Is Value Analysis Your Responsibility?
I was paging through AHRMM’s 2009 Material Management’s survey to look for trends that might be of interest to my readers. One trend that jumped out at me was that only 28.7% of the survey’s respondees reported that they were responsible for value analysis for their hospital. This is an astounding statistic when you think about it: 71.3% of MMs aren’t responsible for VA at their healthcare organization!
My first reaction to this eye-opener was that this must be a typo, but then I realized that this number was consistent with AHRMM’s 2007 (30.7%) and 2008 (36.5%) survey results, so it must be right. I also know that many hospitals, systems and IDNs don’t have active value analysis teams, so that’s one reason why this number is so low. Another reason it’s low is that not all supply value analysis programs report to material management. I have often seen this vital function reporting to nursing service, not materials management.
My thinking is that even if this number is a little off, it still shows a dangerous trend in healthcare: Material management isn’t 100% in charge of their healthcare organization’s supply value analysis programs or there is no VA program is place to do so!
As I see it, VA is a mission-critical function of materials management. Every hospital, system and IDN should have a supply value analysis program and it absolutely should report to materials management. This is because price is the smallest factor in the total cost equations (about 21%), while 79% of your product, service and technology cost is attributed to the in-use cost of the commodities you are buying. Based on our empirical experience, only VA teams can drive out these unnecessary and unwanted utilization costs…period!
In brief, if your hospital, system or IDN is to get ahead of the wave in the new healthcare economy that is upon us, you will need to embrace the value of value analysis in controlling your total supply expenses. This means, in practice that you will need to take charge of your VA program if it reports to another department or establish VA teams to get this hard work done.
The alternative is to either ignore this proven cost-cutting methodology or leave it to someone else in your hospital, system or IDN to get this important work done. This doesn’t seem like a plan to ensure your job security to me, so I would suggest that you take charge of your VA program today or get your VA program started to protect your turf and to keep your paychecks rolling in for the foreseeable future. It doesn’t take a whiz kid to see this as the road you should travel.
We’ve Come a Long Way from the Basement in Hospital Supply Chain Management
I remember at my first three jobs a the hospitals I was employed as a materials manager my windowless office was located in the basement, ether next to the storeroom, or near the receiving dock or half-way between both of these locations. Come to think about it, my salary was pretty much matched my location in the pecking order at these hospitals too. Yet, I was happy, productive and enthusiastic about my job, but I still had to work two jobs for many years just to keep a roof over my family’s head and bread on the table for my wife and kids.
I’m sure many of you can relate to these musings since you have found yourself in the same circumstances as you have moved forward in your own supply chain career. But the times are changing FAST in supply chain management. Many of us have moved from the basement to the rarefied upper-level floors of our healthcare organizations where we too have a window to gaze out when we get a few minutes to do so. Better yet, our salaries are now competitive with any industry I can think of and the perks (incentives, bonuses, health club membership, flextime, etc.) being offered are getting better every year.
To prove my point, I was just reading the results of ARMM’s Compensation Survey for 2009 which found that the average salary for MMs in 2009 was $87,650. The report also noted that 33% of the MMs surveyed are receiving bonuses, 58% have formal incentive programs and 9% are receiving other incentive benefits such as tuition reimbursement, child care and parental leave. Not bad for a profession that was considered basement dwellers just a few decades ago.
We have come a long way from the basement as attested by the results of the AHRMM survey I just referred too. But here are a few statistics from this same report you might not be aware of that tips the scale in favor of high income producers: MMs that had the highest salaries and held the most prestigious jobs in our industry had the highest educational levels (MA or MS), were Fellows in AHRMM, and had 50 or more staff reporting to them. This isn’t a coincidence!
As this data suggests, if you want to have the highest salary, best perks and to permanently move out of the basement like these trailblazers have done, you will need to go back to school, get CPM certified, become an AHRMM Fellow and get hired by one of the largest healthcare organization in your region.
Don’t get me wrong! I’m not saying this should be the goal for everyone reading this blog, but if you have aspirations for a bigger and better salary, more perks and additional responsibility this is the roadmap you should be following to meet this objective. As Sherlock Holmes would say to his friend Dr. Watson, “It’s as elementary as 1, 2, 3”.
Building Your Toolkit!
I spoke last week at the North Carolina Association of Materials Managers Annual conference on the topic “Value Analysis 2.0: New Rules, Systems and Models for Long-Lasting Savings Success”, which gave me an even more in-depth insight into the challenges that supply chain professionals are facing today.
I also had lunch with a few MMs and value analysis managers at the conference who wanted to know how they could uncover the big and robust utilization savings that I talked about in my presentation. This is when I realized that supply chain professionals aren’t building their toolkits with the precise tools to prepare them for the future of supply chain expense management, i.e. utilization management.
This is because the old tools that healthcare organizations have been employing (MMIS, ERP, and spend managers) for years won’t get this new work accomplished. That’s why we now need to embrace the new art and science of value analytics to search out our utilization misalignments and eliminate them. By doing so supply chain professionals can save 3%, 7% or even 12% in our supply expenses – beyond price.
If you would like to know more about this new and emerging discipline I would suggest that you download my new special report “Utilization Management: The Future of Supply Expense Management” that will show you what you need to do to build your toolkit to meet this challenges in the 21st century.
Your Partner In Innovative Savings,
Bob Yokl
Robert T Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
P.S. This is the last call (deadline May 31st) for applicants for our Certified Value Analysis Leadership Training program at our early bird rate of $1,192 ($211 discount). If you have been thinking about applying to this one of a kind program this is the time to do it. Otherwise, you will miss this discount period! Learn More
P.P.S. Don’t forget to check out my new blog article “Are You Really Practicing Value Analysis or Doing Something Else” (Revisited). This is where I talk about how I have found that value analysis coordinators, managers and directors aren’t practicing value analysis either. – to their disadvantage! Read Here
