The cost management organization: the next step for materiel management

With Materiel Management's transition over the last decade from simple logistics to analysis and cost management, it has gained recognition as a key part of the management team responsible for supplies, equipment, standards, and associated processes to identify, purchase, store, distribute, issue, and dispose of supplies and equipment. The materiel manager's job consists of putting the right product in the right place at the right time and in the right quantity at the best total delivered cost. In this context, Materiel Management has made powerful impacts to lower costs associated with: Distribution--costs have been lowered by actively adopting advanced supply channel management techniques such as primary suppliers, JIT, stockless programs, case cart/custom kit/procedure based delivery systems, modified stockless programs as well as margin management through cost plus, flat fee, or margins paid per activity. Cost of goods--lowered through aggregated purchasing in the forms of regional and national purchasing alliances and local capitation or other gain/risk share programs. Internal process costs--lowered by out-sourcing and/or integrating supplier processes and personnel into operations via partnership approaches. We have also reduced transactional costs through EDI transaction sets and the emerging use of the inter and intranet/electronic commerce, procurement cards, and evaluated receipt settlement processes. De-layering--We have lowered the operating costs of Materiel Management overhead by re-design/re-engineering, resulting in reduced management and greater front line authority. Quality--We have learned to identify and respond to customer and supplier needs by using quality improvement tools and ongoing measurement and monitoring techniques. Through this we have identified the waste of non-beneficial products and services. We have adopted supplier certification measurers to ensure quality is built into processes and outcomes. With so much already accomplished, it should be easy to rest on these laurels and simply operate. However, we believe that this is just a beginning. A new generation of highly educated leaders are emerging and taking advantage of the contributions of pioneers who laid the ground work. These new leaders will have advanced management, statistics, and behavioral sciences skills. They will be analysts and organizational motivators. Their goal will be to improve financial and clinical performance measured by real time process and performance data. The new leaders will have information at their fingertips thanks to significant leaps forward in data collection, automated continuous replenishment processes, and software designed for better management of clinical and cost outcomes. This article documents significant Materiel management accomplishments and conceptualizes cost management processes. The cost management organization is the logical evolution in our efforts for better outcomes in healthcare Materiel management.