Budget-based storage design/redesign doesn’t have to be cost-confining

Dec. 19, 2019

Realistically, when designing or redesigning a storeroom or warehouse, supply chain executives and professionals must navigate within the confines of a constraining budget.

Some may see that as an inhibitor; others view it as a challenge in that it tests one’s cleverness and creativity to succeed within your means but beyond your needs.

Fiscal temperance may be limiting but it shouldn’t be stifling, sources assure.

“Budget constraints are the norm and reality in the healthcare supply chain,” said Gordon Slade, Logistics Director, Intermountain Healthcare Supply Chain. “In spite of the budget challenges, highly effective and reliable warehouse/storerooms are possible using traditional warehousing/storeroom methods. The key to success is being realistic and being willing to define strict rules and limits – you won’t be successful if trying to be all things to all people with minimal resources. Define what items are most important to manage and focus on what can be done with finite resources available.”

Less upfront capital investment shouldn’t be a crutch.

“Budget-constrained warehouse design should focus on the reduction of manual labor touches, inventory and travel time through the warehouse receiving, put-away, picking, replenishment and shipping process with a low-to-moderate level of automated material handling,” Slade continued.

At core, a warehouse management system (WMS) should be integrated or interfaced with an enterprise resource planning (ERP), which should provide inventory visibility and basic support technology and tools from purchase to end-user locations, according to Slade. Further, the warehouse should incorporate lean methodology throughout its processes to eliminate waste, and reduce process variation and touches where possible, he added.

A budget- or resource-constrained design/redesign project can forget about material handling automation or technology that may not directly support or be compatible with other standard warehouse process flows, technology platforms, operating systems and/or custom programming and interface to communicate with existing WMS/ERP systems and technology tools, according to Slade. “Independent automation and software solutions can be highly problematic to implement, support and maintain within a resource strapped and budget constrained environment,” he observed. To read Slade’s list of useful tools, “But here’s what really happens based on resources…” below.

Fred Landgraf, Senior Vice President, Supply Chain Solutions, Intalere, acknowledges that a basic amount of capital is required to fund a warehouse or distribution center, but he cites several opportunities to minimize upfront expenses. They include: leasing the facility, material handling equipment and even some of the internal storage equipment.

Another option includes contracting with an outsourced third-party logistics (3PL) service that may incorporate an upfront agreement for the healthcare organization to “buy out or assume the takeover” of the operation, Landgraf continued.

Conveyor automation may be attractive so long as the warehouse management system selected can support workflow planning and dimensional characteristics, he said.

All told, Supply Chain must “evaluate the workflow layout and the physical slotting regardless of the size of the facility, storeroom or warehouse,” Landgraf noted. “In most storerooms very little effort for ongoing analysis of picking [units of measure] and levels of inventory usage is managed or evaluated on an ongoing basis and may give some significant inexpensive improvement in picking and distribution efficiencies.”

Develop a business case

Beth Riggio, Director, Solutions Management, Swisslog Healthcare, acknowledges that “severely budget-constrained” seems to be a mantra for many hospitals. “[That’s] why it is important for hospitals to be able to articulate the value of any technology they are evaluating and partner with finance to develop a full business case,” she recommended. “When considering investment in software or automation through material handling systems, these hard-and-fast requirements are challenging to meet with projected labor savings alone. Other, less-obvious savings often need to be quantified to drive estimated returns high enough to gain approval.”

Riggio lists eight quantitatively verifiable opportunities for savings through software and automated material handling systems that are often over-looked when developing a business case analysis:

  • Reduction in outside or overflow storage at individual hospital sites, as well as the associated loading, unloading and handling labor; more efficient use of existing warehouse space also enables hospital space to be re-purposed for revenue-generating, patient-care activities
  • Reduction in opportunities for human error by improving picking accuracy; shorter turnaround-times speed up time to diagnosis and treatment
  • Enhanced purchasing savings through efficient handling of low unit of measure (LUM) items
  • Risk reduction via compliance with regulatory agency requirements for recall or information-tracking initiatives, such as the Drug Supply Chain Security Act (DSCSA)
  • Decrease in overall inventory and related carrying costs; with more efficient processes and improved  inventory control, it may be possible to reduce safety stock levels, improve inventory turns and reduce the amount of supplies stored on hand
  • Reduction in waste due to expiration of supplies, devices or medication as a result of improved inventory management and tracking
  • Improvement in workforce retention and satisfaction through the addition of goods-to-person technology, shortening new staff training and reducing manual labor
  • Reduction in clinical staff time spent on supply management

“Many of these ancillary benefits require support from management and staff outside the supply chain organization,” she noted. “Through involvement of these non-operations experts and inclusion of their input into benefits calculations, the buy-in for the initiative begins to spread through other areas of the health system. Of particular benefit is the involvement of finance and accounting team members and their consensus on calculations.”

Even if a business case only yields permission for one piece of technology, Riggio advocates for a focus on inventory management – “specifically a tool that enables you to see across facilities and enable transfer of inventory,” she said. “This helps facilities minimize waste due to expiration as well as avoid over-ordering by sharing stock from other locations. In addition, this can be a window into compliance around standardization initiatives, providing another data point for value analysis teams reviewing current item utilization.”

The size and scope of the healthcare organization and its storeroom/warehouse will influence the choice of technology in which to invest, according to Jim Richardson, Portfolio Executive, Senior Consultant, Vizient Inc. Some tech solutions may require more capital investment and others more space, but each could be financially justified given the right amount of throughput volume of orders, he added.

“In a smaller size storeroom (approximately 5,000-20,000 sq. ft.), many of the technological advances and tools are just not practical, not only because of their cost, but also because of the infrastructure requirements, both physical and systemic,” Richardson noted. “Instead, this hospital storeroom should take advantage of an efficient layout of pallet racks, static shelves, and possibly carton flow rack with conveyors to move items more quickly. Some technologies that might be used include radio frequency (RF) terminals with barcode scanners (for inventory management and paperless picking), pick-to-light, pick-to-voice systems or even horizontal or vertical conveyor systems. Each of these requires varying amounts of investment in the technology and physical equipment (which requires some space), but the payback is in the labor efficiencies. Order picking rates/hour can be improved up to tenfold utilizing these technologies. If the volume warrants and labor costs are high, the ROI could be very good.

“For a larger warehouse or distribution center (50,000-500,000 sq. ft.) serving multiple hospitals, the storage and order volumes could justify more investment in technology,” Richardson continued. “Some of the larger distribution centers could utilize warehouse management systems (WMS) to control inventory, and all warehouse operations. The ROI for these systems is inventory control and accuracy (resulting in fewer stock outs), increased labor efficiencies and improved cubic space utilization.”

Regardless of economics, automated vertical storage should not be overlooked, according to Amy Flynn, OR/CS Market Manager, Hänel Storage Systems.

“Even under budget constraints, automated vertical storage should still receive strong consideration,” Flynn recommended. “At face value, this may seem like a more expensive alternative, but the seemingly-high price tag is offset by the much greater cost associated with any sort of construction. Because of this, hospitals often experience a relatively fast return on their investment. It is not unheard of that an automated vertical storage unit pays for itself within two years.”

Flynn advises even the most cash-strapped organizations not to commit to “a legion of standard racks” for SPD storage because they have “several downsides” that offset their affordability.

“Racks provide notoriously poor organization, with many racks needing to be clustered together in an often-confined space,” Flynn said. “They are often made of lightweight metal that is cut and welded together, but this causes them to have sharp edges that can catch or tear at sterile packaging. Even though the racks are wheeled for mobility, improperly balanced items can fall in the process, causing poorly-stacked piles of supplies to slide into one another, or off the rack entirely.”

Further, as staffers rummage for supplies they lose any benefit from the “golden zone,” she added.

Carlo Malaguti, M.Arch, Senior Supply Chain Applications Specialist, Warehouse Design, TECSYS, cautions against getting hung up on tech at the expense of processes in general and the people who perform them.

No investment in technology replaces the need to put process first,” Malaguti noted. “In fact, studies show that business reengineering efforts often fail when it doesn’t factor in an organization’s people and culture. Once the people and processes have been defined, technology can then be applied to tasks to reduce or eliminate human intervention that doesn’t provide added value.” To read Malaguti’s list of useful tools, “But here’s what really happens based on resources…” below

Tessa Natterer, Director, Supplier Performance, PartsSource Inc., encourages reliance on a third-party vendor.

“We would recommend to buy and store what you need and decrease inventory and related warehouse costs,” she indicated. Natterer cited a children’s hospital that turned to PartsSource to serve as the facility’s warehouse, which helped his organization to decrease his inventory and retain only a small space in clinical engineering designated to what he most critically needed. 

About the Author

Rick Dana Barlow | Senior Editor

Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].