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JULY 31, 2003

Managing Risk In Your Supply/Value Chain Can Reap Big Financial Rewards

by Robert T. Yokl, President

Effectively Managing Risk In Your Supply/Value Chain Can Generate Substantial Savings For Your Hospital/System Without Much Financial Peril.”

It’s a little known fact that supply chain managers are responsible for managing risk in their supply/value chain so that they can reap the financial rewards of doing so. Unfortunately, most of us are risk averse and therefore haven’t proactively ventured into this emerging supply chain management discipline.

Arizona State University Supply Chain Management Professors Larry R. Smeltzer and Sue P. Siferd tell us that the managing of risk in the supply/value chain involves making decisions that, “ (a) their expected outcomes are more uncertain, (b) decision goals are more difficult to achieve, or (c) the potential outcomes set includes some extreme consequences.” Conversely, if supply chain managers effectively manage risk in their supply/value chain substantial savings can be generated without much financial peril.

Managing Your Supply/Value Chain Risk Proactively

Smeltzer and Siferd’s research goes a step further to point out that one secret to effective and proactive supply/value chain risk management is to move from tactical management to strategic management of your supply/value chain by aggressively adding value at each stage of your system design.  This can only be accomplished by taking a strategic view of your supply/value chain and then new opportunities for savings will result.

For example, most health-care organizations are still averse to the reprocessing of disposable medical devices. Yet, the General Accounting Office reports that hospitals that reprocess their medical devices typically save $1 million annually. From a tactical viewpoint we might play it safe and wait until this is a universal best practice in health-care before we will take advantage of these huge savings. Or, we could take a proactive strategic view that this risk can be managed effectively by selecting third party reprocessors who meet FDA standards, comply with recognized domestic and international sterilizing principles and perform function testing.

“Proactive (supply chain)…management is the management of risk — it actually miti-gates risk and, at the same time, provides a higher return.” is the advice that Smeltzer and Siferd give to supply chain managers if they want to increase their organization’s return on investment and also increase their savings yield.

Become Tolerant of Risk And Reap The Rewards

Without risk there are no tangible and lasting rewards. If you wait for opportunities to knock on your door or the safety of numbers before you conform, the rewards of doing so will be meager at best. However, by tolerating risk and proactively managing risk in your supply/value chain there are hundreds of savings opportunities awaiting you now in process improvements, supply expense cost reductions, value analysis, cycle time, inventory management, sourcing, strategic alliances and contract administration, etc. if you become tolerant of risk and are looking to reap the rewards of proactive supply chain management.

About the Author

Robert T. Yokl, President, The HCP Group, Ltd., has over 35 years of experience as a consultant and manager in the field of Supply Value Chain Management and is one of the country's leading healthcare experts in value analysis, value engineering, Non Salary Expense Reduction and materials management. He is the developer and program leader of the award winning Certified Value Analysis Practitioner Training Program™. Mr. Yokl is also the developer of the healthcare industry's leading ValueNetCentral™ Value Analysis Software. Over the past two decades he has trained thousands of healthcare managers in his patented Strategic Value Analysis™ and Team-Based Project Management™ processes and has assisted scores of organizations in developing their own value management programs. He has published six books, videos and audios on supply/value chain management. His latest book being, “ Strategic Value Analysis™: The #1 Smart Strategy for Taking Cost Out of a Healthcare Organizations’ Healthcare Supply Value Chain”.

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