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11 organizations highlight ‘inventory best practices’

From using a variety of data management tools to organizing supply storage areas as efficiently as possible, inventory management professionals within the supply chain profession are instrumental (no pun intended), if not vital to hospital performance and patient care quality.

Taking stock of keeping stock without stockouts can be an incredible challenge and a hole punch through customer service perceptions.

Let’s face it: Inventory management may be fundamental but it’s also the lifeblood of the supply chain that should be infused with automation, computers, cross-training and distribution efficiencies.

As a result, Healthcare Purchasing News Senior Editor Rick Dana Barlow consulted with a variety of experts on the provider and supplier sides for anecdotes, tips and tools on best practices in managing inventory – on paper and in practice – as well as with some of the recent years’ finalists in HPN’s annual Materials Management Department of the Year Award.

What they had to say may be old hat for some, or helpful reminders for others, but at the very least their words of wisdom should be educational and enlightening, if not inspiring.

Michael Rudomin, Founder and Principal, Michael Rudomin & Associates, Bolton, MA

Beyond the basics of "ABC analysis, good inventory turnover, and don’t run out" I’d recommend people focus on two key points:

1. Expand your definition of inventory and manage what matters – and what matters are the dollars. You may be doing a superlative job of managing your official inventory, but there are likely more dollars of supplies in unofficial, expensed inventory, and one could argue that their management might be more important. If the stents, guidewires, balloons, pacers, ICDs, contrast media and vascular closure devices in the cath lab go unmanaged, or the orthopedic implants and all of their associated loaner trays and equipment and overnight freight expenses go unmanaged, there remains a significant opportunity for the supply chain to expand its support in the best interests of the organization. Follow and manage the dollars, regardless of whether those items are considered inventory.

2. Implement an effective backorder system for your inventory items. Nothing destroys confidence in your department’s ability faster or deeper than a user finding a stockout on a stocked supply that they need to use now. This means:

• Knowing before you can’t supply your users that there is a problem

• Having identified and pre-determined with your users for critical items a secondary alternative that you will automatically substitute in a backorder situation

• Assuming the backorder is due to a vendor supply problem and not because of faulty ordering on your part, assess any additional cost to obtain the secondary substitute item (e.g., non-contract pricing, minimum order quantity fees, etc.) to that vendor. Usually taken as a short-pay to the vendor on the associated invoice, this should be negotiated up front as part of your contractual agreement with fill rates as well as the critical items clearly identified and defined.

I’ve recently run across a cath lab inventory system that has a very effective way of dealing with tracking both inventory "issues" as well as "returns" with minimal human intervention. Each item is tagged with a passive RFID tag, and the supply cabinets have a computer/reader integrated into them. The cabinet computer cycles through its on-hand inventory every 10 minutes or so, reading the tags of each item in the cabinet, therefore allowing the user to both take as well as return unused supplies from the cabinet without any need to interact with the system. Supply utilization and reorder information is generated based – upon "in-cabinet" inventory with no need for anybody to read a bar code or key data into the system.

Michael Ferris, Co-Founder and Executive Vice President, Operations Management Health Solutions Inc., Oakdale, NY

Inventory management is an area where materials managers can make a big impact if they look outside of their typical storeroom/warehouse. There is a much larger opportunity in the clinical areas to get control of and manage inventory dollars. There is up to 10 times more supply inventory sitting in a typical operating room than there is in a typical storeroom. While the clinical areas are very difficult to control using a traditional perpetual inventory model there are still ways to impact these areas using some simple concepts.

While most materials managers can identify what is being bought for these areas through purchase orders most do not have a handle on what is being used and stored in the clinical areas. There are a few reasons for this lack of knowledge including poor data integration, the fear of getting involved in clinical inventory management, and in some cases lack of vendor control in the clinical areas.

In order to impact these areas materials managers should work with the clinical mangers to gain confidence and get involved in helping to identify and control the inventory opportunities. Create a detailed project plan that identifies all of the steps needed to gain control and do not forget to include in the plan long term plans for managing the inventory. Develop a plan that includes the identification of what is in the department by having an inventory conducted. This should include what is on the shelves, in the rooms and in the drawers, etc., in the department selected. You will be surprised at how many items you find in these areas that are not in your MMIS item file. Once the inventory has been completed there will be a data clean-up project to synchronize the data in your MMIS system with the data provided by the inventory.

One of the biggest issues you will have in the valuation of the inventory is the unit of measure. You will quickly find that the unit of measure in the MMIS is based either on a purchase or stocking unit of measure and does not consider the use unit of measure, which will be the lowest unit of measure than an item package can be used in a procedure. This is the form that you will find in most clinical areas as they will break the supplies out of the boxes and packs that they are dispensed in. These unit of measures are also what will be used in most [OR information systems] to build preference cards and create patient charge interfaces.

Supply storage should also be addressed during this process to help consolidate and reduce the number of locations where items are stored throughout the department. Whether it involves reorganizing current stock rooms, installing closed or open shelving systems, or even shifting inventory out of the clinical area make sure that the plan is solid and has the clinician buy in.

This type of project will require time, resources and commitment. Make sure it is looked at as a high profile project by administration. Do not be afraid to engage experts from outside of the organization to assist. Develop a projected ROI prior to starting the project. Track all savings opportunities and inventory reduction accomplishments. Get started now.

Size does matter, but bigger isn’t better. When it comes to adding value or extracting costs, look for ways to extend your existing systems. While a new materials management information system (MMIS) could generate a lot of positive outcomes, they come at a heavy price. Think of all your power users and then imagine them all starting over with a new solution. I’ve seen new MMIS implementations take years to complete.  

Consider looking for smaller, specific solutions that can generate quick results and extend the life and value of your current portfolio of applications. Targeted solutions usually have a better cost-to-benefit ratio as well. I’ve heard on several occasions from supply chain executives that some large systems ended up adding 20 percent or more to the total cost of the items being managed – ouch! That doesn’t leave a lot of financial gain for your organization, and I’ll bet that is how you are evaluated and possibly how you are compensated.

Professionals new to the hospital supply chain, particularly those coming from the warehousing or retail industries, will likely be familiar with how to use mobility to their advantage. In fact, most inventory management organizations outside of healthcare already use mobile printers. What these individuals may be interested to learn, however, is how this technology is now being applied in the healthcare setting.

By taking advantage of a hospital’s wireless network, materials management staff can utilize handheld mobile printers to produce both shelf and item labels at the point where they’re needed. This approach enables materials management staff to easily generate labels from multiple locations throughout a hospital, including receiving areas, which helps to ensure that 100 percent of a hospital’s inventory is labeled accurately and with a bar code, if needed.

In addition to facilitating inventory management, these bar-code labels also support charge capture. When clinicians are ready to use an item, they simply peel the label off the item at the time it’s given to a patient and place it in the patient’s chart. This step ensures the item is added to the patient’s bill.

Supplementing stationary bar-code printing operations with mobile printers also reduces operator errors, the inefficiencies associated with labeling in inconvenient locations, and the added costs of correcting errors. For example, mobile printers save valuable time by eliminating the need to make trips back and forth to a central printer. It also minimizes the need to set up numerous print stations, which can help lower capital costs over the long term.

1. Leverage wireless mobile technology to improve efficiency and accuracy. Bar-code scanning, wireless mobile devices and related inventory management software can dramatically reduce the time it takes to count PAR locations or perform cycle counts by upwards of 40 percent to 50 percent, and also improve the accuracy and speed of the replenishment process. The extra time gained from these improvements can be used for providing improved service or tackling other projects.

2. Encourage consistency across facilities and locations. Leverage your ERP or MMIS software to implement consistent processes across locations. By adopting standardized practices for setting up and managing inventory, you’ll better be able to monitor performance and identify areas for improvement.

3. Be conscious of units of measure. When setting up your inventory system, evaluate how a product will need to be ordered, inventoried, issued and used. In many cases, you’ll want to set up multiple units of measure, including the lowest unit of measure, to ensure that you have the right unit of measure for each transaction type.

4. Develop metrics to monitor the effectiveness of your item master. The item master is at the heart of inventory and procurement processes, yet keeping it up-to-date, accurate and relevant can be difficult. You can use specific measurements to monitor how well you’re doing. For example, one organization uses metrics such as the percentage of item master items used on purchase orders; the number of items shared and used across facilities; the percentage of items that have particular attributes such as UNSPSC [coding]; and the percentage of ‘non-catalog’ purchase lines. This enables you to target specific corrective actions.

1. Don’t keep unused items. If your facility no longer or rarely uses a product, there is little need to store it. Technology for supplies changes daily and adapts; product obsolescence is becoming more prevalent. If a supply is not being used now, it is unlikely to be used in the future. Purging unused items will allow for the physical space to store a greater quantity of the right items or additional new items. If you are unable to exchange these items for preferred items through your vendor or receive monetary credit, make sure to document the unit cost of the items so you can document the financial write-off. Although these items often have little or no monetary value due to changes in clinical processes or technology adoption that require different supplies, your organization should take their value off the financial inventory valuation.

If an item is not expired, there are many options to donate them to various providers of charity care. Ensure that expired items are properly disposed of or destroyed.

2. Be the master of your data. In the electronic world, if you fail to turn data into information and leverage it, you are not maximizing its potential. Mastering your data is a complex task that directly impacts information system compatibility.

Often data from different functional areas’ information systems, such as clinical, financial, materials management and patient accounting, do not communicate with one another or are unlinked. Creating a common linkage between these systems allows for electronic communication and data transfer via an interface. By strategically identifying items with a unique identifier shared in two systems, reports and data can be merged for analysis.

By strategically managing the data and designating a key identifier, verbal communication between departments can be aided. For example, clinicians may call a supply by one name and materials staff may call it by a separate description. This communication gap that challenges supply chain efforts of customer service can be bridged by managing the key identifier that serves as a cross-reference between two previously unlinked systems/languages. Although an arduous task, the benefits of properly creating this data alignment are well worth the effort.

Having a sole ‘System of Record,’ which acts as the master source of that area’s functional information, is key. For example, it is undesirable to have two separately maintained and possibly conflicting item masters – one in the Materials Management Information System (MMIS) and one in a Clinical Information System (CIS). The MMIS should be the System of Record for all materials-related data. Any materials-related data needed by other information systems should be a subset of the MMIS data and be directly interfaced by the System of Record.

Another critical component of mastering the data is that you need to know what you are measuring in order to make meaningful results. Define what information is important to manage operations and maximize your performance. Now that the desired information has been addressed, you can determine what measurements collectively need to be taken to create this information as an outcome. By thinking ‘upstream’ you can strategically define what you will measure in order to obtain the necessary resulting information needed to manage the operations. There is no need to take measurements solely for the sake of measuring if the information being produced is not being utilized to aggressively track or improve daily operations.

3. Some supply chain activities have historically been the responsibility of the clinical staff, but these duties need to be reassessed. Supply chain and clinical staff partner to achieve the shared goals of patient safety and quality outcomes. Together with their unique roles they rely on each other to provide exceptional patient care. In a time where demand for nursing resources far exceeds the available supply of nursing time, it is critical that we free the clinician of as many non-patient care tasks as possible. By freeing the clinical staff certain manual reordering practices they can spend more time at the bedside. This maximizes both clinician time and is a major component in improving nursing satisfaction. Shifting the mindset and responsibilities for supply chain related tasks that are not clinically contingent to be performed by materials management can be a labor cost savings, a nursing satisfier, and a strategic way of obtaining more nursing time without adding clinical FTEs.

4. Challenge the notion, ‘Because we always do it that way.’ Always consider the following questions when you are performing supply chain functions: What are the processes we do now? Are there better ways to accomplish the same outcome? Why have we historically done things in a particular process; why do we do it this way? What are the obstacles preventing us from changing our current process to become more operationally efficient? Are our processes standardized? Is everyone performing the same function in different ways?

As regularly as technology changes, the best way to perform a process may also change. Embrace a culture or change and improvement and be sure to encourage and entertain new ideas that will make the processes more streamlined and effective.

5. Supply chain costs are growing, reimbursement is not budging. Revenue reimbursements remain stagnant or are even declining, while costs, especially supply costs, continue to rise. In order to remain soluble as an organization a balance between revenue and expenses must be achieved. If reimbursement revenue increases at a slower rate than the expenses the repayment is intended offset increase, the only way to remain financially viable is to decrease expenses. Identifying ways to manage supply chain expenses is critical to balancing this financial equation as supply operations and items constitute a large proportion of healthcare’s operating income. There should be renewed focus on supply cost reduction as well as energy dedicated to minimizing the cost of our processes and operations.

Hospital inventory management is a lot like paying taxes; it is no fun but must be completed. Official inventory is an asset tracked on your balance sheet and represents a choice on how hospitals choose to use available cash. Management of inventory takes place using two different philosophies: Periodic inventories and perpetual inventories. Periodic inventories are adjusted annually – upward or downward and can cause financial surprises. Perpetual inventory management is considered by many to be a better practice. Perpetual inventory management adjusts with each transaction, credited to the balance sheet when received and relieved when issued to a department. The result is better stock rotation and reduced obsolescence.

One size does not fit all when it comes to systems for managing inventory effectively in a hospital environment. The following are some best practice guidelines and tips that can be customized for a variety of applications and specific objectives.

1. Develop a supply chain strategy. A good strategy will spell out the role of the hospital’s supply chain, define its objectives, and the tools and the inventory management processes required to achieve those objectives.

2. Use inventory as a tool. Inventory management is about more than how many assets and where they are. What are the issues that the hospital is trying to improve? High rental expenses? Large asset write-offs? Out of stocks? Inventory cost too high? Nursing satisfaction low? Supplies not in the right place at the right time? Implementing an asset-tracking system alone may not improve your inventory management system, or reduce inventory management costs or improve service levels. Asset tracking or locating the asset is just one component of inventory management and oftentimes does not meet the various goals that hospitals have when they decide to implement a new system. Asset recovery and asset delivery, having the asset in the right place at the right time, are essential to improving inventory management and reducing cost while improving service levels.

3. Establish key metrics. Set goals and measure your inventory management system against a few critical metrics. Resist the temptation to measure everything.

4. Discourage asset hoarding. Nurses are often accused of creating the problem by hoarding. But don’t blame them — they are doing what’s in the best interest of their patients. Having grown impatient waiting for equipment to be delivered when they need it, and having lost confidence in the ability for it to be done efficiently, nurses have created their own system to ensure that they have assets when they need them. They maintain an ‘illegal,’ local inventory of assets because they fear if they return the assets, they will never get them back. This is a classic case of localized optimization. While this may work on a limited basis, it is bad for the whole hospital and it leads to excessive investments in equipment inventory or rentals. But can you blame them? If you look at all the assets ‘hiding’ in plain sight in hospital hallways, it becomes obvious that their concern is valid — there is a serious lack of transportation resources for delivery and pick-up. Otherwise, these precious assets would be collected for the sake of increasing asset utilization, not to mention compliance with The Joint Commission regulations.

5. Utilize technology. According to a study by the American Academy of Nursing (AAN), nurses want computerized order entry systems to eliminate hand writing legibility issues. They want touch screen or voice activated technology for documentation. They want more hands free applications, greater use of radio frequency identification tags (RFID) for tracking people, supplies and equipment, and nurses want greater use of robotics for delivering medications, meals, medical records, and patient care supplies like linens and equipment.

This advanced technology, frees nurses from looking for supplies, delivering things, or filling out forms and enables them to focus on their patient. This leads to better care, improved safety, increased nurse satisfaction, and reduced costs. Robots can deliver supplies for a fraction of the cost of traditional delivery personnel pushing carts. Robots also work 24/7, never take coffee breaks, and don’t need to use the restroom.

6. Look for logistics service providers that add value. Look for partners that add new capabilities to your process, either through knowledge or technology. Seek out a customized solution that meets your specific needs, be it just-in-time (JIT), unit-based replenishment or workflow redesign. Don’t focus solely on costs.

Materials management at my facility in Washington, DC, had been responsible for the delivery of supplies, lab specimens, linen, food, medical records, medications and the list could go on and on, to and from the nursing units and the support departments, for years. What started out many years ago as a great service idea, turned into a ‘go-for and get’ anything and everything routine that I had to staff 24/7. I was concerned that the urgency for which these services, such as lab tests and medications, had to be delivered had transitioned to a ‘let someone else’ deliver it mentality.

I attempted many times to shift the responsibility back to the service departments but was re-buffed often due to staffing shortages in those areas. Then along came the TUG, an autonomous mobile robot, which now delivers the same types of services, but by the departments without the use of people. I was able to give the pharmacy, dietary, laboratory and nursing a higher level of support without the addition of any manpower in their departments 24/7. The TUG can be dispatched as often as needed to deliver or pick up supplies, lab specimens, medications, records, linen and printed materials for about under $3/hour.

The materials management department transformed not only its physical space, but also several work processes designed to improve customer service, efficiency and teamwork. Major initiatives include the following:

• Installed an elevator directly between the surgical case cart department and surgery to improve work flow and communication between staff

• Implemented a forum to facilitate supply conversion and standardization and worked with patient care units to improve systems and simplify tasks – including lean process improvement and supply management projects

• Staff representatives from materials management attend daily operating room scheduling meetings and an interdisciplinary perioperative council to help address both daily issues and larger, more complex opportunities

• Improved linen staff safety by modifying linen chutes with flashing lights to make nursing staff aware linen team members are clearing chute holds

• Installed strobe lights in the department to alert when a request is received via pneumatic tube

• Integrated lean principles into decontamination process to reduce handling and improve workflow

• Decentralized medical equipment cleaning to improve equipment availability to nursing units

• Created redundant communication channels (Vocera voice badges, pagers, wireless phones, voice mail) for customers to contact department staff and improve service

• Established just-in-time pre-built laundry linen cart for hospital departments

Among the teamwork-, customer service- and innovation-oriented projects implemented are the following:

• Established a value analysis program, but redesigned it to focus on service lines throughout the network.

• Moved purchasing agents into either service line coordinators or contracts specialist roles and created integrated teams inclusive of a clinical resource manager, service line coordinator, contracts specialist, operations manager and database specialist, which all provide a functional role into the selection of product and services introduced by doctors, clinicians and other support staff.

• Introduced UPS TrackPad that allows our internal customers to track all packages that have entered the facility online through our intranet. Through this system customers can see the exact location of incoming packages in real time.

• Developed, trained and implemented Lawson requisition self-service module for all of nursing to order directly from asset locations within the hospital providing nursing visibility to on-hand supply inventory levels and cost information and providing ability to procure supplies directly out of our inventory eliminating manual data entry