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Copyright © 2013

      Clinical intelligence for supply chain leadership



March 2013

Special Focus


Lessons learned from inventory management foibles

Successes can be peppered with irritating failures

by Rick Dana Barlow

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.

In the print edition of the March 2013 HPN you most likely read about the good. Here you can read about the bad and the ugly, and how they improved the situations.

Lessons learned

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

Every hospital evaluates ways and measures to improve their performance in relation to inventory management but not every strategy works as many have experienced over time. The key to maximizing your strategy can take some trials and errors in your approach.

One particular example includes a very large hospital system that recognized their need to manage inventory and the basic steps that needed to be put in place, which included establishing PAR levels. The challenge came with trying to apply a particular behavior across all areas. This is important to consider when applying strategies in managing inventory.

Not all general strategies apply to each department within the hospital. Specifically in high-expense areas like Surgical Services, Radiology or Cardiac Cath Labs, the needs are specific to the patient load being serviced. The lack of customization by department resulted in those areas continuing to order supplies that did not cycle at maximal performance. Part of the key cause of this was in the standard distribution model they applied across the organization.

What works in the general supply areas in relation to delivery frequency, numbers of locations of those products, and the number of users having access to the ordering process continued costing them more because of the excess of supplies being ordered and lack of communication between the areas. This key step in managing inventory, limiting the number of staff with authority to order, is critical in controlling costs and the basis for how purchasing started losing control and housing over $7 million in inventory. Customizing your inventory in key high spend areas and limiting the number of purchasing staff is the basis for maximizing your supply chain strategies and can only be designed after a facility has performed due diligence on their actual utilization within these areas and then applying customized par levels to meet the needs.

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

Any time you implement a change in a supply chain process, there is the potential for pushback and resistance from the clinical staff. In this case, we used a clinical champion, Corey Blankemeyer, who was well-respected by the rest of the clinical staff. Corey ensured there was clinical staff involvement when implementing changes to create greater staff engagement and buy-in for the process changes. This was one of the key reasons for the success of this initiative.


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

A common misstep is not having a POH (products-on-hand) in a format that is easy to leverage to determine appropriate on hand inventory levels. Without this information, inappropriate levels are set, and excess inventory occurred. Product expiration and product waste then become problems both with the supplier relationship and budgetary impact.

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

Once the decision has been reached by a cross-functional decisional committee to implement a supply chain automation solution, our implementation team begins to map a roll-out strategy with internal stakeholders. We work closely with materials management staff, clinical personnel, IT administrators and hospital executives to arrive at a plan that ensures all departments are well-equipped to introduce a new system into their workflows.

A key element in this process is to identify “super users” in each functional area with whom our project managers work extensively to ensure deeper system knowledge and consistent onsite expertise. These super users are extensions of our training team, facilitating access to all users and strengthening the adoption of a new system.

Coaching these super users in the early stages of an implementation is one component of our approach to effective change management. Our supply chain consulting pedigree teaches us that change management is successful when people are engaged and educated, so we place great importance on developing this effective training platform.

During a recent project, however, a key super user in Materials Management resigned from her position at a pivotal point in the implementation. Because she had been a driving force with her staff and in this project, we faced a hurdle in compensating for this sudden loss of leadership. While the solution was straightforward — we allocated the resources necessary to train new super users in order to preserve the same time commitments and ensure a smooth transition — the lesson was more impactful. Whether the issue is people, processes or technologies, no solution is complete without planned contingencies. This experience reinforced the importance of evaluating the worst case scenario and planning for its resolution.

It is undeniable that the human resource will continue to play an important role in the supply chain. Although the role will evolve as new technologies are integrated, this experience reminded us of the importance of having a dedicated team supporting institutional goals and how the culture of teamwork can help overcome challenges such as change management and personnel shifts.

Thus, although we lost a super user, we nonetheless effectively transitioned to the automated inventory management system by leveraging our resources, internal leaders, and a robust culture of success.

Sandesh Jagdev, Principal, Logimaxx

Here are some common missteps we typically see in many healthcare organizations:

All supplies are not created equal: While managing inventory, many consider inventory turns as one of the key measures, which is partially true. Some supplies represent a large portion of inventory value and therefore the use of similar inventory policies are not applicable to each supply type. The manual approach used by many to set the inventory levels often leads to either higher inventory related costs or service failures. SLIM Analytics help assess usage on an item-by-item basis so you can use this information to group items by value categories, and not just report a lower turns ratio. This presents a tactical item-by-item approach to achieving the savings. The lesson learned through this process was that inventory management goes well beyond reacting to a ratio such as inventory turns.

Unit of measure conversion issues: This is something that most MMIS/ERP systems are very well-equipped to handle in terms of setups. However, due to the sheer number of items and associated transactions, user errors can lead to ordering of 12 boxes (12 each) as opposed to ordering 1 box. Especially when it comes to a high-value inventory item, this could lead to major increase in inventory value and in some cases this leads to obsolescence if an item is used infrequently. As part of SLIM Analytics, a special attention is given to proactively correcting any errors leading to unit-of-measure-related issues. The lesson learned here is that focused attention is necessary when setting up a product for acquisition or distribution, which in turn is critical to inventory performance.

Lack of trust with the clinical staff: The most important step in successful management of inventory is building a high level of trust with the clinical staff. If there is an instance of one stock-out, more than likely it leads to someone storing additional items at undisclosed location. This could be avoided by creating a proactive process that lends to clear communication with clinical staff. In addition, this includes communicating product changes to the clinical staff along with their approval. Ensuring a clear link between old product and new product leads to better information flow. In many instances, this is another area that could negatively impact inventory management.

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

Most hospitals have an enterprise resource planning (ERP) system or a Materials Management Information System (MMIS) used to manage purchasing and inventory activities. Most of these systems contain functionality for storing reorder points (ROPs) and reorder quantities (ROQs) for each inventory item.

Some facilities, however, neglect to update ROPs/ROQs as usage changes over time. As a result, items with falling usage end up being overstocked, and items with increasing usage have to be ordered with increasing frequency, increasing the risk of stockouts. To avoid this scenario, hospitals need to periodically review item usage, and mathematically determine updated ROPs and ROQs. Calculated values need to be reviewed and verified with affected clinicians and end users, and then updated in the ERP/MMIS application to optimize order frequency and inventory levels.

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

I had the following related to me by [my colleague] Fred Crans, someone who has spent a great deal of time helping others reduce inventory.

The biggest misstep I have seen is someone going in with guns blazing without setting the stage properly with the key stakeholders. A materials management department that is perceived as having poor service levels should not embark on inventory reduction projects until it has cleared up the perception it faces of providing poor service levels. If the areas targeted for inventory management include high supply cost areas such as orthopedics, cardiac rhythm management, etc. All of the stakeholders need to be included in the process, and progress must be carefully managed along the way. It is far better to move forward deliberately, and with cooperation and support from key stakeholders, than to forge boldly forward and face the possibility of creating an adversarial situation. The benefits of reducing inventories need to be clearly identified, carefully communicated and measured in order for the best results to be attained.

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

Many healthcare providers use their clinical systems to manage supplies, but these systems have limitations since their primary function is not supply focused. Others use their distributor’s systems for ordering but often find that they are limited to ordering one product category such as medical/surgical or pharmacy. When evaluating a MMIS, a soup-to-nuts solution that integrates ordering and inventory management will provide the most value.

Another issue we see, especially in smaller group practices and non-acute settings, is that the responsibility for inventory management is spread across multiple individuals, but no one’s full-time occupation. The result is a poorly documented manual approach to inventory management that reduce productivity as people search for documentation to reconcile price differences between the purchase order and the invoice, or wait for purchasing information to be scanned or faxed. When it’s not a formalized job function, providers take an ad hoc approach, for example using spreadsheets to track products and expenses which doesn’t provide the extra value in identifying usage trends and costs that an automated inventory management system can.

Whichever system you select, make sure that it works with your processes and provides you with the ability to manage your entire supply chain, not just submit an order or enter items for preference cards. Your MMIS should enable you to take control of your supply chain and leverage it to benefit your bottom line, for example allowing the provider to aggregate all expenses related to a specific case to get the overall cost to perform that case – case costing. While there are several components to the overall cost, supplies and products comprise a large percentage.

Some questions to ask when considering a MMIS:

• Can you order all supplies from the system?

• Does the system work with bar-coding technology?

• How easy is it to pull reports from the system and are the reports useful and actionable?

• Does the system provide the data to assure you that you are paying the right price?

• Can the system alert you when stock is low?

• Does the existing system help you track back orders or open orders?

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

We converted one supply room at another customer to FrameWRX with a two-bin color-coded automated kanban system, using the StockBox. This customer was previously using a PAR level system with electronic cabinets and tracking, where nurses had to scan and enter information in order to remove items for patient care. Again, this setup was for a trial period.

The customer trained the nurses on how to use the Kanban/StockBox system. Everything was going well, considering this was a new system, but after a week or two, the supplies usage in this room skyrocketed. We came to find out that the nurses liked the new system so well they were coming all the way from the other end of the floor to use the supplies from this room rather than using the room closest to them that had the electronic cabinets for supplies.

The director of materials management then threatened the nurses that if they didn’t cut that out, she wasn’t going to implement any other FrameWRX/StockBox combinations.

Arnold Chazal, CEO, VUEMED, Seattle

Whenever a hospital brings in a new technology to improve its clinical inventory management, there are a number of IT hurdles to overcome, even when the technology is only a light software supported by cloud computing. Success does not only lie in the results obtained through the use of the new technology, whether it is measured in cost savings, efficiency gains, increased patient safety, or user satisfaction. Success is also determined at an earlier stage – during the implementation.

A successful implementation is not always a given, namely because the environment and hospital staff play a major role in determining whether the installation of the new technology goes smoothly or not. In a couple of instances where the implementation of VueTrack was delayed by over nine months, the hospital’s IT department was the primary cause. In one case this delay happened because of the difficulty VUEMED experienced wading through the red tape and getting the right forms completed and approved by the appropriate authority. In the other case, it was due to an overburdened, disorganized, and poorly managed IT department that could not – or would not – allocate resources to the endeavor.

In both cases, the clinical users and materials management had been the driving force behind the acquisition and adoption of the new technology, and their IT department was not prepared or willing to handle another project. These delays were very frustrating both for VUEMED and for our customers.

One lesson we learned from these two experiences was that the IT department should be an active participant in the technology purchasing decision, and should understand from the outset its responsibility to provide complete support to the implementation process. IT departments also need to recognize that inventory management has become a core technological part of the hospital environment that will only continue to grow in importance and must be accepted as such, as vital as any other system supported by IT.

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

HLS was directed by a national healthcare company to put in our system concurrently while they were also installing a new Financial and Materials Management/Financial System. Although HLS advised against parallel installations, HLS was tasked with not only installing the HLS system but training staff and placing the system into production the same week the hospital was scheduled to go live with their system. Needless to say the time and attention to our system was not available, and as a result, HLS had to reschedule a return visit to get the hospital up and running.

Stuff happens so manage wisely

Lessons learned from inventory management foibles

More inventory management best practice tips

As the inventory turns