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KSR Publishing, Inc.
Copyright © 2016

         Clinical intelligence for supply chain leadership



March 2013

Special Focus


Stuff happens so manage wisely

Supply chain should not dismiss the importance of inventory management

by Rick Dana Barlow

When you strip away the advanced software, the carousels and robotic arms, the computerized cabinets and color-coded bins and shelves what you’re left with are stacks of stuff ready for use. Well, that’s the plan at least.

Of course, you have to make sure that clinicians use the older products before newer ones (first in, first out, if that’s your system) to beat those expiration dates, that they use sterile products if necessary and that what they want is available.

The more things change the more they stay the same the adage reads. But that last qualifier can be the clinician dependability and reliability deal-breakers for supply chain professionals.

But that one simple misstep — if it ain’t there they’re not doing their job — may not be so simple after all as supply chain professionals somehow have to be plugged into clinician demand. In short, they have to know what clinicians need before they need it, a critical skill and talent to possess when you’re dealing with critical care units.

While managing inventory may seem monotonous it’s actually vital to the delivery of patient care, efficient, effective or otherwise.

That’s why Healthcare Purchasing News queried a variety of healthcare supply chain experts for anecdotes, innovations, success stories and useful tips on what they consider to be best practices in managing inventory — from shelving to software to storage and even simple customer service. Some of their case studies and recommendations may seem rather basic but they provide effective reminders to avoid being overlooked.

Read the first part of this story, which features success stories, here; read the second part of this story, which features lessons learned, at www.hpnonline.com/inside/2013-03/1303-SF-InvMgtBP2.html

Success stories

Lori Pilla, Vice President, Amerinet Clinical Advantage and Supply Chain Optimization, Amerinet Inc., St. Louis

Three years ago a customer who managed a traditional inventory supply chain process, uncovered the fact that several times throughout the year, the supply chain team uncovered supplies that had expired, forcing them to discard, thereby increasing their costs. After further evaluation and analysis of the total supplies causing this waste, it was determined that the best solutions to resolve this challenge would include moving their inventory to a JIT (just-in-time) process with the goal of further reducing costs.

Applying a demand pull system for reordering eliminated waste and improved their supply chain efficiencies. The previous 24 months of trending revealed that at any given time, the facility was housing over $3 million in inventory onsite, and challenged with the costs and expense of the supplies, [it lacked] the resources needed to distribute and manage in a cost-effective way.

Moving to a demand-managed system provided improvements in expenses by reducing the volume of supplies being ordered, established an accurate reordering of items through automation of PAR-level monitoring, and reduced the expense of managing the storage of excess inventory. In addition, this immediately eliminated waste by cycling products more frequently and avoiding expiration of supplies on hand.

In the first 12 months of execution, the JIT inventory management system yielded over $3.3 million in savings and allowed the provider greater control over their entire supply chain process. Purchase orders were reduced and more control applied over what items were coming into the hospital by implementing in parallel a multi-disciplinary Value Analysis Committee. This full spectrum collaboration continues today and has contributed to positive financial performance.

Jason Hayes, Director, Supply Chain, St. Rita’s Medical Center, Lima, OH

A supply chain optimization effort was recently completed with St. Rita’s Medical Center, a 425-bed hospital that offers a wide range of services, including cardiology, orthopedics, oncology, pediatrics and labor and delivery services, to the surrounding community in west central Ohio. Our hospital has 16 operating rooms (ORs) and performs more than 11,000 surgical procedures annually. While the hospital is recognized regularly for excellence in supply chain operations, our leadership continually strives to push the envelope to make hospital operations better and smarter, taking a "Gold Standard" health system to the next level.

To do this, we began to evaluate the integration of a supply chain automation solution to maximize savings and achieve the most effective supply chain management strategy possible. Supply chain automation was attractive to us because it provides our hospital with stronger controls and monitoring of hospital inventory, enabling enhanced accountability of inventory consumption by linking itemized inventory consumption and billable activities. A centralized automation system also would provide our hospital with direct visibility to the true levels of on-hand inventory that are necessary to support clinical operations. We were also particularly interested in realizing these benefits in our hospital’s operating room environments, where up to half of a typical hospital total operating budget is allocated, and about half of the revenue is generated.

To achieve our hospital’s goal of moving an already excellent operating structure to the next level by integrating and automating supply chain management strategies, CareFusion worked closely with us to deploy a comprehensive suite of Pyxis automation technologies. The deployment linked our hospital’s Cardiac Cath Lab, Interventional Radiology (IR) department, nursing areas and operating rooms. By integrating this comprehensive automation solution with our hospital’s operating room information system (ORIS), CareFusion was able to help us streamline nursing workflow and allow our nurses to spend more time on patient care. In addition, CareFusion was able to help us improve inventory management, increase charge capture and better control supply costs due to the availability of actionable data, realizing an estimated 11.8 percent decrease in supply expenses along with a 3.5 percent increase in supply revenue in 2011.

Kerry Bradford, R.N., Director, Solution Consultants, Implantables & Device Supply Chain, GHX, Louisville, CO

At Shands Healthcare in Jacksonville, FL, a major inventory reduction initiative was run to decrease on-hand inventory and provide significant cost savings. They conducted a physical inventory count and bounced this against an 18 [projected on hand] provided in NuVia and were able to identify usage against the on-hand products and determine appropriate PAR levels. Additionally and unexpectedly, they are able to catch products that they had on hand, but had no formal Item Master record. This process allowed alignment of inventory and ERP, maximizing the investment in their ERP, and the cost savings was significant.

Richard Philippe, Founder and President,
Logi-D, Henderson, NV

The Lean committee in place at a hospital had performed several analyses of its OR supply chain practices in order to identify the source of inefficiencies that had been eating into the institution’s bottom line. The committee instituted a series of changes aimed at process improvement, but inventory levels still seemed high, replenishment activities remained time-consuming, and supply shortages continued to crop up.

As is often the case, hospitals recognize that they are spending too much money due to inventory management issues but find it difficult to pinpoint exactly how to resolve them. It is not uncommon for us to come into a hospital and see a patchwork of remedies; multiple inventory management systems, disparate workflows optimized over time or the ever-common overuse of manual processes.

Our consulting team helped analyze the OR replenishment processes in place. The analysis revealed that the inefficiencies resulted from a fundamentally flawed system. Beyond disorganized storage areas and fragmented supply chain processes, the materials management team had no visibility of point-of-use consumption in this department.

Due to this lack of visibility, a considerable allocation of resources had been deployed to manually scan and count inventory levels throughout the OR on a daily basis. Of course, this reliance on manual counting is subject to human error, and this non-value-added use of human resources accounted for a significant financial burden.

Further, it was revealed that the fragmented supply chain processes prevented Materials Management from knowing whether a requisition had been ordered in duplicate. As a result, Materials Management would order based on inaccurate demand assessments with no tools to prevent doubling or tripling the quantity required.

The result was twofold; erratic stock levels accounted for the most immediate inconvenience for front line staff, but the loss associated with items expiring due to poor visibility was corroding margins.

In order to integrate processes to enable visibility, increase workflow efficiencies and ensure stock availability, the hospital opted to integrate technology into the management of its OR inventory. Its decision was to implement 2BIN-iD, the patented Logi-D RFID-enabled two-bin replenishment solution.

Throughout the implementation of 2BIN-iD, the Logi-D team worked closely with clinical and materials management staff to assess — and challenge — storage locations and supply placements alike. By optimizing the physical layout of the storage areas, we were able to minimize the storage footprint, improve the ergonomics for clinical staff, and streamline replenishment workflows.

The OR transformation project was an important undertaking for this hospital because its situation was unsustainable. With resources stretched and inventory visibility limited to physical counts, the department was suffering from inaccurate demand assessments that resulted in uncontrolled inventory levels. Logi-D was able to produce a 41 percent reduction in inventory levels, an estimated 50 percent reduction in expired items, and a 45 percent reduction in the time spent on replenishment activities. These gains equate to a payback period of less than 18 months, delivering to the hospital a solution that not only addressed the process inefficiencies that were so prevalent, but also renewed the financial health of this critical department.

Sandesh Jagdev, Principal, Logimaxx

At a major IDN in Louisiana, Logimaxx, in collaboration with Optimé Supply Chain, has applied its SLIM [Strategic Logistics and Inventory Management] Analytics subscription service for all of their major acute care facilities. The SLIM process has been initiated at this IDN for last few months, although it is yet to be implemented in a complete manner. Most Materials Management Information Systems (MMIS) or Enterprise Resource Planning (ERP) systems are not able to manage beyond the daily transactional nature of inventory management functions. These systems have rudimentary reporting systems that do not have the capability to analyze the transactions in any meaningful ways. We were able to build individual inventory and manpower optimization models using statistical modeling tools for the storeroom, PAR areas, surgical supply and specialty areas such as Cath Lab, Radiology and Special Procedures. Here are some highlights of each of the solution areas:

Storeroom Inventory: As part of our service, we perform storeroom analysis every three months to identify any savings opportunities while eliminating potential stockouts. As part of our solution we were able to reduce the storeroom inventory by 25 percent-35 percent, while reducing lines received by 10 percent-20 percent. Demand seasonality was addressed as part of the solution. Recommended levels were reviewed by the client before making final changes to the stock levels.

PAR Inventory: A key goal in PAR optimization is to maximize productivity. In many instances, a lack of space is used as an excuse to replenish supplies in PAR areas more frequently than warranted. It is matter of having right amount of supplies at right place. In addition, developing where possible PAR levels that are sufficient for longer periods of time will permit less frequent replenishment. Also, not all supplies need to be on the patient floor. Occasionally used items need not be on patient floors, especially if they could be sent via [pneumatic] tube. By implementing our solution, approximately 40 percent-60 percent productivity improvement was made from reducing supply replenishment from every day to 1-3 times a week. Overall inventory on patient floors was reduced by 5 percent-15 percent. The number of items stocked on floors was reduced by 20 percent-30 percent. Through all of this the service levels, as measured by stock-outs, were less than 0.3 percent.

High Value Inventory Areas: Most hospitals typically use the "just-in-case" inventory model in surgery areas due to occasional spikes in demand patterns. The result is excessive inventory of high-cost items. Typically, 80 percent-95 percent of the surgeries are scheduled at least a week in advance. We used surgery schedules to drive the demand and plan the safety stock levels to cover the "add-on" surgeries, which are by far a small fraction. As a result of implementing this "just-in-time" demand-planning model 15 percent-25 percent inventory reduction was accomplished. Similar savings were also accomplished in the high-value inventory areas such as Cath Lab, Radiology and Special Procedures.

Jerry Rayburn, Senior Vice President, Supply Chain Services, MedAssets, Alpharetta, GA

While the entire supply chain is critical to hospital operations, inventory management is particularly crucial. A key component of effective inventory management is the optimization of clinical product consignment. One major health system took a systematic approach to the management of consignment inventory, targeting high-value and low-movement items. The health system leveraged its relationships with key suppliers to increase products available under consignment, while also standardizing the legal contracts governing operational policies and processes.

The health system engaged MedAssets to help develop a contract template that stipulated terms and conditions requiring vendors to periodically review and verify the availability of consignment products. By presenting upfront the legal terms and conditions, and outsourcing inventory management processes, the health system was able to dramatically increase visibility, focus and consistency as it expanded the scope of use of consignment inventories. As a result, the health system was able to move a total of $6.7 million of owned inventory to consignment.

Michael Neely, Senior Vice President, Operations, Optimé Supply Chain, Skokie, IL

One of the best successes that I experienced with an inventory project was one in which the Surgical Services department approached the Materials Management department that I was working with and asked for help with bringing their inventory under control. They had heard of the results that we had achieved by working with the individual nursing stations on reducing inventory and established workable PAR levels. We had established a good working relationship with nursing, and the good news had spread to other areas, which made us a popular "go-to" area.

We worked with Surgery to establish specific targets for the multiple areas of inventory within the surgical suites. We picked individuals within the various disciplines to work directly with our inventory team so that they would feel ownership for the project. We started slowly by tackling smaller areas first to develop a process and methodology that we then applied to the larger target areas after we had established a good relationship and had proven that we could succeed. The process of setting mutual goals and measured progress while involving the users along the way proved to be a big success. We were able to reduce the total inventory by $1.5 million and increased the average turns to six from two annually.

Jon Pruitt, Vice President, Procurement Solutions, Provista LLC, Irving, TX

Inventory management and keeping the flow of supplies consistent, up-to-date and under budget is very important and one area where healthcare organizations can lower costs since supplies typically represent their second largest operational expense. Implementing an inventory management system not only improves efficiency, it also reduces the hassle factor for those responsible for supply chain activities.

In the case of one Provista customer, Regent Surgical Health, which develops, manages, and owns 24 ambulatory surgery centers (ASCs), including many jointly with leading hospitals, deploying a materials management inventory system (MMIS) had the effect of increasing contract compliance to get better pricing. Amy Gagliardi, Regent’s corporate purchasing director, found that her GPO offered a materials management information system that was a good fit for Regent.

Regent saved a total of $1 million across 11 facilities in approximately seven months. "The savings were achieved by having greater visibility into the prices paid for each product across all of our ASCs through the three-way match process," Gagliardi said. "Also, the MMIS’ enterprise capability made it possible for us to track and enforce our local GPO contracts across all of our ASCs."

The MMIS has also enabled Regent to benefit from adherence to the supply formulary, to reduce purchase order processing time by 60 percent thanks to electronic ordering, to escalate contract compliance by all facilities, to reduce the average inventory value across all facilities and to significantly improve invoice payment efficiency.

Shelley Smith, Product Manager, Shelving & Storage, Spacesaver Corp., Fort Atkinson, WI

Our success story includes converting one of a customer’s supply rooms from a PAR level inventory management to an automated Kanban system using Spacesaver’s FrameWRX and StockBox products. The room contained approximately 200 unique consumable items, including gloves, diapers, IV drips, etc., with inventory in excess of 3,600 items. FrameWRX was installed and configured with a two-bin Kanban system and the StockBox.

Within two months, inventory was reduced to about 1,900 items from 3,600+ items with one right-sizing, resulting in inventory savings of $1,000. In counting alone, 1.5 hours a day were saved, which equates to 468 hours per year. This personnel-counting savings, including overhead, equates to $7,020 per year. In addition, they have experienced zero stockouts since installation.

There was additional personnel time savings as well. For supply clerks and SPD techs, the customer conservatively estimated that they saved — with no hunting and gathering or calling for items — two hours a week or $1,170 per year. For nurses, with no hunting and gathering or calling for items, another two hours a week or $3,120 per year was saved. In addition, by removing the ambiguity from the process, workplace satisfaction for these teammates improved as well.

As a result, the ROI for this room was less than 18 months, and the customer has decided to convert every supply room in the hospital to FrameWRX and automated Kanban using the StockBox.

Arnold Chazal, CEO, VUEMED, Seattle

Although capturing product utilization information at the point of care is very important, it is not, in and of itself, sufficient for establishing a truly effective inventory management system. Rather, products and supplies need to be recorded as they are received in the department down to each stock-keeping unit (SKU) and then tracked and managed all the way through the point of care. Only when these two control points are in place can inventory be managed truly effectively, allowing for meaningful, analytical reports that enable hospital departments to take action and control their inventory.

By using our technology solution, VueTrack, which controls products from the point they are received in the department through their utilization for patient care or removal from the stock (exchanged, returned, expired, recalled, loaned, etc.), VUEMED’s customers achieve substantial savings. Here are some concrete examples of such savings:

• Since using VueTrack, a 12+ procedure room Cath Lab has been able to document swiftly and accurately all medical devices and supplies used for patient care, thereby increasing its charge capture by over $100,000 per month, producing a return-on-investment of more than 1,200 percent annually.

• Using VueTrack, a five-room Interventional Radiology department was able to set smart, dynamic PAR levels based on actual usage and existing inventory availability. As a result, it was able to reduce excess inventory and adjust inventory composition to the point where it decreased the overall inventory by 18 percent in terms of the number of products on the shelves, and nearly 16 percent in terms of value. This department saw a ROI of more than 1,000 percent.

Jim Stiles, Executive Vice President,
HealthLine Solutions, Plano, TX

HealthLine Solutions has a client that implemented the Visual Cart Inventory Management System (VisCIMS) Point-of Use System into the emergency room department. Typically, this department is not an area where POU Systems have been successfully implemented. Nursing participation is usually low-to-medium and inventory is "housed" in many different locations and areas where shelving does not house inventory adequately for easy access.

This hospital had several reasons to initiate an investigation to begin implementing this type of system. The No. 1 reason: 40 percent-45 percent of all admissions initiated out of this department. Patient revenues were not meeting administration’s expectations and inventory was not properly being managed. Post implementation demonstrated an increase in revenue and a slight reduction in inventory. More importantly, the facility saw inventory counts shifting from those locations where inventory was high, as in not being used, to areas where inventory was consistently out-of-stock because of product demand.

Stuff happens so manage wisely

Lessons learned from inventory management foibles

More inventory management best practice tips

As the inventory turns