Supply chain visibility can help us in our financially troubled times

There are quite a few areas where a hospital’s supply chain department can increase its ability to see upstream with a little creativity and a spreadsheet application. Two examples we will explore are monitoring the product lead times experienced by your distributor and monitoring the custom sterile pack pipeline.

When a hospital enters into a contract for primary medical/surgical distribution services or a low-unit-of-measure/just-in-time program (LUMJIT), the agreement usually contains terms that if a PO is received by a certain cutoff time the product is delivered the following day. If the distributor is experiencing variances in product availability, sporadic stockouts could occur followed by non-value-add labor expenses as Purchasing and Inventory staff attempt to source the product, or an equivalent, from an alternative vendor.

To avoid this situation, it is important that the hospital’s supply chain monitors challenges experienced by the distributor in obtaining goods from their vendors or manufacturers. This can be accomplished by working with the distributor to develop a weekly report they send to the hospital. This report would include at least the following fields:

• Hospital’s item number

• Item description

• Vendor catalog number

• Manufacturer name

• This week’s average lead time

• Last week’s average lead time

• Difference of average lead time week-over-week (this week minus last week)

• This week’s standard deviation of lead time (for 8 previous weeks)

• Last week’s standard deviation of lead time (for 8 previous weeks)

• Difference of standard deviation of lead time week-over-week (this week minus last week)

Standard deviation is a statistical function. While a full description of standard deviation is outside the scope of this article, it is important to define it as a measurement of how wide the bell-shaped curve is. As the bell gets wider (variability increases), the standard deviation numerically increases. While standard deviation requires some sophisticated math to calculate, every major spreadsheet program and many scientific calculators will calculate it for you.

While the concept of standard deviation may be challenging to explain to employees without a background in statistics, it is easy to explain that the value of the standard deviation should be low. The bigger the number (or a positive week-over-week difference) represents that the distributor is experiencing greater variability in lead times for a particular item from its source. Using this report to track delivery performance on a per-item basis, hospital buyers can identify products with delivery problems then initiate alternative sourcing methods. The buyers can also expedite deliveries from the original vendors.

Figure 2: Example of a custom sterile pack pipeline report.
Notice the progression of a batch of packs through the process (green cells)

Another area that supply chain visibility is important is in the area of custom sterile packs. While the custom pack manufacturer may be financially strong, the specialty (or even commodity) products that make up your custom packs may come from manufacturers affected by their banks’ tightened credit policies. This could leave you in a vulnerable position that can be mitigated if identified early enough.

To avoid this situation, it is important that the hospital’s supply chain monitors the pipeline of custom sterile packs from the planned stage all the way to the point where they are available on the shelf from the manufacturer (or distributor, if different). This can be accomplished by working with the manufacturer (and distributor, if applicable) to develop a weekly report they send to the hospital. This report would include at least the following fields:

• Item number

• Item description

• Report date (for that week’s update from the manufacturer)

• Manufacturer catalog (to track changes in generations)

• The manufacturer’s projected monthly usage

• Quantity on hold for production (usually waiting for component parts to arrive)

• Quantity planned for manufacture

• Quantity in production (work-in-progress or WIP)

• Quantity in sterilization and/or quarantine

• Quantity of finished product on hand at manufacturer

• Quantity of finished product on hand at distributor

After receiving this report, take each pack’s data and assemble a spreadsheet by lining up the data from each week’s report for that pack in ascending week order. Hospital buyers or inventory personnel can observe the progress of the assembly of custom packs from week to week. With a little determination, it is possible to see slow-downs in the assembly process or situations where a whole batch of packs is on hold due to a backorder of a particular component. Since it generally takes weeks for a batch of packs to go through the entire process of assembly and sterilization, any delays noticed by the hospital staff provides a comfortable window of time for the buyers to follow up with the custom pack manufacturer or to begin the process of alternatively sourcing the component parts in the event of a custom pack stockout.

In these examples, as well as other areas, by using a little creativity and common spreadsheet applications it is possible to increase your upstream visibility in your supply chain. This gives your organization the strategic advantage of being proactive instead of being reactive and can help you weather the turbulence of our financially troubled times.