Shelf indulgence
Forecast: Tomorrow’s inventory management toolbox includes PDAs, RFID, wireless capabilities, WLAN connectivity and vendor-owned inventory
by Rick Dana Barlow

When materials managers crank open their toolbox, searching for something to help them manage inventory more effectively and efficiently, they may choose from a variety of options, including hardware, software and Internet-based systems, automated supply cabinets and open shelving technologies, bar coding and radiofrequency identification tags, selected distribution programs and consulting services.

"New technologies such as RFID and wireless computing devices will no longer be the exception; they will be the norm expected for efficient materials management operations." - Ed Lane president and CEO, Caduceus Systems Inc.

Hopefully, one or more of these tools will help them improve their inventory management capabilities and gain control and ownership of the stocking and replenishment process of their supply chain operations.

During the last decade or so we’ve seen considerable evolutionary development in the area of inventory management tools, primarily information technology-related. With convergence and miniaturization, we’re probably only a few years away from a multi-faceted handheld device that serves as a communications, financial and operational tool that can be affixed to a belt loop, clipped in a shoulder holster or tucked into a coat/shirt/slacks pocket.

It just goes to show you that while inventory tracking may not be rocket science it seems to require some rocket science to perform it accurately and reliably.

So what’s coming down the pipe? Healthcare Purchasing News Senior Editor Rick Dana Barlow asked key executives at some of the leading companies that supply inventory management tools to gaze into their crystal ball and briefly share their insights on the technological progression of their products and what hospitals and nonacute care facilities can expect the next generation to look like.

Technologies used in both patient care and support services, such as materials management, will vastly improve the quality of care while reducing waste and operational costs. New technologies such as RFID and wireless computing devices will no longer be the exception; they will be the norm expected for efficient materials management operations.

As the use of RFID technology becomes more widespread in all sectors of industry and even in the consumer market, costs for deployment of this technology will rapidly decrease, making implementations for manufacturers, distributors and healthcare facilities very compelling. New miniature-sized RFID tags will be easily placed with materials at the unit-of-use level facilitating simple and efficient tracking of consumption of products and easing verification of the use of the correct item for the correct patient with the correct delivery and timing. The detailed data that is collected can then be used to more efficiently provide the optimum delivery of products throughout the supply chain – from the manufacturer using this data to determine what products to produce, to the distributor knowing what to have on hand, to the facility knowing what is being used on what patient and when. All of these contribute to a more efficient and safer care delivery system.

"In the future, inventory management solutions will need to take into account more data, including planned cases, available beds and patient census data to provide recommendations on how to manage operations." - Maher Hakim, sr. vice president product management-healthcare, Lawson Software

The best inventory management tools will take full advantage of these technologies to improve efficiencies and reduce costs. New practices in materials management for the healthcare industry will evolve to include more vendor-owned inventory in facilities, allowing the redirection of capital normally used to carry inventory to other initiatives. This shift in materials practices will be made possible with information systems that provide accurate, real-time data throughout the supply chain, enabling facilities, distributors and manufacturers to work collaboratively to insure the right material in the right place at the right time.

Most existing materials management systems are not able to take advantage of these new data collection technologies. They rely on data collection processes that are removed from the actual activity, permitting the introduction of errors and introducing a time lag for accurate updates of critical supply usage and replenishment needs. Cost-effective point-of-use data collection will virtually eliminate many of the data errors inherent in today’s materials management systems and provide real time data throughout the supply chain to insure the availability of appropriate material for exceptional healthcare services. This will include the automated capture of secondary product data for associating lot numbers, serial numbers and expiration dating to enhance patient safety.

Ease of data collection using RFID and wireless computing technologies, the continued reduction in cost for this type of technology, changing materials practices including more vendor-owned inventory, and new materials management systems that take advantage of new technologies and data collection methods, will all lead to a changed face for healthcare materials management. Just as leading edge technologies in materials management have been instrumental in providing better service at reduced cost to customers in the automotive, retail and service industries they will now provide these gains in healthcare, and significantly help to reduce the cost of delivering quality care while enhancing patient safety and accuracy.

"Building upon the current point-of-use foundation, in this new automated replenishment environment, neither caregivers nor materials personnel need to do anything at all to initiate inventory replenishment. Electronic sensing is employed along with sophisticated software and network access to automatically create replenishment requests and, when appropriate, to charge patients." - Joe Dattilo, president, PAR Excellence Systems Inc.

I see many of the technologies merging and combining on to a few standard platforms centered on low cost, high flexibility and scalability. Smaller, integrated radio circuitry on a single chip with battery power tailored to the product’s lifetime in the supply chain will dominate the landscape. If a consumable product normally moves from manufacturing through to actual use in three weeks, it will be optimized to have enough power to last that timeframe. This will help keep the technology low cost.

I envision an advanced, rules-based software package that proactively reports real, emerging and potential inventory issues before they happen. Everything from ordering, shipment, transportation, billing, tracking, locating, etc. would be built in and it would offer the user resolution scenarios and reports based on past history. Inventory management would truly become a JIT activity with lower inventories, higher turns and much lower costs. Intelligent systems will basically manage themselves with little intervention required. Today’s technology has influenced process, but tomorrow’s technology will create, manage and optimize processes based on their own intelligence.

Like any new technology, it has to produce an ROI to justify itself. The challenge will be for the technology developers to be able to produce solutions at a price point that makes sense and provides a return to both their customers and their investors.

"... integration of closed-cabinet and open-shelf point-of-use solutions with a sophisticated Web-based procurement system will create a fully automated, truly end-to-end med/surg supply chain. This flexible, end-to-end solution will be deployed not just house-wide within hospitals or even across multiple affiliated hospitals, but throughout the full spectrum of facilities within integrated delivery networks ..." -Ken Perez, vice president, marketing, Omnicell Inc.

Although many industry leaders predict that in 10 years everything in a hospital will have an RFID tag for inventory purposes, I’m much more skeptical. I do believe that there is legitimate ROI and hospitals will spend money for a set of applications in which RFID makes sense. The active tagging of high-value assets is certainly one. Many hospitals carry twice the number of certain devices (infusion pumps, respirators, etc.) than needed, not because they’re all in use but because they are difficult to track.

I also think that passive RFID solutions make sense for high-value products, such as surgical or prosthetic devices. Using smart shelves or portals makes sense to record the devices’ use and to get another one ordered. It particularly pays for vendors placing high dollar value consumables in a hospital on consignment. By using passive RFID technology to record use, a vendor has the ability to bill for a consigned item much faster, thus increasing cash flow.

Many hospitals currently use a rudimentary system to receive items at the loading dock, and then those supplies go into a black hole. The ERP systems I mentioned will be used more frequently with wireless local area network (WLAN) solutions (which are a perfect compliment to the ERP system) in hospitals to allow real time inventory levels, replenishment and ordering, which is light years ahead of what many hospitals are currently using. WLANs combined with PDA-style devices provide unprecedented access to information.

Hospitals are realizing that to maximize their technology investments they will need to move beyond point solutions to combining solutions that incorporate WLAN infrastructure, handheld computers and/or scanners with a management software layer that provides visibility, provisioning and control of mobile devices and assets. Companies, like Symbol Technologies, are providing asset management solutions for the healthcare industry which combine bar code and/or RFID technology, handheld computers and WLAN connectivity with software to better track assets both inside and outside the hospital.

Traditionally, inventory management efforts at healthcare organizations have focused on trying to save money by increasing inventory turns and reducing inventory safety stock. Lawson’s Supply Chain Management suite and inventory management tools have helped clients do this and realize substantial value. In the future, we expect to see a greater focus on maximizing the overall resources of hospital. In addition to addressing historical demand, inventory management solutions will need to take into account multiple types of data — clinical, patient census, staffing levels, etc. — to truly optimize how inventory is managed. This shift towards optimization will require a greater emphasis on software that can analyze this data and suggest what and how much inventory to carry at each location.

As healthcare providers start to maximize their supply savings through standardization, and reduce inventory levels and process efficiencies, they will ultimately look at how all facets of their operations interrelate and work to optimize resources across all activities. Thus, it will become increasingly important for healthcare executives, including directors of materials management and finance, to have access to aggregated and timely information in order to manage operations efficiently, particularly as demand changes.

In the future, inventory management solutions will need to take into account more data, including planned cases, available beds and patient census data to provide recommendations on how to manage operations. The resulting information will help healthcare providers optimize material resources to support their desired clinical outcomes and metrics.

A greater capacity to share, access and accommodate new data due to open software platforms built on service-oriented architectures, coupled with the business intelligence and business process management tools to act on the data, has the potential to further elevate the role of the materials management team. Specifically, it will give them the information to make better, faster, more-informed business decisions. These capabilities also will provide the flexibility to adapt to change.

Although there is an abundance of information in ERP and other systems, these new technologies will connect more parts (including clinical departments) of the organization together, allowing for a more complete and timely view of what is happening. This inter-
connectivity will lead to better decision-making.

In 10 years, we expect that the cost of technologies for automated data collection, such as RFID, will dramatically decline. In addition, new software will be built using open technologies, such as Java, which will reduce maintenance costs and simplify integration. Many of these advances also will be able to leverage existing investments, such as new wireless networks. Lawson is dedicated to providing solutions at the lowest total cost of ownership and delivering compelling value for the healthcare industry.

PAR Excellence believes that viable solutions need to not only push the envelope of innovation but also be available to a broad market segment in a way that provides immediate justifiability and the ability to implement in a short time frame. ROI must be realized quickly.

We are designing systems today that we believe will be the next generation in supply chain management. These systems can be characterized as ‘automated replenishment systems.’ Building upon the current point-of-use foundation, in this new automated replenishment environment, neither caregivers nor materials personnel need to do anything at all to initiate inventory replenishment. Electronic sensing is employed along with sophisticated software and network access to automatically create replenishment requests and, when appropriate, to charge patients. Human activity is reduced to physically moving products from the supply source to the point-of-use. The caregiver simply dispenses the supply and the system automatically captures the event. Besides the obvious labor reductions, the automation also provides the distinct advantage of eliminating situations caused by end users’ improper use of their existing technology.

By reducing time spent in replenishment activities, materials managers will have the time to more effectively manage through the analysis of information now available to them from their automated processes. We are continually seeking more sophisticated and automated methodologies to assist the material manager in their ability to analysis the data in order to immediately and automatically impact activities and results.

We at PAR Excellence are always looking for ways to make supply chain solutions both easy and affordable. Improvements and advancements in technology are fueling our solutions.

Unlike most industries ranging from retail to manufacturing, in today’s healthcare environment, the health system owns the inventory and the supplier only has visibility when purchases occur. There is little if any use of advanced planning techniques to minimize inventories. Health systems can and will use their projected revenue budgets, expected care patterns, historical service patterns, planned clinical offerings, seasonality and variability to expose to the suppliers probable buying patterns. These demand requirements, in turn will allow the supplier community to improve their production planning and inventory management.

With visibility into the existing inventory, planned procedures and the expected procedural mix, suppliers can reduce production and management costs, improve lead times and manage emergency situations more effectively. Passive RFID technology will augment the process by ensuring accuracy when supplies are received, stored, moved and consumed, 24 hours per day 365 days of the year. Visibility is the ultimate key to success. Provider distribution centers can achieve even greater returns by using sophisticated warehouse management techniques and multitasked devices to dynamically place supplies in stock locations to minimize put away and picking time, ensure stock is rotated, and guarantee accurate and timely distribution of a wider variety of supplies throughout the health system.

All of these techniques will improve communication between suppliers and providers. More importantly, minimizing overstock situations can reduce costs and obsolete inventory, expanding the concept of what is inventory and managing this broader portfolio of goods. Suppliers can improve planning and process efficiencies reducing costs for both suppliers and providers. Most of these methods can be adopted with minimal expansion of existing technologies, while others require greater investment. Organizations who implement these techniques will be in a better position to adapt to the ever changing clinical supply requirements of the industry and improve their speed to market in delivering new medical technology.

Patient safety will continue to be a primary concern of healthcare providers, with various forms of pay-for-performance providing economic ‘carrots’ and/or ‘sticks’ to implement patient safety solutions. The continued focus on patient safety will not be limited to the U.S. — it will be an increasingly global concern, as the Joint Commission on Accreditation of Healthcare Organizations will provide thought leadership for the World Health Organization and thereby influence other nations’ patient safety agendas. Contrary to what many are prognosticating today, electronic medical records (EMRs) will not be ubiquitous 10 years down the road, but EMRs and the systems which feed information into them — especially for the medication-use process — will be prioritized in the budgets of hospitals and will still be a work in progress.