Large Hospital F&B Cost
Case Statement:
Your client is a large hospital in south India, their food and beverage cost is high, and they have hired you to look into it and give recommendations to reduce it.
I: Your client is a large hospital in south India, they are looking to reduce their cost, specially focusing on food and beverages cost
C: Can you give me some details about the hospital ? The hospital's location and whether it is chain on hospital or a standalone hospital?
I: It is a standalone hospital in Chennai, it is a multi-speciality hospital.
C: What are the components of the food and beverages cost, is it like a per meal provided by the hospital or there are different food outlets in hospital.
I: The hospital sources meal boxes from a 3rd party supplier, other than that there are vending machines in the hospital
C: What is the magnitude of the current cost for F&B for the hospital and is it similar to the competitors nearby
I: The yearly cost comes to about Rs 20 crore for us and it is almost half for our competitors
C: Since when have we seen this magnitude of cost and difference with competitors?
C: We have observed it since past 5 years.
C: Who are the major consumers of these services, Is the majorly related to patients or it includes the staff and guest as well?
I: The patients account for almost 50% of the F&B cost, the staff accounts for 30% and the guest accounts for the remaining.
C: Okay, I would first like to focus on the patient meal cost since they are the biggest component after which we can look into the staff and guest. Also I assume that major cost comes from the meal boxes and the vending machine cost is minute compared to it.
I: Sounds good, you can start by analysing the meal box cost for the patients that occupy the beds in the hospital.
C: I would like to consider breaking down the total cost of meals into a formula. It can be computed as the total number of beds occupied by the patient * the average occupancy of the beds * no of days that a patient occupied the bed * the number of meals per day * cost per meal
I: That’s a complete picture. You can focus on each bucket and see if we can reduce the cost in any of them
C: Has there been any change in the occupancy rate of the beds, the number of days a patients stays ?
I: There has been no change in the number of beds or the occupancy rate, however we have observed that on average patient stay has increased from 3-4 days
C: Okay, has there been any change in the number of meals that we provide in a day or the items per meal leading to cost increase?
I: No change in the number of meals, and the number of items in a meal, we offer 3 full meals and 2 snack meals, and have added milk as part of the snack meals.
I: So there are two major reasons for higher cost for patient meal cost, I will focus on the staff cost and then give recommendations together as some may overlap.
C: Making a similar computation for the staff as total cost = No. of staff member * the No. of meals offered per day * avg cost per meal
I: Okay, can you identify the reasons why the staff food cost could be higher?
C: One additional reason here could be that we have more staff members as compared our competitors in the industry or that the working hours for our staff is higher.
I: We have a higher staff-per-patient ratio as compared to the industry in general. Can you provide some recommendations to bring down these costs?
C: I could come up with the following recommendations in the short term:
•Meal cost for first 3 days to be included in the standard package cost per bed, any additional consumption by any patient can be charged extra per meal consumed by the patient or the guest accommodating the patient
•The rate per meal with the 3rd part vendor can be negotiated better for bulk purchases and some unnecessary items can be removed from the regular menu.
C: In the long term :
•In the long term the hospital can look into setting up their own catering service to reduce the cost of the food.
•For the staff the hospital can provide meal coupons or meal cards instead of providing each meal
•Patients can be charged extra on all packages based on special differentiated services offered by the hospital
I: This looks good. We can close the case now.
Background Information:
Company – A large multispecialty hospital in south India.
Competitor – Multiple hospitals in nearby territory
Consumer – Major consumers are the inpatients coming and occupying a bed in the hospitals, the staff and guests also consume the food and beverage provided by the hospital
Product – The hospital has all kinds of services related to multiple specialties. Focusing on food and beverages as a product, the hospital has prepaid meals for inpatients as well as the staff.
Case recommendations:
Meal cost for first 3 days to be included in the standard package cost per bed, any additional consumption by any patient can be charges extra per meal consumed by the patient or the guest accommodating the patient
The rate per meal with the 3rd party vendor can be negotiated better for bulk purchase and some unnecessary items can be removed from the regular menu.
In the long term the hospital can evaluate setting up their own catering service to reduce the cost of the food.
For the staff, the hospital can provide meal coupons or meals cards instead of providing each meal
Case tips:
This was a very tricky case. Identifying the components of cost in terms of a formula is important to reduce the cost in each bucket. Once the segregation is done the candidate can focus on magnitude of cost reduction under each bucket to demonstrate the quant capability.