Back Talk

 Best practice:
Tracking operational performance

by David Kaczmarek, FAHRMM, CMRP

In the last column [July 2006 Healthcare Purchasing News] we discussed the need for regular reporting to the administrative team. Two of the inputs to the quarterly reports come from the next best practice – tracking internal operational performance.

I think everyone has heard the adage, "If you don’t measure it, you can’t improve it." Well, tracking operational performance is all about measuring – and then taking action based on what the measurements tell you. To some extent what you measure is not as important as the fact that you are measuring something. You have to balance how easy or difficult is it to gather the data against how meaningful the resulting information will be.

In general terms there are three kinds of things to track:

• Simple Volume – how much in gross terms

• Productivity – how much per employee

• Quality/Effectiveness – how well you are doing it or adherence to a standard

There are lots of simple volume measures that you can track. One advantage is that the data can be pretty easy to acquire, usually coming directly from the materials management information system [MMIS]. Some examples are: Numbers of purchase orders (PO) created, numbers of PO lines, dollar amount of POs created, deliveries received, lines received, lines issued, trays processed, invoices processed, etc. While easy to track, these strict volume statistics have limited value. It is good to see how workload is changing over time, but that is about all that tracking these will tell you.

More value is gained by comparing the volume statistics to the labor used to generate them, either worked hours or paid hours. Worked hours is a better denominator to track true productivity. Paid hours are important from a budgetary standpoint. You can use either or both. So instead of tracking just PO lines we track PO lines per worked purchasing hours; instead of just deliveries received we track deliveries received per worked receiving hours, etc. At a high level these can be useful and actionable statistics. You must take care, however, that the statistics are not manipulated. It would be easy to double your productivity on numbers of POs per worked purchasing hours by splitting lines into multiple POs rather than one large one.

The quality and effectiveness performance measures are harder to track but will provide the best information. Some of these are statistics you will want to consistently track; others might be tracked periodically or based on an actual or perceived problem. The number of potential quality/effectiveness measures is almost unlimited. So much depends on what is important in your department and in your organization. The following are some that I recommend.

Inventory Turnover Rate. The best way to compute this is inventory issues for the last 12 months divided by that average inventory value for the same period. Compute at the end of each month based on the prior 12 months. Use the average of the last 12 end-of-month inventory values rather than just the value at the end of the current month. Track this number to see how well you are moving towards or maintaining your turnover goal. We will discuss what that goal might be in another best practice – optimizing inventory.

When we think about turnover rate, we automatically think about the storeroom. Do track storeroom turnover, but also track the other official inventories in your organizations. You should have the data for most of them in your MMIS. If you don’t have issue values, use purchase value instead.

Invoice Discrepancies. This is the number of invoices that did not automatically match on the first attempt divided by the total number of invoices associated with a PO. In addition to tracking these in total you will get even more value by classifying the reasons for the discrepancy and tracking those as well. Further, tracking by supplier can be useful.

Percentage of Non-PO Invoices. This is the number of invoices received that are not associated with a PO divided by the total number of invoices received. If you have never measured this, you will probably be surprised by how high the percentage is. While not every purchase should be on a PO, the large majority should be. You may want to exclude invoices which are associated with a purchasing supported program like procurement cards or stockless office supplies.

Demand Satisfaction. This is the number of storeroom requests that are filled 100 percent (no backorders) divided by the total number of requests received.

Stockouts. There are a couple of ways to measure stockouts. One is to use the number of lines at zero balance at the end (or beginning) of the day. The other is to only count those items that are critical, that is, where customers are experiencing a problem or some special action is being taken to acquire the product. The former is easier to track, but the latter is more useful. Divide either by the total number of lines in inventory.

Inventory Accuracy. This is probably best measured by dividing the net dollar variance of cycle count results for the last 12 months by the average inventory value for the same period.

With all performance measures, the true value comes in using the data gathered. That use might be as simple as sharing the good news of great performance with your staff. If areas of concern are uncovered, share these as well. And determine ways to change procedures or behavior to affect positive change. HPN

David Kaczmarek, FAHRMM, CMRP, is vice president, The McFaul & Lyons Group LLC, Derry, NH. Kaczmarek has more than 20 years experience in healthcare administration and materials management, including director positions at four hospitals, one integrated delivery network (IDN), a military supply depot and a consulting firm. He can be reached via e-mail at dkaczmarek@mcfaullyons.com.