Hospital Supply Chain Management

Supply Chain 1

I Care Healthcare Supply Chain Management

By

Jeffrey S. Moser

Operations Management MGT 554

Professor Stephen Wernick

October 12, 2004

Supply Chain 2

Supply Chain Management plays a vital role in our hospitals today. With the growing cost of healthcare and new technologies, it is vital for hospitals to run as efficiently as possible and without jeopardizing care. To the materials manager and to the financial minds of a hospital the area of supply chain is a tedius task at best, the kind of planning, strategizing and measuring that seldom goes recognized and rewarded. The work involved with inventory control fits tightly within that description.

In many hospitals today, it is easy for inventory control to go astray and become uncontrolable. This is the case with I Care Healthcare System. Too many people with too much access to too much product procurement are controlling

supplies and equipment coming into the facility without any regulation or little oversight. While the blame for over-ordering is frequently pointed at nursing staff, famous for squirreling away unseen, already paid-for stocks of goods, they are not the only offenders. More accurately, when it comes to inventory, it's the system that fails a hospital, not its people, over what is essentially an asset management issue.

Currently I Care Healthcare System uses a mainframe that was develped internally with an outdated materials management system that allows you to generate purchase orders, but is lacking in running reports that track the usage. This is not uncommon in the hospital materials management environment. The process I mainly manual where requisitions are generated from the department, sent to purchasing, a purchase order is then generated and is faxed or called in to the manufacturer or Med/Surg distributor. Although the distributor has the ability to run reports for I Care and does so periodically, the hospital system is so antiquated it makes it difficult to

Supply Chain 3

confirm orders and quantities ordered on particular P.O.'s. In fact much of the time is spent making sure that the packaging and pricing are correct in the hospital system vs. the distributors system. The other issue is that many of the high ticket items (Orthopedic implant, Cardiology and Cath Lab products) do not go through the distributor and in most cases are on consignment, where it is easy to use the product and be billed for it later totally losing any control over the inventory.

Many hospitals today have upgraded to accounting, materials management systems and storage solutions, such a Lawson, Smart Stream, Par Excellence, Pixis etc., that allow easier tracking of purchases and usage. However, these systems are very expensive and in most cases still going through growing pains, they are also cost prohibitive to many hospitals around the country. For example, Lawson was traditionally an accounting and finance tool that is trying to build a platform to connect with the materials environment and although they have been somewhat successful, it is very combersome and there are continuing issues with running reports. It is also very expensive and there is a charge for connecting to each manufacturer. Pixis on the otherhand is a fairly simple system that tracks very well the usage of products being stocked in the cabinet system, but you are restricted with drawer space as to what you can stock. Also, Pixis is more of a storage and tracking solution rather than an overall materials management solution. Eventually the healthcare industry is hopeful that there will be a barcoding solution in the future that will eleviate many of the issues facing them today. Many hospital pharmacies are already using such a system, and it is also being used in patient care to track patients from the moment the enter the hospital until they are released. However, in the Medical area it is a little more difficult, where every drug has

Supply Chain 4

an NDC number attached, that is not the case with medical products and there is little regulation for disposable products (tape, gauze, electrodes etc.), not to mention numerious manufacturers for many of these types of items. Until that time comes, if ever, there needs to be another solution.

There is no quick fix, but I will start with a list of criteria that will help us better control I Cares inventory, understand what is being spent, where it is being spent and areas where we can cut costs on supplys, which according to ASCET (Achieving Supply Chain Excellence through Technology) makes up between 25 and 30% of a hospitals operating costs.

1. Understand your spend. Knowing exactly what you are keeping in inventory, where it comes from, and how it's received, handled and stored is critical to inventory reduction efforts. There are many programs that can gather and track this data, but technology is an enabler -- not a solution. There must still be business processes in place to analyze this data to make it worthwhile.

2. Rationalize SKUs. This requires data about what SKUs are being used, by whom, and for what. This is the biggest challenge, but armed with this information, you'll be able to impact inventory levels, SKU proliferation, leverage substitutes and alternates -- or even the need to stock certain materials at all.

3. Leverage key strategic partners/distributors for information and just-in-time services which will substitute inventory stockpiles. This means you get only what you need. And, should you need more of a product on occasion, you know exactly where to find it. This

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is vital in the area of consignment where there is no control of what is being used and by whom.

4. Look to your transportation network for "transportation vs. stocking" trade-offs. Strategically locate centers both domestically and globally to service the network in a most cost effective way. While "transportation" is not a line item on your bill, it does impact overall supply costs.

5. Re-examine how -- and from whom -- product is sourced. With all the changes in the industry including the role of GPOs, disintermediation, etc., it's time to reassess these issues -- using a total cost of ownership approach that considers