Jordan: Cost Reduction Versus Tax Reduction

The plate du Jour in most Jordanian newspapers today is a discussion and a debate on taxes. The proponents of tax reduction argue that it would induce additional investments, thus expanding the economy and increasing the size of the pie from which tax revenues can be extracted. Those in the opposite camp, who advocate keeping the tax code as is, are concerned with the expanding deficit and argue that companies which generate the highest tax revenues will not be induced to invest further because of a reduction in taxation, and that any resulting savings will go to the bottom line. The debate is still raging.

The area where few dare to tread is the concept of cost/waste reduction as a means of enhancing revenues or making each Dinar count. Divining cost saving methods requires relevant experience* and hard work. It does not lend itself to slogans and is not particularly glamorous. One remembers the decision of the Water Authority to fix leaking pipes throughout the city of Amman. It was estimated that fixing the pipes is tantamount to increasing the water supply by 30%!

What is required today is a handyman with cross jurisdictional ministerial authority to do the fixing wherever it is required.

A glaring example of a leakage of efficiency is the way the Ministry of Health manages its procurement policy and structures its services contracts. An investigation uncovered that the ministry has a General Supplies Department (GSD), which buys items for all the hospitals in bulk – acquiring anything from nails to equipment to meats and vegetables.

Those items are purchased by the GSD, then stored in GSD’S warehouses and cold stores, then issued, and transported to hospitals where they are stored and issued according to requirements. One can see that items are stored twice and transported twice. It is a rule of thumb that items of perishable nature lose 10% of their freshness when they are transported 10% more when they are stored and 2.50% more are pilfered due to double handling. Let’s call this the 1st Leakage.

Furthermore, GSD, much like the State Trading Agencies of a neighboring country, are famously inaccurate and inefficient in determining or meeting the needs of markets, or hospitals in this context. So, they may over-order or under-order. This is the 2nd Leakage.

Store keepers and transporters are paid employees and even with the best of intentions will not safekeep, handle and transport these itmes as if their life depended on it. This is the 3rd Leakage.

The solution to these leakages is a change of philosophy.

What does that mean?

First, we need to outsource all ancillary services to specialists in catering, housekeeping, janitorial, landscaping and maintenance services. To illustrate the importance of this shift in approach, examine the way the ministry deals with catering services:

The food is supplied to the hospital through the GSD. There may be shortages or overages because of central purchasing as mentioned before. The labor supply contracts, which MOH gives out, are drafted to be mostly concerned with the number of personnel /quantity of laborers on the job at any point of time. No serious consideration is given to the quality or quantity of food served to patients or staff (remember, freshness of food and adequacy of quantity are not the responsibility of the labor supplier).

To rectify this situation, new contracts may be drafted where the caterer is responsible for providing the food items and for serving meals according to a set menu, with measurable quantities in a hygienic and timely manner, and at a fixed price. If the job is even done by two monkeys and a guard, and all is well , who cares?

The advantages of this switch in tactic are plenty:

1. Quantity and quality are controlled by supervisors. Penalties are applied for non performance.

2. Food ordered will NOT be more than required as the caterer’s profit and loss depend on it.

3. Food is purchased, transported and stored only once.

4. Storekeepers are audited by the way they organize their inventory– FIFO (meaning that the oldest items are sold first, and not left to deteriorate) and cleanliness rule. Their jobs depend on this.

Similar contracts can be drafted for maintenance, janitorial and housekeeping fields, where performance and not body count are the true measures of contract execution. Outsourcing those services to specialists allows both cost reduction and better performance. If MOH’S hospitals suffer due to high costs or low performance, the answer is here. Not to mention the fact that outsourcing allows MOH to concentrate on its core business: Staffing the hospitals with the best doctors and nurses for the job.

Saving money means writing new contracts with new specifications and finding different ways of supervising those contracts. It may also mean eliminating or reducing the task of GSD. It involves a change in philosophy where the emphasis is on quality and not quantity. However, it is the critical area to focus on today. I don’t believe there should be a debate on that.

Note:* A person with relevant experience is someone who, while educated in the West, has acquired his experience in the East, in the area of life support services. Particularly, this would be someone familiar with the way things are done in Saudi Arabia, where ancillary services have been outsourced with a large measure of success for the past 30 years.

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