INSIDE THE CURRENT ISSUE

January 2007

Back Talk

Best practice:
Elevating MM policies to administrative level
 

Decision demon-strates organization-wide participation, functional leadership and respect

by David Kaczmarek, FAHRMM, CMRP

 

Most materials management departments have extensive policies and procedures covering everything from how to order supplies to shipping out repairs. While these policies are needed, they ultimately only govern the operations of the materials management department and, to some extent, how other departments interact with it. As we all know, effective operation of the supply chain depends on the whole organization working in concert and abiding by the same principles.

One way to promote an organization-wide adoption of common supply chain practices is this best practice: Administrative level policies for key materials management related practices.

Implementing these policies at the administrative level brings value at many different levels. Possibly most important, it demonstrates that the organization has identified the supply chain as a high-level, organization-wide function significantly aligned to its success. It shows that, while materials management may be most closely identified with the supply chain, all departments and staff are involved in the function in some way. The policies will officially vest responsibility and authority to the materials management leader for overseeing all supply chain functions regardless of which department actually performs the function. At a more operational level the policies ensure that the various departments approach supply chain functions in a similar manner.
For instance, departments that normally are involved in the purchasing function such as pharmacy, food service, perioperative services and engineering, all use bidding in the same way and all approach contract formation correctly.

There are many supply chain related policies that can be included in the administrative policy manual. Here is my Top 10 list (in no specific priority order).

1. Conflict of interest – This policy is a must. It should apply to all staff and physicians It should cover situations where an individual can potentially influence in decisions where the individual would benefit from that decision. It should also cover the subject of gifts, what is acceptable and what is not.

2. Purchasing agency – This policy is used to identify those individuals by title that can commit organizational funds. It sets forth the limits these individuals have and their ability to delegate the authority. It is important to note that these individuals are different from those who can authorize that the funds be used. In fact, the two should always be different.

3. Use of bids – Bids are not used as frequently as in the past, but bidding is still a useful purchasing tool. All departments should use bids according to the same standards both in when they are used as well as how they are performed. This policy sets forth both.

4. Capital process – Materials management and finance should collaborate on creating an efficient and consistent process for budgeting, approving, and purchasing capital. Because of the scope, this policy is often divided into two, one covering budgeting and approval and one covering the purchase.

5. Introduction of new technology – Adjunct to the capital process is a detailed program used to assess the risks and benefits of purchasing or not purchasing new, emerging technology. This process should remove some of the emotion and politics from the activity and better ensure that the decision will be in the best strategic interest of the organization.

6. Supplier relations – This policy explains the organization’s requirements for suppliers who wish to provide goods and services. This explanation is really for the organization’s staff so that they understand the requirements and can judge whether suppliers are complying. The policy should make staff responsible for reinforcing the policy with suppliers and identifying any who are non-compliant.

7. Contract management – This policy covers contract formation and administration. It should prescribe a central location where all original contracts are housed. If there is more than one location, each should be designated to hold all of a certain class of contracts. For instance, physician employment contracts might be in administration.

8. Disposal of equipment – Without a strong policy on how and when to dispose of equipment that is no longer needed, valuable organization assets can be wasted. Organizations without such a policy often hold equipment until and even past the point where it has no further value. No only is the opportunity to recover some value lost, but significant storage costs can accrue.

9. Value analysis process – A correctly structured and well run value analysis program is still one of the best ways to control costs and improve quality. This policy will establish the authority and responsibilities of the team as well as its general operating guidelines. It should be supplemented by a more detailed operational policy written by the value analysis team.

10. Use of purchase orders and accounts payable (AP) vouchers – Purchase orders should be the primary means of documenting purchases. However, creating a purchase order does not always add value. In those cases where a PO does not add value and no other purchasing tool such as procurement cards is appropriate, then an accounts payable voucher should be used to generate a payment. This policy establishes the specific instances where an AP voucher is used and the level of approval that is needed for each.

If you are interested in draft suggested policies for any of the above, the Association for Healthcare Resource and Materials Management has just published the Materials Management Policy and Procedure Manual, which includes these 10, several other administrative level policies and a complete set of policies for the materials management department.

Materials executives should work closely with the rest of the executive
team to establish which supply chain related policies should be included in
the administrative policy manual. These 10 are a great conversation starting point.

David Kaczmarek, FAHRMM, CMRP, is principal of Healthcare Supply Chain Solutions, Derry, NH. Kaczmarek has more that 25 years experience in healthcare administration and materials management, including director positions at several hospitals and systems. He previously served as vice president of the now defunct The McFaul & Lyons Group. He can be reached via e-mail at mmexec@verizon.net.