not in the facility where you’re doing the manual counts. I know that’s a kind of a long story, but the point is that the inventory situation is complicated. And really looking at that at a very detailed way and figuring out how do we get a true count?
That’s step one. Sounds simple, it’s not simple. How do you get a count? And then how do you do that on a recurring basis so that you can calculate a shrink? And then once you know what the shrink was, what items, what’s the value of those items? What’s the cost of those items to the company? What’s the value of those items on a retail basis? Once you have all that information, then you can, now say, “I know where my largest shrink is occurring. Is all this shrink associated with certain regions? Was it associated with certain sales reps?”
When this company was able to depend on that data, they could start doing chargebacks. The bottom line is if the product is not in inventory and there is no paperwork to account for the product, then the product has disappeared. That is shrink. And there’s already contracts in place to do chargebacks on those scenarios. So, someone else is going to have to pay for that lost product.
And a lot of this is not malicious type loss. It’s not like you’re in a brick-and-mortar store and stuff is walking out the door. It’s more likely in this case that you have a training issue. You have people that maybe think that that product belongs to the facility that they’re working in because it’s in a storage closet in the facility. So just making sure people know that, hey, you can’t take stuff out of this closet without filling out this form accurately and completely. That’s simple stuff, but that’s really an important piece.
The other part of this is on this DME side of things, they put processes in place that said, “We are not going to put product in a closet unless we have paper.” It’s paper for product basically is what they call it. If you have paper for a prior sell, well, then you can put product back into inventory to bring it back up to the par level. But you can’t put product into a closet without corresponding paper from a previous sell.
Some very common-sense processes that have been put in place have taken a shrink situation that was not really good frankly, and turned into something that’s much, much better. It’s not perfect yet, but it’s much better than it was just a year ago. Now, another part of this that this DME company really focused on was all their RCM, you can call it their work in process. A big part of the cost here of this DME company is simply the RCM, filing all the paperwork that’s in involved with getting paid for the use sales of products.
Typically, that’s going to be through insurance companies or government payers. So, there’s contracts in place that have very strict rules about how you file these claims. How long do you have to file these claims? And how do you deal with audit requests? And there’s all sorts of things involved with RCM. And getting a handle on that was important. One of the things I want to bring up here that I think a lot of you may already be familiar with is that a lot of the business applications that we use to run our businesses are just paper replacements.
They’re just applications that allow you to enter information into forms, compile that information into a database, recall it, update it. Maybe create a couple of reports on it. That’s just the kind of applications that we typically see. And that’s great. Especially in the nineties, it was important to get away from paper-based health records. But now a lot of organizations have done that.
They do have pretty good systems to track the actual information, but these business applications are not designed to help an organization like this DME company do all of the things that they need to do to be successful. One of the areas that a lot of these EHR systems are not focused on is solving this problem. Making sure that you’re providing some type of a guided process to help the actual workers that are processing claims, making sure that they know here’s what and when this needs to happen.
Here’s something that has failed to happen, basic guiding the process. Instead of just being a repository for information, help the organization guide the process that is needed to be successful in this case, RCM. Now in lieu of the business application doing these things, one of the decisions that this company made was to build that themselves. They decided that this application isn’t going to do A, B, and C, but we really need to know whenever we have claims that are at risk of not getting paid for all these reasons. And when that is the case, when these certain scenarios are met, we need to understand, or we need to be flagged basically. We need an alert to help us know that this is the situation.
Otherwise, someone’s going to have to cull through all these claims manually in this system and try to find it, and it’s just not going to happen. Ultimately, you’re just not going to get paid on these claims because some term has not been met. So that’s another piece of the turnaround that this company has seen is focusing on the RCM revenue cycle management and the working process, really focusing on creating alerts, creating indicators for these important milestones that someone can take action on, and mpact the bottom line.
So, I thought this company did pretty well. I hope to see that they, while they do have a small profit in 2021, that the year over year change will be drastic. I think 2022 for this company is just going to be even better.
The next company I want to talk about is a retail organization, e-commerce organization. And they had a pretty common problem that needed to be solved as well. That is understanding the outcomes of your marketing efforts
For retail, marketing can be one of the largest costs that the organization has. Because obviously, you’ve got to get out there somehow and get a message in front of people. This is B to C, business to consumer here. They’ve got to get a message out to people that hopefully is attractive enough that they’re going to respond to that message and hopefully make a purchase.
And when they do make that purchase, the organization needs to understand what was successful, what was unsuccessful. Getting this company’s arms around that part of the equation was really, important. How do you know if your marketing efforts are being successful? And then if the marketing effort was successful, well, how successful? How do you quantify that success in such a way that you know, well, this is the type of marketing that I want to do right now?
This is shifting all the time, right? It’s not like one message works forever when it comes to marketing. So, understanding what’s working, how well it’s working and what should we incentivize around that marketing outcome? This company had a couple of challenges. One side is a typical one, and that is master data around their actual customer list, customers and prospects. It’s very easy to end up with a database that has many versions of the same customer whenever you’re talking about e-commerce because how do you uniquely identify a customer? It’s not going to be by their name. You’ve got people with the same name. It’s not going to be by their email address, because people use multiple email addresses. It can’t be just the physical address because people move from point A to point B. So, there’s a lot of very real challenges there. Ultimately, you must make some decisions about how you’re going to uniquely identify a person. That was the first real success that I saw this company have, was they sat down, they looked at the situation in detail, and they understood they’ve got multiple systems involved.
They understand that they have some process challenges that are compounding this duplicate person issue. And then they said, “Okay. Look, here’s what we’re going to do. For clarity, here’s what we’re going to call a unique person.” Once they had that business clarity, we were able to go in and take that information and or that business definition and implement it so that we now could say, here is the group or the set of people, or let’s just call it email addresses. That is what they considered to be a single person from the perspective of the organization.
Once you have that in place, now you can start to look at how many actual people responded to a marketing event. This gets into the weeds here where you have campaigns. You’ve got to track them through various methods, whether it’s URL tracking, etc. You’re trying to figure out if someone clicked on an email campaign, and/or if someone entered a promotion code from a direct mail. There are various channels here, but ultimately, you’re trying to figure out how many people responded to this marketing message.
If they responded, which channel did they respond to? Having clarity around a unique person count, master data basically around customer count is a big part of that. Trying all those pieces together so that you know what the campaign identifier is, what the channel was. How do you know if someone responded to that particular campaign? Getting clarity around that was also a big step forward for this organization.
A third piece to this was once you know who responded to a campaign, then you could measure pretty clearly what they purchased. That’s typically a pretty straightforward process. But it’s understanding the lifetime value of that person or a typical person is a much more complicated thing. We’re talking about recurring subscriptions here where someone could decide to cancel, let’s say mid period, or they may renew, or there may be an auto renewal process.
So understanding what the lifetime value of a person is, is also important because you know what you spend on the campaign, you know what the outcome of the campaign was as far as how much that person actually purchased, but what’s the actual value of that person over their lifetime in a typical scenario? Once you know that lifetime value of the person, now you can say, is this campaign successful? Did this campaign result in more revenue than it cost to run the campaign? It’s not quite that simple, but I think you get the point. You have the pieces in place to better understand if your marketing dollars are going in a direction that makes sense.
The other thing about this scenario was for a while this company was relying on others, to come up with the outcomes of the marketing effort. That had some success, but in the end, the organization felt like it was critical. I agree that it’s critical that they understand with clarity what they’re spending their marketing dollars on and what the outcome was and measure that in a very consistent way.
None of these business rules are perfect. Like I was talking about, customer deduplication, for example. It’s not perfect. It’s not going to be perfect. It doesn’t make sense to hire the resources required to make it perfect. And I don’t know if it’s even possible to make it perfect. It would require too much manual effort and there likely would still be some errors made. Perfect is not required here.
What’s required is to get to a reasonable level of accuracy, a 95% level of accuracy. That’s doable. It’s doable in an automated programmatic manner. The point being that these processes aren’t perfect, but that’s okay. At least we have a consistent process. We measure things consistently, we use the same business rules consistently to measure what decisions were made, and what were the outcomes, the actions that followed those decisions.
Now we have something that we can stand on. We can say, here’s what’s working. And guess what? Here’s what’s not working just as importantly. Let’s not do that anymore, instead let’s focus on these channels that are working. These couple of companies I just felt did exceptionally well in 2021 with their overall Reportopia. They were able to step back and say, “Look, we’ve got to solve this problem. We’ve got to look at these business processes, figure out what’s working, figure out what’s not working. And then take those things that are not working and fix them, figure out how to make them better.” A big part of that was simply having the information needed to gain those insights and really make a good decision about what to do about that situation and then measure the outcome of that decision. If it worked out, great. If it didn’t, well that’s okay too, because now we’ve learned something new. We can try another approach to this problem.
So that’s just a couple of our clients that I’ve seen really do good great things in 2021. I’m sure they’re going to continue to do even better in 2022. This is just a small sample of the success stories that we’re seeing. It is important that we take a second and just realize how important it is to create this Reportopia.
If we do take the time and we focus on improving these processes, we focus on getting people the information they need to make good decisions or when decisions have good outcomes, we’re going to see results. It takes time. It’s hard work, but we will see results. We’ve seen it happen many times before and it will continue to happen in 2022.