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Tefen Management Consulting

Health Care

Optimizing Healthcare Supply Management

Lean techniques and technology can reduce inventory and increase staff time with patients

Published: Tuesday, October 16, 2012 - 13:15

One of the many hidden challenges in hospital systems is to ensure required supplies are readily available and in the right quantity. Significant manpower is invested in material management so that patients receive care without interruption. An optimized supply system that uses modern technology and centralized distribution will help minimize costs and improve patient care.

When a person requires immediate care in the emergency room (ER), the medical staff often uses considerable supplies while attempting to diagnose the issue. These are pulled from cupboards, storage carts, and supply closets nearby. If the required item isn’t found where expected, commotion ensues. To avoid a repeat situation, staff replenishes supplies in higher quantities, and the extra inventory is “hidden” in certain places throughout the ER by individuals, without the general knowledge of others on the team.

Over time, inventory levels increase in these stockpiles, yet the supplies continue to be ordered and stored. Not only are the invisible supplies taking up valuable space, the items also may expire or be recalled. At the end of the year, inventory reconciliation reduces this stock to a certain amount, which consequently causes shortages later on, fueling the vicious cycle anew.

Challenges faced by clinics

Many hospitals try to maintain an internal “hub-and-spoke” supply model. This involves a central warehouse (the hub) for daily purchasing, goods receipt, storage, counting, and picking for delivery. The warehouse supplies multiple storage locations (spokes) of varying size and type (cupboard, cart, bin) for which random methods of refilling are employed. By eliminating these different “spokes” and replacing them with a supplier to point-of-use distribution model, we can enhance supply-chain efficiency. However, before this can be implemented, we need to understand the strengths and weaknesses of the current material management situation. Common issues include:

High spending with zero accountability and control. State-of-the-art inventory management systems that automate the inventory reconciliation and visibility process are scarce in the healthcare industry. The amount of work performed by hospital staff to maintain correct levels of inventory is monumental and often done using an archaic supply system.

Poor inventory visibility due to lack of data systems. It is nearly impossible to easily track product usage, and inventory levels are often much higher than actually needed, which creates a cost burden.

Manually driven processes. On-hand stock is usually controlled manually by the material management staff, which counts individual products and generates orders to keep stock  replenished for that day. Sufficient levels are therefore rough estimates consisting of a “best guess” or visual scans. To complete these activities on a daily basis requires a large labor force.

Lack of tools and standard work processes. If the patient flow increases and supplies are low, the quick fix is to call the storeroom and have the items delivered to where they are depleted. Because this occurs frequently and without warning, individual departments have developed their own contingency methods to mitigate inventory shortages. Acting as the “supplier” to these internal customers, the material management department has little or no visibility to validate the actual product usage. The result is a multitude of hidden processes that foster the growth of inventory and special handling procedures.

Tackling the challenges

The operational excellence methods used to discover the best inventory control system and distribution model within a hospital or healthcare network range from simple and inexpensive to complex and costly. Decisions in favor of any one approach require that the issue is tackled across the board by supply-chain and clinical leadership. Four elemental concepts and methods used in continuous improvement are: 5S, par-level balancing, consolidating storage locations, and automation and technology.

5S is a basic method of reducing waste and one of the fundamental principles of a lean environment and an effective material management system. The five S’s stand for:
Sort—The basic housekeeping step of sorting a work area or storeroom to remove all unnecessary items unrelated to the function of that area. For example, a medical supply room should have all the materials required to replenish the area(s) assigned to it. It does not need to stock printer cartridges or old IV pumps. These are considered “waste” for that specific area.
Set—Once all waste has been removed, the remaining items must be organized. “Setting” involves grouping supplies by type or amount of usage, and labeling or assigning a specific location for them. This step is considered complete only when the area has become self-explanatory—i.e., anyone should be able to enter the work area and understand what goes where.
Shine—Now that unnecessary items and materials have been removed, and everything has an identified and assigned location, it’s time to clean the area to establish the baseline expectation. This describes the basic layout that this area should maintain so that when something is out of place or an unrelated item comes into the area, it can be easily identified and removed.
Standardize—This step involves educating staff about the new work area and replicating this throughout a unit, department, or system.
Sustain—To maintain the benefits and efficiency created from an effectively designed work area, audits must be performed to ensure and enforce compliance with the baseline expectations.

Par-level balancing
Par-level balancing, or inventory level balancing, is the process of matching stock levels to actual demand. Instead of using gut-feeling logic to determine the right amount of supplies, par-level balancing uses actual consumption data. These data should be collected for at least 12 months to visualize any seasonal or cyclical patterns. The process of setting par levels should be a cross-functional effort between material management and clinical staff, and should consider lead times, usage unit-of-measure, and service-level expectations.

Consolidating storage locations
5S often reveals multiple storage locations for the same item. If the right par level at the correct location is to be achieved, the cause for multiple storage locations must be determined. An accurate list of inventory locations, clearly documented unit needs, and convenient replenishment times (e.g., stocking without interrupting regular operations) is paramount when consolidating storage locations.

On the other hand, eliminating multiple stores should never put a strain on particular areas of care. First and foremost, we need to understand product usage throughout the care facility. Consumption velocities and quantities must be defined for all areas to ensure that we are reflecting patient needs and not just staff behavior.

Automation and technology
Leveraging technology to automate material management activities not only provides inventory and data visibility but also promotes far-reaching changes to the whole supply chain system, with great potential for future benefits and efficiency improvement.


Define the technology

There are several technology solutions available for monitoring and controlling inventory. The hospital infrastructure, both data and logistics, will weigh heavily in the choice of which solution to pursue. Another key decision point is how the specific technology will interface with the current ERP and billing systems.

RFID (radio-frequency identification)
Uses a tag applied to each product and an extensive monitoring system to track the movement and consumption of supplies. The main benefit of this system is that it is hands-free and requires no human intervention throughout the product usage life cycle. A major drawback is that the RF tags add an additional cost to each of the products, and the capital requirements for the system infrastructure are substantial.

Uses an applied bar code, defined by the system, to track and monitor product usage. Although the cost to implement is cheaper than the RFID system, this approach relies on human input, i.e., the activity of scanning each item as it is picked, replenished, or consumed. This typically places responsibility on the clinical staff.

ARS or automated requisition systems
This system uses bins and scales to determine how much of a product is in a specific location and automatically increments/decrements the ERP system as the product is moved. No human interaction is needed (unless for billable products) because the scales are programmed with each product’s weight. This system is comparatively inexpensive, similar to bar codes, and changes can be made quickly. However, it does require human monitoring and product accuracy. For example, if a 2 x 2 gauze pad is placed in the 4 x 4 bin, the system will only recognize the weight and not the product type.

ADM (auto dispensing machine)
Cabinets similar to Pyxis systems offer more security than other systems, but are a high-cost solution with limited storage space.

A concept related to lean and just-in-time (JIT) production, where a signal triggers a pull system action. Typically, paper or stock cards are used as the signal when an item is needed. As a bin becomes empty, this card becomes visible and is taken by a material handler and used as the order for that specific location and item. Unfortunately, there is significant manual resource needs to ensure cards are correct, updated, and are replaced if lost.

All these solutions can interface with ERP systems to provide inventory data and visibility throughout a hospital. Apart from the wealth of knowledge available from data visibility, the main benefit is eliminating the need for material management and clinical staff to track and manage inventory; this is now performed autonomously in real time.

The benefits of change

Applying the above methods as part of a holistic supply-chain program will generate far-reaching benefits. Ensuring that hospital staff has what it needs, in the quantities it needs, when and where it needs it enhances care and patient access while lowering costs. This process abolishes variability and creates standardization, which in turn increases staff and patient satisfaction while eliminating the daily chaos of nonvalue-added activities, such as supply searches. Staff can spend more face time with patients, which boosts patient satisfaction, and enables nurses to spend more time on patient-specific activities like charting and discharge coordination, which ultimately reduces a patient’s level of service. In conjunction, par level balancing and automation technology provide greater control over inventory use and money spent by enhancing the visibility of usage and reducing on-hand product levels without jeopardizing quality of care standards.

Visibility and control of hospital materials open the door for more opportunities further along the supply chain. Leveraging a centralized distribution system can minimize the amount of warehousing activities taking place within a hospital. Point-of-use deliveries to the hospital dock can be made instead of sorting and picking from the hospital warehouse. It is possible to achieve total supply-chain automation at hospitals by eliminating counting and picking.


About The Author

Tefen Management Consulting’s picture

Tefen Management Consulting

Tefen, an international management consulting firm, designs and implements strategies and solutions for contiuous growth and sustainable performance excellence. Utilizing lean, Six Sigma, and simulation tools, Tefen focuses on increased sales, higher productivity, reduced operational costs, and optimized business processes. Founded in 1982, Tefen’s headquarters are in Tel Aviv, Israel, with the U.S. headquarters in New York.


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healthcare supply mgmt

There's a basic flaw in the whole concept, that is, that correction overtakes prevention. A truly effective healthcare supply management system should PREVENT people getting ill; when they are hospitalized it's an after-event matter, it's too late. Why is that? We are all obsessed with before-event fail-safeing philosophies, but still talk so much of after-event "healthcare supply management". Let's be consistent and coherent, once for all. Thank you.