TOP 10: Myths about hospital inventory management debunked

Jump Technologies®, an innovative provider of cloud-based inventory management solutions for hospitals and health care organizations, recently took on the challenge of debunking the myths that drive inefficient and wasteful inventory management processes, where there is an estimated $60 billion savings opportunity for the U.S. health care industry.(1)

“As hospitals feel increasing pressure to reduce costs, drive quality and improve outcomes, addressing inventory management is imperative,” said John Freund, CEO, Jump Technologies, Inc. “Technology presents both a challenge and an opportunity.

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“Hospitals struggle with systems that weren’t designed for health care and specifically, weren’t designed to support functions like inventory management. With Chief Financial Officers (CFOs) as the primary decision-makers of these large investments, Enterprise Resource Planning (ERP) system providers focus on improvement of financial and human resource functionality.

“Development of advanced supply chain technology has not been a key focus, because the functionality in these models isn’t likely to cause them to lose new business. But there are new options to consider.”

Myth 1: Supply chain is one of the biggest problems in hospitals.

Reality: The problem isn’t supply chain; it’s inventory management. With the majority of hospitals outsourcing supply chain functions to distributors (HIDA, the Health Industry Distributors Association estimates that 100 percent of U.S. hospitals use distributors in some capacity), hospitals typically receive the supplies they need within 24 hours or less.

With the ability to quickly receive new supplies to virtually any location, hospitals aren’t suffering from supply chain problems, but they do have inventory management issues. As a result of poor technology and processes, hospitals struggle with overstocking, stock-outs, high supply costs, high labor costs and dissatisfied clinical staff.

Meanwhile, hospitals that have overcome problems associated with current inventory management systems and processes have reduced the cost of supplies(3) and labor, while increasing nursing satisfaction.(4)

Myth 2: My ERP system does everything I need.

Reality: ERP systems excel at meeting the needs of manufacturers, and today, hospital CFOs purchase ERP systems for financial and human resource functionality. Hospital supply chain managers are expected to adopt the supply chain module offered with the system, yet these modules can be difficult to use, create workflows that are labor-intensive and expensive, and can actually drive up the supply chain costs.

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These modules often carry a price tag of hundreds of thousands of dollars and can take six to 12 months or longer to implement. Solutions designed for inventory management deliver greater efficiency more quickly. Using cloud-based technology, today’s nimble inventory management solutions can be implemented in as little as a week, require no extensive hardware investments, reduce impact on IT resources, and can deliver immediate savings through both supply costs and labor.

Myth 3: There’s no way to “see” inventory that’s stored all over my hospital.

Reality: This may seem true in hospitals, yet examples of being able to see inventory anywhere in a system exist throughout retail. While hospital legacy ERP systems have not made the investments in the mobile- and cloud-based technology to provide users with total visibility into their on-hand inventory, labor savings could quickly be achieved by giving clinicians the ability to find inventory in the hospital by using an iPod Touch, just like the customer representatives in a Lowes or Apple store.

Myth 4: My reporting tools give me everything I need to know about our inventory.

Reality: While data exists, it can be difficult to access and then, even more difficult to use for decision-making. Many current hospital systems provide reports, without providing recommendations for what action to take. To improve smart and accurate decision making, hospitals should identify an inventory management solution offering a rules-based recommendation engine, allowing a user to input variables into a report and receive recommendations for actions based on the data.

An example of basic reporting and recommendation functionality: enter a time period for velocity, an inventory ordering method, and the desired days of supply and safety stock into an item velocity report. A smart system will recommend new PAR level settings, and allow a user to reset PAR level for one or more products quickly and easily.

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Myth 5: I need to manage every item used in my hospital the same way.

Reality: Lean processes recommend elimination of “touches” and waste. Sixty years ago, automobile manufacturer Toyota implemented a supply management process called Kanban to manage high frequency consumable items used in manufacturing.

Since that time, Kanban (now also known as two-bin) systems have been proven by lean manufacturing processes to cost-effectively manage lower-cost, high-velocity supplies. Today, it’s estimated that while 75-80 percent of items used by a hospital cost less than $20 each, thousands of dollars are spent capturing consumption of those items, either for patient billing purposes (with little reimbursement) or with the belief that a single process is most cost effective. Instead, the approach should fit the product and patient care required: using PAR, barcode scanning, cabinets and RFID-tracking systems all make sense for the 20-25 percent of the inventory that is either regulated or high value.

For low cost items, a two-bin approach provides visibility for supply management while reducing the labor costs of both clinicians and supply technicians.

Myth 6: We’re not overstocked.

Reality: Hospitals carry more inventory than needed toward the goal of preventing stock-outs; overstocking often takes place because there isn’t adequate visibility to supplies on hand. Nurses report spending as much as 20-30 percent of their time on supply-related tasks, with much of this spent locating products.

Overstocking happens as an attempt to help nurses have supplies they need, but there is an unintended consequence: overstocking costs more in both supply spend and labor to manage more items.

Myth 7: Stock-outs are a fact of life.

Reality: Stock-outs are recurring events with today’s inventory systems, but they can be easily eliminated. Stock-outs can occur because an organization lacks accurate velocity information about a product, but they are also caused when nurses remove supplies from inventory, in an attempt to eliminate stock-outs on their own.

The inventory problem is exacerbated when supply hoarding leads to waste, as items are overstocked and expire. Stock-outs drive maverick spending when staff places orders directly, without requisitioning through supply chain. Real-time visibility to products, how many items are on hand, where they’re located, and at what rate they’re consumed can eliminate stock-outs and avoid associated problems.

Myth 8: An inventory management system has to be expensive to work.

Reality: Historically, hospitals have been limited to expensive bolt-on modules from their ERP system vendors or cabinet-based systems. These approaches require significant investments, including both financial and IT resources. Emerging solutions leverage cloud- and mobile-based technology to implement inventory management solutions quickly—in as little as a week in some cases—without making large investments in hardware, while reducing the impact on internal IT resources.

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Myth 9: We don’t really need mobile devices in our organization.

Reality: Mobile device adoption is growing quickly, with both business and clinical applications. What users are finding most convenient is the ability to use a single device for multiple applications, so today’s nurses might be updating a patient record, checking for a drug interaction, while removing an item from inventory, using a single device loaded with multiple applications, all in a very simple, automated manner.

Myth 10: Cloud-solutions won’t work for what I need.

Reality: Hospital ERP managers often find their system one or more release levels behind because the cost to upgrade is prohibitive. Implementing cloud-based solutions puts the cost of maintaining servers and system upgrades on the solution provider. Using a cloud-based provider ensures hospitals can take advantage of new cost saving features in their inventory management solutions, as soon as they become available. And, supply data is well-suited for cloud solutions as it contains minimal if any HIPAA sensitive data.

“Hospitals have made significant investments in inventory management and still haven’t gotten the results they need. Why? Because these systems aren’t focused on solving the inventory problem. An ERP system can deliver exactly what finance needs, but leaves supply chain leaders still in need of visibility to the products used within their hospital organization. As we strive to ‘see’ all the way to end of the supply chain, we need inventory solutions that are easy to implement, low cost with strong ROI, and easy for staff members to use,” says Freund. “At JumpTech, we’re building cloud-based solutions and using mobile devices to deliver simpler ways to solve hospital’s inventory management problems.”

References:

(1) 2014. Charles Poirier, Author, Diagnosing Greatness: Ten Traits of the Best Supply Chains.

(2) Health Industry Distributors Association, 2014.

(3) Agnesian Healthcare reduced both inventory levels and dollars. At a specific ER location, they realized a 35 percent reduction in units to PAR, which translated into a 34 percent reduction in spending.

(4) Hershey Penn State Medical Center Emergency Department experienced a 10 percent satisfaction rate among nurses using a cabinet-based system. After moving to a 2Bin approach, the same nurses expressed a 92 percent satisfaction rate. 

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