Inventory Control vs. Inventory Management: An Important Distinction

June 25, 2024

The healthcare supply chain has started embracing advanced digital inventory management systems, especially in the perioperative and procedural areas, where manual processes and workarounds are becoming costly endeavors. While automation is looming on the horizon—with AI solutions promising complete information transparency, including everything from end-to-end inventory management and real-time demand planning—a comprehensive solution isn’t simple to implement. Procedural areas are much more complex than standard linear supply chain methodologies, and they require a dynamic approach to solve the entire workflow problem. 

Linear solutions solve one problem while creating another: Inventory management systems allow hospitals to check products in and out and thus manage their inventories, but they do not enable the healthcare supply systems to conduct inventory control to identify expired or recalled products that are still on the shelves. Hospitals that rely solely on inventory management systems face risk in terms of patient safety, under-utilization, and over-spending.

The limitations of inventory management

Most large hospitals have an inventory management system, and many now are moving toward enterprise resource planning (ERP) platforms to integrate entire healthcare systems. These supply chain systems are being integrated to ensure the facilities have the supplies they need based on demand, consumption schedule, and supply costs. While time-consuming to implement and very expensive, these inventory management solutions present a relevant and valuable tool for managing supplies. 

However, while inventory management systems are a key tool in the hospital’s purchasing structure and practice, inventory management alone falls short of eliminating waste and ensuring access to safe pharmaceuticals, devices, and instruments. Challenges include the following:

  • Inventory management systems do not allow the hospital to identify areas of excessive buying due to, for example, physician preference changes, over-aggressive PAR levels, or trunk stock coming in from sales representatives.
  • Inventory management systems do not “look into supply rooms” to identify supplies that have “fallen through the cracks” or are squirreled away in secret stash locations or in specialty carts. And make no mistake—there is a lot of this happening in the average hospital supply room.
  • A lot of information is left out of inventory management systems, some of which is critical to the proper and safe use of medical supplies: Product expiration dates, lot numbers, and recall notifications are not included in data processed and stored by the typical inventory management system. 

These gaps left by inventory management systems are severe and costly to the bottom line, to the point that they could be driving the facility to operate in the red. Hospitals have significant amounts of expired products on their shelves, and an inventory control audit will identify these, as well as worrisome amounts of recalled products and a LOT of excess inventory that can be transferred to other network facilities, returned back to the manufacturer, or sold in markets for surplus devices, etc. 

In short, hospital inventory management (“I know what I log in and what I log out”) does not mean “I know what I have and what I can use.” This probably sounds odd to someone not familiar with healthcare purchasing, but wastefulness and risk associated with hospital supplies are substantial. 

Moving from management to control

So how do you conduct inventory control to supplement your inventory management system to reduce risk and financial waste? In most hospitals, the solution is manual counts, during which clinical or material staff work with pen and paper to register items in supply rooms. This method is inherently inaccurate, costs the hospitals lots of money in labor, and does not capture key pieces of data, such as recalls, expiration dates, etc. In short, this form of inventory control may capture on-hand inventory variances, but it does not constitute data registration that allows for corrective actions or proactive directives to drive safer and less wasteful outcomes.

Fortunately, there are now digital tools available for inventory control. Medical devices must be equipped with a Unique Device Identifier (UDI) that contains information about lot number and expiration date, for instance.. These identifiers unlock the potential for significant advances in inventory control.

In an inventory control audit recently conducted at a Southwest U.S. healthcare system, hospital staff registered 60,000 items across three sites in just six days, using UDI scanning. Each scan of a UDI barcode registers the item and vital product information, such as batch and lot numbers, expiration dates, GTIN number, and other significant data. 

During this audit, 1,112 expired items were identified, and 369 recalled items were removed from supply rooms. The 369 recalled products were linked to 17 recalls. Over half of these recalls were urgent product removals, and 23 percent involved implantable products, representing significant patient risk. Most of these recalls were initiated more than six months prior to the inventory scan date, with two recalls dating back over two years. Excluding outliers, patients were at risk for an average of 8.2 months.

For the identified recalled products, patient risk was effectively mitigated, and the health system received $107,000 in credits from product manufacturers. Additionally, $413,768 worth of devices with short shelf life were transferred to other facilities within the system where the devices were in demand. Finally, $401,000 worth of supplies were identified as no-move items that could be removed from PAR locations.

These numbers are staggering and paint a picture of the massive amounts of waste hospital systems create—even hospitals that are otherwise efficiently run. It also points to the risk of inventories that are not regularly controlled for the presence of expired and recalled items—items that might end up implanted in patients.

Findings from facilities with inventory management systems show the magnitude of the problem: There is a need for systems to be supplemented by manual or low-tech inventory control systems that can: 

  1. Identify expired/recalled products and direct staff to exactly where they are located on the shelf
  2. Provide insights for hospitals to change their PAR levels and stop auto replenishment ordering on slow- and low-use products
  3. Identify products that should be returned to the manufacturer
  4. Identify products that can be transferred within the health system network to areas of greater demand 

An inventory management system needs to be complemented by inventory controls that capture expired and recalled products (inventory safety) and excess inventory that is simply aging on the shelves (inventory currency). An inventory control system adds to the hospital’s inventory management efforts to reduce risk and free financial resources that can be applied toward patient care improvement initiatives.

About the Author

Ashlea Souffrou

Ashlea Souffrou is a highly experienced medical device industry veteran with a passion for developing sustainable and cost-effective healthcare solutions. As the founder and CEO of SxanPro, she has successfully digitized inventory processes throughout the hospital supply chain. Souffrou is a certified materials and resource professional, an active member of the Association for Healthcare Resource and Materials Management, and a UDI implementation expert for the industry-leading podcast, Power Supply. She holds two patents for her mobile application technology that extracts product data from medical devices.

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