The key opportunities will be changing processes to reduce the delivered cost of materiel through cost accounting, imbedded cost and cash flow. I. Cost AccountingA. activity-based costingB. end productC. expendituresII. Imbedded CostA. customersB. quality controlC. paying back invisible costsIII. Cash FlowA. timely accounts payable cycleB. supply replenishmentC. reduced costsConclusion: The core of the materiels management strategic plan will be providing the information needs that will bring all the participants together in the logistics process.
With health care reform, hospitals will be differentiated in the market place by how well they manage cost of services. Because products will be market priced, hospital materiel managers will have to minimize all other related acquisition costs. The key opportunities will be changing processes to reduce the delivered cost of materiel through cost accounting, imbedded cost and cash flow. One technique that seeks to discover true cost levels is a commercially used management accounting system, activity-based costing.
Activities that drive cost levels are identified and then analyzed in terms of their value to the production of the end product. For health services the end product would be the aggregation of applied procedures, tests and therapies related to a particular patient treatment. Accounting systems categorize expenditures in terms of labor, materiel and capital, allocating pools of common expenses and overhead that can’t be directly traced to a specific product or service. The impreciseness of most allocation techniques tends to misrepresent real cost levels, resulting in poor business decisions and mis-allocation of resources.
Reform will be a catalyst spurring the materiel management organization to learn more about internal customers and supplier’s operations. The final customer ultimately pays for the inefficiencies of everyone else in the supply chain. If the customer doesn’t plan or effectively communicate changes in demand, or misuses the item, supply cost rise. If the supplier lacks quality controls, has poor production standards and rejects rates, or can’t manage its inventory efficiently, the costs will be passed on through the chain.
Rooting out the imbedded and invisible costs will be paid back by reducing the basic structure costs of the supply system. Strong cash flow will be critical to the hospitals facing reduced margins, shortening the accounts payable collection cycle will become a priority objective. Preferably, it would be economically advantageous to pay a vendor for an item when payment is received for its use. Vendor payments can be stretched out with long credit terms, but this is eventually paid for with higher prices.
A more effective way is to shorten supply replenishment cycle times and lead times. Success in these areas will reduce costs and offer the added benefit of narrowing the payment use billing cycle. As reform unfolds, the entire hospital organization will constantly have to respond quickly to the changing issues and new opportunities. The core of the materiels management strategic plan will be providing the information needs that will bring all the participants together in the logistics process.